IslamicFinance.de

Ensuring the provision of financial services to the poor can address the challenge of poverty alleviation. A large portion of the poor population, however, is excluded from formal financial services. Although access to Islamic microfinance is critical to growth and prosperity in many countries it is provided only by a small number of providers covering less than 1% of the total microfinance outreach. Sustainability of Islamic microfinance institutions (MFIs) is also an emerging challenge. Moreover, Islamic MFIs tend to predominantly use murabaha (cost-plus credit sale) and qard hassan (interest free loans). These products have implications related to sustainability and outreach of MFIs as the cost can be higher in the former and the latter does not generate any return. Innovative solutions are needed to develop more comprehensive and efficient instruments which build on sustainable business models and product diversity.

In an effort to foster hope and stability among Yemen’s por, Al-Amal Microfinance Bank is working to introduce a range of Sharia-compliant microfinance products aimed at reaching the unbanked. However, demand for Islamic financial products can far exceed the capacity of existing microfinance institutions to provide them. That’s why institutions like Al-Amal are often forced to limit their suite of Sharia-compliant products to one or more products that are relatively simple to administer and offer a clear return. In Al-Amal’s case, the signature Islamic product is murabaha. The mark-up ranges between 14.5% (for purchases more than $5,000) and 24% (for purchases below $5,000). Further development of Al-Amal’s murabaha offering and the introduction of other Sharia-compliant products, will hinge on the bank’s ability to reach Yemen’s rural poor, who represent some 80 percent of the country’s population

Islamic microfinance is rapidly gaining acceptance in Muslim and non-Muslim countries due to its success in poverty eradication. According to Muhammad Zubair Mughal, Chief Executive Officer of Pakistan’s AlHuda Centre of Islamic Banking and Economics (CIBE), the Islamic microfinance market has reached USD 1 billion. More than 300 Islamic microfinance institutions are offering their services to 1.6 million clients in almost 32 countries, he added. There is research needed so that new Islamic microfinance products can be introduced. At present, Murabaha alone has 80 percent share of total Islamic microfinance market.

The report “State of Social Performance in Nepal” from the US-based Microfinance Information Exchange (MIX) examines the social performance (SP) of microfinance institutions (MFIs) in Nepal. The report notes that the biggest SP management challenge facing the 37 Nepali MFIs is that of tracking outcomes related to institutions’ development goals. The report “Trends in Sharia-Compliant Financial Inclusion” presents an analysis of recent advancements in Sharia-compliant financial inclusion as well as challenges inhibiting its further expansion. Finding sustainable Islamic models could be the key to providing financial access to millions of poor Muslims. In the report “Private Sector Development Solutions – Jobs”, the International Finance Corporation (IFC) argues that good jobs provide a clear pathway out of poverty. Because 60 percent of the developing world’s current jobs are in micro-, small and medium-sized enterprises, the authors highlight the need for enhanced access to finance to allow for more investment and growth.

Ethica Institute of Islamic Finance in Dubai interviewed Pakistan-based Akhuwat, a microfinance program that has given loans to over 1 million people, without charging interest. Akhuwat-founder Dr. Muhammad Amjad Saqib explained that they rely on 4 core principles: giving up interest, volunteerism, localization, and empowerment. Akhuwat started a decade ago with a $100 loan, and until now has dispersed $30 million. 99.8% of the loans were paid back in full. Dr. Saqib said that financial institutions began their activities on the basis of doubt, but they started their activities on the basis of trust.

An estimated 1.28 million clients around the world use Sharia-compliant microfinance services, a four-fold increase since 2006. The number of providers offering these products has doubled since 2006. Ninety-two percent of Sharia-compliant loans are concentrated in East Asia/the Pacific and Middle East/North Africa regions. Indonesia is home to the largest outstanding portfolio at $347 million. Despite this growth, the sector is limited in terms of the number of service providers, product offerings, and overall outreach. Experts say the most important factor is to drive down costs so that clients don’t have to choose between their religion and their wallet.

Technical report for free download regarding the Agricultural Development Fund (ADF), the first lender to the agricultural sector in Afghanistan in over 25 years, which was initially designed to be a wholesale lender utilizing existing financial institutions as conduits to reach farmers.

While the original design did not emphasize on the provision of Islamic financial products, there was the implicit assumption that with the help of technical assistance and grants some financial intermediaries would do so.

The central bank of Djibouti develops a regulation for Islamic microfinance as it is seen as a strategic tool to fight poverty. The Agence Djiboutienne de Développement Social (ADDS) aims to establish a widespread network for Islamic microfinance.

According to a recent report, the African Charitable Society for Mother and Child Care has signed an agreement which allows access to USD 100,000 from the Islamic Solidarity Fund. The Palestinian fund serves the purpose of elevating the living standard of Muslim people around the world. The money will be used for the establishment of 225 microfinance projects which will support widows and poor women in the outskirts of the capital city of Khartoum. No information is available on whether the financial help is a loan or a grant.

The Global Islamic Microfinance Forum in the UAE united MFI’s of 27 Countries to elaborate on the development of Islamic Microfinance. The event was marked by unanimity on the decision to work together for the advancement of Islamic Microfinance globally. The Forum took place on 8th-10th December 2012, in Dubai World Trade Centre, UAE. Among the delegates there were experts from countries such as UAE, Pakistan, India, UK, Bangladesh, USA, UK Bahrain, Yemen, Azerbaijan, Turkmenistan, Kirghizstan, Mauritius, Kenya, Canada, France, Egypt, Philippine, Uganda, Iraq, Nigeria, and Sudan. Key topics included bringing together the Islamic Microfinance Institutions on a single platform as well as the role of Islamic Microfinance in poverty alleviation. Furthermore, Shariah and related issues of Islamic Microfinance Institutions and their solutions were discussed.

WAFAA - a non-profit organization - provides Shari`ah-compliant loans for low-income entrepreneurs in order to enable a better life. Co-founder and Managing Partner of WAFAA - Hammam Khaled - explains that Wafaa is an online micro-financing platform. The role of the company and the platform is to act as a middleman between entrepreneurs and individuals interested in lending. The platform has been running since 2010.

Dear Reader,

Islamic finance had another great year. Many of its market segments progressed, like for example the Sukuk market gaining more maturity. Despite the ongoing debt crisis a good sign of hope and happiness.

Nevertheless we are - as an industry - still not satisfied with the achievements. Islamic finance shall grow stronger in terms of social impact and in terms of substance:

Hence, please allow me to re-iterate my call for participating in international initiatives beyond just our own industry to learn and spread knowledge and experience:

Calling Islamic financial institutions to become member of the United Nations Finance Initiative
http://www.islamicfinance.de/?q=node/811

Inshallah we see more Islamic financial institutions taking a lead in SRI, Social Impact Investing and other approaches while contributing with Islamic finance knowdledge to the conventional industry. The time is now; and there are signs that Malaysia aims for a lead:
http://www.islamicfinance.de/?q=node/4151

Islamic microfinance can bring people above the poverty line as well as enable self-reliance through a regular source of income. According to Muhammad Zubair Mughal, CEO of AlHuda Centre of Islamic Banking and Economics, adopting Islammmic microfinance can rid Muslim countries of poverty. Non-Muslim countries, however, are currently the leaders in this area. The Centre of Excellence on Islamic Microfinance will start operations simultaneously through its partners offices in other countries in order to contribute to the elimination of poverty through Islamic microfinance.

A key business demographic in the Middle East are family businesses. However, various factors like increased competition, a global economy that is going through turmoil, reduced or more expensive credit facilities, the call for greater transparency and, in some countries, greater regulation have caused family businesses serious difficulties. The latter are not able to change these factors, which are mostly beyond their control. What they can do, on the other hand, is to improve their corporate governance. Generally, corporate governance is defined as structures, policies, plans and regulations which determine the way the management of an entity will function.

Dear Reader,

The issue of debt vs. equity is now going to be increasingly recognised - in microfinance - as I found out today on the cfi blog:

"Debt to Equity. The demand for equity and subordinated debt is huge and continuing to grow, mainly coming from mature MFIs. More MIVs are moving away from debt toward equity, being driven in part by a desire to be more involved in governance, to play a larger role in risk management, and because the regulators are requiring more capital. Also, fund investors increasingly want to know how much of a fund’s return is coming from debt versus equity. Some of the larger DFIs need to disburse large amount of funds, so they have to make debt investments, leaving an unmet demand for equity."

http://cfi-blog.org/2012/11/19/microfinances-new-normal/

An important food for thought beyond microfinance itself in my opinion.

Best regards,

Michael Saleh Gassner

Dear Reader,

The German language book on Islamic finance by the Editor of IslamicFinance.de and Dr Wackerbeck from Booz Consultants is now translated to Chinese.

Please find the biographical information below:

Authors: Michael Gassner / Philipp Wackerbeck
Title: Islamic Finance – Islam-gerechte Finanzanlagen und
Finanzierungen
ISBN number: 978-7-5139-0217-5
PUBLISHER: Beijing - Democracy and Construction Press
Pre-Publication Date: 2012.7

Full biographical details: http://db.lib.bua.edu.cn/asord/asorditem.php?asord_marc_no=0001344540

Orders: http://www.amazon.cn/%E4%BC%8A%E6%96%AF%E5%85%B0%E9%87%91%E8%9E%8D-%E7%B...

Book review about the German language original: http://www.rpi-virtuell.net/workspace/24686AD5-936C-476D-9EA0-65E2968590...

Best regards,

Michael Gassner

Family businesses play a key role in the business scene of the Middle East and are intrinsic to the region's economy as well. According to the latest Deloitte ME Point of View publication however, challenges faced by today's family businesses grow in number. Ideas how they can be overcome are discussed in the publication. In the article titled 'Family Businesses: Addressing the challenges faced in today's environment' the competition of family businesses in a more turbulent environment is pointed out. The environment is marked by pluralistic social values, intensified competition, a global economy and rapidly changing politics and regulation.

IslamicFinance.de offers an overview about new job openings of October 2012 herewith - firms aiming to be included please send a job profile/hyperlink to newsdesk@islamicfinance.de - the full details of the advert has to be accessed by the hyperlink below the brief description:

Product Manager, Islamic Banking

Standard Chartered Bank - United Arab Emirates-SCB (United Arab Emirates)
Job Description
?Development of Islamic wealth products across CBMS, insurance and investment streams to create customer value proposition.
?Ensure successful implementation of the Islamic banking strategy across high value segment.
?Concentrated responsibility to work with the Priority/Wealth/Private/SME product/frontline teams and support functions to build on the current Islamic banking capabilities and to create seamless customer experience
?Act as a product specialist for RMs on client meetings to introduce and explain the Saadiq solutions to meet their needs
?Financial budgeting and business forecast. Evaluation of financial performance.

CEO of AlHuda Centre of Islamic Banking and Economics - Zubair Mughal - explained at an International Microfinance Conference in at an International Microfinance Conference that in the time of the global financial crisis even developed countries are making efforts to fight the global issue of poverty. The conference was organised by the Government of Indonesia together with the World Bank. 600 people took part in the conference, among them delegates and experts from 30 different countries. Some of the prominent participants were President of Indonesia Dr Susilo Bambang Yudhoyono, Noble Prize Winner Dr Muhammad Yunus, Director of Global Microcredit Summit Campaign Dr Larry Reed, and Mayada El. Zoghbhi from the World Bank.

Read more on: http://www.brecorder.com/money-a-banking/198/1253396/

Conventional microfinance has proven ineffective in alleviating poverty. Islamic finance is suggested as a better alternative. Relevant to the World Poverty Day, a seminar concerning the global issues of poverty and its solutions was held in Lahore. The event was organised by AlHuda Centre of Islamic Banking and Economics. Participants came from different financial areas such as Microfinance, Islamic Microfinance and the Banking sector. Leading topics of the seminar were issues related to poverty, current situation of poverty, socio-economic issues due to poverty and the strategies for the solution.

Read more on: http://www.cpifinancial.net/news/post/16341/islamic-microfinance-good-al...