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“Micro-Credit Financing and Poverty Alleviation in OIC Member States” 9-10 July, 2007, Istanbul Presentation by A. Slaoui Microfinance Specialist, Islamic.

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Presentation on theme: "“Micro-Credit Financing and Poverty Alleviation in OIC Member States” 9-10 July, 2007, Istanbul Presentation by A. Slaoui Microfinance Specialist, Islamic."— Presentation transcript:

1 “Micro-Credit Financing and Poverty Alleviation in OIC Member States” 9-10 July, 2007, Istanbul Presentation by A. Slaoui Microfinance Specialist, Islamic Development Bank IsDBMicrofinanceExperience

2 “Micro-Credit Financing and Poverty Alleviation in OIC Member States” 9-10 July, 2007, Istanbul Presentation by A. Slaoui Microfinance Specialist, Islamic Development Bank Comprehensive Human Development Nafs (Self) Maal (Wealth) Aqal (Knowledge)Nasl (Posterity) THE ISLAMIC VISION OF DEVELOPMENT Maqasid Al-Shariah Deen (Religion) Islamic Financial Services Industry Institutional Management of Wealth Security & Basic Needs PropertyHonourKnowledge Higher Education Science & Technology Education Capacity Building Nutrition & health Fiduciary Duty Sports Environmental preservation Means to an end Research & Development Moral Education Transparency Capacity Building GovernanceProtection JusticeValues

3 “Micro-Credit Financing and Poverty Alleviation in OIC Member States” 9-10 July, 2007, Istanbul Presentation by A. Slaoui Microfinance Specialist, Islamic Development Bank Significant resources potential for Islamic Microfinance Industry 1.More than 300 Islamic Financial Institutions 2.In over 65 countries 3.Managing assets of approximately US$ 1.0 trillion in Shariah compatible manner 4.More than 15% annual growth 5.Worldwide recognition

4 “Micro-Credit Financing and Poverty Alleviation in OIC Member States” 9-10 July, 2007, Istanbul Presentation by A. Slaoui Microfinance Specialist, Islamic Development Bank Need for an Islamic Microfinance Development Strategy  Over 3 billion people living on less than two dollars a day  Over 2/3 of world refugees are Muslims  Lowest Five among IDB member countries account for over half a billion (528 million) of the world’s poor (with incomes below $2 a day)  Lowest Ten account for over 600 million of the world’s poor  Among 500 million micro-entrepreneurs: currently Less than10%, i.e. 50 million, can access credit…  The informal sector represents over 60% of the active population of most developing countries  Over 7,000 Micro-Finance Institutions (MFIs) have difficulties to access the capital markets

5 “Micro-Credit Financing and Poverty Alleviation in OIC Member States” 9-10 July, 2007, Istanbul Presentation by A. Slaoui Microfinance Specialist, Islamic Development Bank IDB’s µFinance Current Strategy  Poverty alleviation thru provision of suitable and sustainable access to financing.  Capacity building  Nurturing entrepreneurship support at grass roots level  Introduction of Islamic financing modes

6 “Micro-Credit Financing and Poverty Alleviation in OIC Member States” 9-10 July, 2007, Istanbul Presentation by A. Slaoui Microfinance Specialist, Islamic Development Bank Main Features of IDB’s Current µ Finance Scheme Country eligibility: Low Income and LDMCs Mode of Financing: Loan – Service fee 0.75 to 2.5% Tenor: 25 to 30 years with 7 t0 10 grace period µ project investment: US$ 5,000 per project Maturity: 3-5 years Beneficiaries contribution: 10-20% of project cost

7 “Micro-Credit Financing and Poverty Alleviation in OIC Member States” 9-10 July, 2007, Istanbul Presentation by A. Slaoui Microfinance Specialist, Islamic Development Bank IDB Government Central Bank US$ account in commercial local bank Revolving fund + 65% of markup 35% of markup (operational cost of NGOs ) Financial Intermediary/NGO Micro-entrepreneurs (in local currency) External auditors Key: Physical transfer money Reporting to/instructing LDMC loan at 0.75% for 30 yrs incl 10 yrs grace US$ at max. 2.5% pa 24-30% pa (local currency) 20-22% pa (local currency) Max 5 yrs incl 2 yrs grace Repayment loan

8 “Micro-Credit Financing and Poverty Alleviation in OIC Member States” 9-10 July, 2007, Istanbul Presentation by A. Slaoui Microfinance Specialist, Islamic Development Bank IDB µFinance Operations IDB µFinance ACHIEVEMENTS AND IMPACT

9 “Micro-Credit Financing and Poverty Alleviation in OIC Member States” 9-10 July, 2007, Istanbul Presentation by A. Slaoui Microfinance Specialist, Islamic Development Bank Balance of The Poor’s Professional skills The poor request to start his assistance with a: Promotional Social Safety Interventions Package : (i)Literacy & Awareness, Counseling (ii)Vocational training & Skills upgrading,, career guidance, Management, (iii)Entrepreneurship & Business linkages promotion (Subcontracting, Franchising and Clusters and collaborative production networks), (iv)Community Development Basic skills, (v)Other Poverty alleviation interventions such as Grants to education, house extension

10 “Micro-Credit Financing and Poverty Alleviation in OIC Member States” 9-10 July, 2007, Istanbul Presentation by A. Slaoui Microfinance Specialist, Islamic Development Bank Counseling, Training Experiences Networking access to markets Balance of The Poor’s Professional skills Counseling, Training Experiences Networking access to markets The poor request mobilizing Package of Business Development Services

11 “Micro-Credit Financing and Poverty Alleviation in OIC Member States” 9-10 July, 2007, Istanbul Presentation by A. Slaoui Microfinance Specialist, Islamic Development Bank Counseling, Training Experiences Networking access to markets Business Incubators Services The poor request mobilizing Package of Business Development Services Balance of The Poor’s Professional skills

12 “Micro-Credit Financing and Poverty Alleviation in OIC Member States” 9-10 July, 2007, Istanbul Presentation by A. Slaoui Microfinance Specialist, Islamic Development Bank Counseling, Training Experiences Networking access to markets Business Incubators Services Upgrading services for BDSIs and MFIs The poor request mobilizing Package of Business Development Services Balance of The Poor’s Professional skills

13 “Micro-Credit Financing and Poverty Alleviation in OIC Member States” 9-10 July, 2007, Istanbul Presentation by A. Slaoui Microfinance Specialist, Islamic Development Bank Counseling, Training Experiences Networking access to markets Business Incubators Services Upgrading services for BDSIs and MFIs Designing innovative BDS & appropriate technologies Adapted to the Poor’ needs The poor request mobilizing Package of Business Development Services Balance of The Poor’s Professional skills

14 “Micro-Credit Financing and Poverty Alleviation in OIC Member States” 9-10 July, 2007, Istanbul Presentation by A. Slaoui Microfinance Specialist, Islamic Development Bank The poor request mobilizing Package of appropriate Financial Services VISION / STRATEGY / APPROACH Balance of Poor Self-Sufficiency Continuing on Skills Upgrading assistance

15 “Micro-Credit Financing and Poverty Alleviation in OIC Member States” 9-10 July, 2007, Istanbul Presentation by A. Slaoui Microfinance Specialist, Islamic Development Bank The poor request mobilizing Package of appropriate Financial Services Balance of Poor Self-Sufficiency Capital loans Micro-Grant Consumer loans Micro-Savings Micro-Housing loans Education loans Micro-Pensions Micro- Insurance VISION / STRATEGY / APPROACH

16 “Micro-Credit Financing and Poverty Alleviation in OIC Member States” 9-10 July, 2007, Istanbul Presentation by A. Slaoui Microfinance Specialist, Islamic Development Bank Role of Micro-grants in IDB Microfinance Operations To Rebuild livelihoods Replace lost assets Overcome social isolation Gain productive skills Graduate to economic self-sufficiency Helps groups: high-risk  In immediate Conflicts and Post conflicts environments  In severely disadvantaged rural areas  In intervention situation for the chronically destitute

17 “Micro-Credit Financing and Poverty Alleviation in OIC Member States” 9-10 July, 2007, Istanbul Presentation by A. Slaoui Microfinance Specialist, Islamic Development Bank Microfinance Projects Design and implementation mechanism  IDB may adapt Ready-to-Use Microfinance Frame work Package approach adopted CGAP consortium of donors.  More IDB involvement in early phase of Projects/Programs formulation  Investment in long-term programs in support of a few policy objectives rather than in short-term stand-alone projects FROM IDB µFINANCE EXPERIENCE

18 “Micro-Credit Financing and Poverty Alleviation in OIC Member States” 9-10 July, 2007, Istanbul Presentation by A. Slaoui Microfinance Specialist, Islamic Development Bank 18 IFS DEVELOPMENT PROGRAM : THE WAY FORWARD AwqafSadaqaZakat IDB Pov. All. Fund Corporate Donations Others Comprehensive Human Development Community ACommunity BCommunity C Individual 2 Individual 1 Individual 3 Individual 1 Individual 1 Individual 2 Individual 2 Individual 3 Individual 3 M I c r o f I n a n c e IFS Development Fund Other IFS

19 “Micro-Credit Financing and Poverty Alleviation in OIC Member States” 9-10 July, 2007, Istanbul Presentation by A. Slaoui Microfinance Specialist, Islamic Development Bank Understanding the Poor Rights & Needs Asset Building, Risk Mitigating Products Voluntary savings Health and life insurance Variety of Products Housing loans Education loans Life cycle products Flexible financing Products Small initial loan sizes Larger loans over time Longer terms No Collateral Special Services & treatment Respect, connection with pertinent stakeholders Rapid response, and access to services Group guarantee Promotional Social Safety Net Interventions Information, Counseling Training, skills upgrading Marketing Assistance Technology devmt, transfer Business linkages Zakat applicable Waqf applicable Zakat &Waqf applic ZA WA ZWA WA ZA ZWA Lessons to be learnt from IDB experience

20 “Micro-Credit Financing and Poverty Alleviation in OIC Member States” 9-10 July, 2007, Istanbul Presentation by A. Slaoui Microfinance Specialist, Islamic Development Bank Making Economic Policies & Growth Pro-poor Re-distributive policies (targeting the poor) Providing Social Safety Nets to poor & marginalized groups Addressing Social barriers & issues facing women in economic development Lessons to be learnt from IDB experience

21 “Micro-Credit Financing and Poverty Alleviation in OIC Member States” 9-10 July, 2007, Istanbul Presentation by A. Slaoui Microfinance Specialist, Islamic Development Bank Making Economic Policies & Growth Pro-poor Targeted programmes and projects to enable the poor to benefit from economic growth through : Labour intensive projects, Telecommunications, electricity, roads, infrastructure, Food security projects, post-conflict/reconstruction projects, Environment sustainability and renewable energy, micro-credit, cross-cutting projects, etc. Continued Lessons to be learnt from IDB experience

22 “Micro-Credit Financing and Poverty Alleviation in OIC Member States” 9-10 July, 2007, Istanbul Presentation by A. Slaoui Microfinance Specialist, Islamic Development Bank Income of USD10 million 5% return, would provide average loans of $100 to 5000 Poor “Zakat & Waqf Microfinance” efficiency Appropriate risk management Mechanism should be established to protect the Waqf from decay. Zakat, Takaful Funds may be the alternative,.90,000 benefeciaries would be covered if 90% of the Waqf used in microfinancing.

23 “Micro-Credit Financing and Poverty Alleviation in OIC Member States” 9-10 July, 2007, Istanbul Presentation by A. Slaoui Microfinance Specialist, Islamic Development Bank Promote Islamic Microfinance Houses (IMH) Objectives: to complement the Comprehensive Human Development model by providing access to integrated Islamic Microfinance financial services to the poor in our member countries The Microfinance Houses Development Programme would initially entail a pilot project in 5 member countries for creating and/or strengthening existing Microfinance institutions. Continued Lessons to be learnt from IDB experience

24 “Micro-Credit Financing and Poverty Alleviation in OIC Member States” 9-10 July, 2007, Istanbul Presentation by A. Slaoui Microfinance Specialist, Islamic Development Bank The IMH would also undertake other interventions which would strengthen the livelihood of the poor, such as; Investments in public infrastructure, including roads, communications and education which provide a foundation for self- employment activities. Community-level investments in commercial or productive infrastructure (such as market centers or small-scale irrigation infrastructure) to facilitate business activity. Continued Lessons to be learnt from IDB experience

25 “Micro-Credit Financing and Poverty Alleviation in OIC Member States” 9-10 July, 2007, Istanbul Presentation by A. Slaoui Microfinance Specialist, Islamic Development Bank Lessons to be learnt from IDB experience

26 “Micro-Credit Financing and Poverty Alleviation in OIC Member States” 9-10 July, 2007, Istanbul Presentation by A. Slaoui Microfinance Specialist, Islamic Development Bank  Rural (esp. agricultural) finance  Services like microinsurance, leasing, and remittances  Social performance measurement  Defining the lower limits of viable microfinance and  Employing other interventions, including grants  Replicable strategies for unlocking country-level capital markets for microfinance  Role of donors relative to international equity and loan funds  Cost-effective and sustainable ways to combine non-financial development services with financial services

27 “Micro-Credit Financing and Poverty Alleviation in OIC Member States” 9-10 July, 2007, Istanbul Presentation by A. Slaoui Microfinance Specialist, Islamic Development Bank  ISLAMIC FINANCIAL SECTOR DEVELOPMENT AND QWICK WINS MICROFINANCE INITIATIVES  IDB POVERTY ALLEVIATION FUND  THE ISLAMIC MICROFINANCE DEVELOPMENT FRAMEWORK

28 “Micro-Credit Financing and Poverty Alleviation in OIC Member States” 9-10 July, 2007, Istanbul Presentation by A. Slaoui Microfinance Specialist, Islamic Development Bank Model of an Ideal Islamic Bank A Universal Bank covering Commercial Banking Investment Banking Advisory Services Custodial Services Asset Management Zakat Management Awqaf Development Microfinance This bank should be a vehicle for equitable distribution of wealth.

29 “Micro-Credit Financing and Poverty Alleviation in OIC Member States” 9-10 July, 2007, Istanbul Presentation by A. Slaoui Microfinance Specialist, Islamic Development Bank IDB’s Role in Islamic Financial Sector Development Recent Initiatives 1. “Ten-Year Framework for Developing the IFSI”, Joint Initiative 2.Establishment of a Policy Dialogue Working Group 3.IFSI Development Technical support proposal 4.IFSI Development Program Previous Initiatives  Equity investments in IFIs  Establishment of eight infrastructure institutions  Research, training and technical assistance  Development of financial products/funds (UIF, IBP) and Awqaf sector

30 “Micro-Credit Financing and Poverty Alleviation in OIC Member States” 9-10 July, 2007, Istanbul Presentation by A. Slaoui Microfinance Specialist, Islamic Development Bank Macro Perspective: Policy & Regulatory Framework 1.Provide Supportive Legal, regulatory and tax framework 2.Ensure Macroeconomic Stability 3.Keep Inflation in Check 4.Curb Speculative Forces in Financial Markets 5.Integrate Awqaf and Zakah in National Policy 6.Support Civil Society Efforts

31 “Micro-Credit Financing and Poverty Alleviation in OIC Member States” 9-10 July, 2007, Istanbul Presentation by A. Slaoui Microfinance Specialist, Islamic Development Bank 1. Should there be Prudential Regulation for Non-deposit-taking MFIs? 2. Should Non-registered Entities be Prohibited from Lending? 3. How should Islamic MF be Separated from Conventional MF in a Dual System? Macro Perspective: Policy & Regulatory Framework Resolves the Unresolved Issues in Banking Sector Regulation and Supervision that Affect Microfinance

32 “Micro-Credit Financing and Poverty Alleviation in OIC Member States” 9-10 July, 2007, Istanbul Presentation by A. Slaoui Microfinance Specialist, Islamic Development Bank 1. Basic financial infrastructure, Range of services required to reduce transaction costs, increase outreach, build skills, and foster transparency 2.Payment Systems: Only large Islamic FIs have access to electronic payment systems 3.MFIs working for the poor may work through the larger Islamic FIs by forging alliances with them Meso Perspectives: Infrastructure, Networks, Technical Service Providers 4. Transparency and Information: High- quality auditors and rating agencies, credit bureaus, reliable information software - scarcely available to Islamic MFIs 5. Existing MF-specific Agencies expand scope to include Islamic MF; or Existing Agencies for Mainstream IFIs to absorb MF services 6. Proactive role of Donors in Development of Islamic MF Rating

33 “Micro-Credit Financing and Poverty Alleviation in OIC Member States” 9-10 July, 2007, Istanbul Presentation by A. Slaoui Microfinance Specialist, Islamic Development Bank Diverse Organizational Structures: Informal MF Providers, Member-Based Organizations, Non-Government Organizations, Formal Financial Institutions, Commercial Banks Micro Perspectives: Islamic Microfinance Providers Diversity should be given due recognition in regulation Need to Develop an Integrated Structure

34 “Micro-Credit Financing and Poverty Alleviation in OIC Member States” 9-10 July, 2007, Istanbul Presentation by A. Slaoui Microfinance Specialist, Islamic Development Bank Shariah Compliance Shariah Boards Fiqhi Issues Divergent Perceptions Confidence of Users Collective Resolution of Shariah Issues Micro Perspectives: Islamic Microfinance Providers

35 “Micro-Credit Financing and Poverty Alleviation in OIC Member States” 9-10 July, 2007, Istanbul Presentation by A. Slaoui Microfinance Specialist, Islamic Development Bank RECOMMENDATIONS Cooperatives-NGOs Efficient Management of Community Assets, Combine Social and Economic Agenda Effectively, Islamic Financial Institutions Recognize MF with Distinct Risk-Returns, Undertake Direct and Indirect Financing, Linkage with Grass-root NGOs, Facilitate Capital Market Participation of MFIs Awqaf & Zakah Funds Preserve and Develop Community Assets, Undertake TA, Transform the Destitute into “Bankable” Clients Government Agencies Create Supportive Policy and Regulatory Environment for IMFIs Concerted Efforts by ALL Stakeholders to Make Finance Work in Muslim Communities through Islamic Finance

36 “Micro-Credit Financing and Poverty Alleviation in OIC Member States” 9-10 July, 2007, Istanbul Presentation by A. Slaoui Microfinance Specialist, Islamic Development Bank


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