Partnership in Islamic Microfinance 8th Global Islamic Micro Finance Forum A Presentation by Mahfuz Ali Quaderi Chairman Anannyo Group, Bangladesh

Partnership in Islamic Microfinance Introduction Global Muslim population, currently at about 25% of the mankind, are gradually becoming empowered – backed by education, knowledge, resources and are generating wealth Although Microfinance as an economic sector falls well within the ethics of Islamic principles, a lack of Shariah-compliant and interest-free schemes and lack of global initiatives have affected the sector’s growth The development of Islamic Microfinance institutions, Shariah-compliant product range and global collaboration could help accelerate the Islamic Microfinance sector and create jobs With a pool of increasing human talents, financial resources and global partnership, Islamic Microfinance sector could change the economic landscape of the Muslim world and help boost global economy

Partnership in Islamic Microfinance Background The Islamic finance industry has expanded rapidly over the past decade, growing at 10-12% annually. Today, Sharia-compliant financial assets are estimated at roughly US$2 trillion, covering bank and non-bank financial institutions, capital markets, money markets and insurance, according to the World Bank Of the 1.6 billion Muslims in the world, only 14% use banks, according to World Bank. Islamic finance and micro-finance can help reduce the overall gap in access to finance. Many Muslims are forced to use conventional financial products due to lack of Islamic finance products to suit their varied needs, but various surveys show that if they had the choice they would use sharia-compliance financial products. It helps strengthen financial stability. As the 2008 global financial crisis ravaged financial systems around the world, Islamic financial institutions were relatively untouched, protected by their fundamental operating principles of risk-sharing and the avoidance of leverage and speculative financial products.

Partnership in Islamic Microfinance Current Status of Islamic Microfinance The Islamic microfinance sector is still in its infancy and therefore has a very high potential for sustained growth, if supported and regulated well Microfinance helped in reducing global poverty and many countries have effectively used this model, including in Bangladesh, which reduced poverty by a half between 2000 and 2015. However, Islamic microfinance is nearly absent is this predominantly Muslim country where Muslims represent about 87% of the population. This is due to sheer lack of available MFIs and microfinance products Although Muslim population represents about a quarter of the mankind, the global Muslim population represent half of the global poverty – double the global average. Islamic Microfinance needs to catch up with greater product diversity and regulation, in order to serve a greater population and help reduce poverty and ensure inclusive and sustainable global growth

Partnership in Islamic Microfinance Issues Hampering the Growth of Islamic Microfinance The Muslim world is yet to realise the potential of the Islamic Microfinance sector and how it can help reduce global poverty and help achieve sustained development Islamic microfinance is just 1% of the total micro financing of the world that is just $1 billion The Islamic Microfinance sector has not received its due attention by public policy-makers, financial regulators and the finance community, the way conventional micro-credit sector receives support Muslim economists are yet to sharpen their focus on the Islamic Microfinance in the right way Islamic Microfinance has been left out by the mainstream financial community to the mercy of informal charities and charitable trusts who neither have the ability to understand nor the capabilities to develop Shariah-compliant Islamic Microfinance processes and products The sector lacks imagination and initiatives.

Partnership in Islamic Microfinance Issues Hampering the Growth of Islamic Microfinance Islamic Microfinance sector also suffers from lack of collaboration amongst the stakeholders Islamic Microfinance sector suffers from lack of funding, despite offering higher returns Poverty alleviation and inclusive growth policies of the governments of Muslim countries do not have Islamic Microfinance in their planning and agenda Some of the most significant obstacles facing Islamic Microfinance Institutions lie in the rising costs, where the needs for implementation and follow-up to the field are greater than in conventional finance; poor awareness of systems and methods of Islamic microfinance among the target audience; and the execution of Islamic microfinance by certain authorities without having adequate knowledge in it, leading to wrong practices and loss of public confidence in Islamic finance.

Partnership in Islamic Microfinance Islamic Microfinance: Way Forward Islamic Microfinance needs to be high in the governments’ planning and agenda. Islamic Microfinance sector needs proper policy guidelines and regulation to expand Islamic Microfinance sector need funding Islamic Microfinance Institutions need to contain rising costs, bringing them lower than the conventional microfinance Countries and institutions need to develop greater awareness of systems and methods of Islamic microfinance among the target audience Islamic Microfinance sector should not be treated like charity although Zakat and Sadakah could be properly channellised to help expand the sector Islamic Microfinance sector needs global partnership

Partnership in Islamic Microfinance Islamic Microfinance: Global Partnership Global partnerships are key to accelerate the growth of the Islamic Microfinance sector Global financial institutions, such as the Islamic Development Bank should take a leadership role in spearheading the growth of the Islamic Microfinance sector, by partnering with local Islamic Microfinance Institutions and disburse funds, such as the World Bank does through its various lending arms If the Islamic charitable spending could be channellised in to proper Islamic Microfinance institutions in a professional way, the sector could not only grow but also help inclusive growth and sustainable economic development in the Muslim world Islamic Microfinance sector should be looked at as a formal economic activity and then bring its activities under formal financial schemes Islamic financial institutions should develop funds to help the sector grow

Partnership in Islamic Microfinance Islamic Microfinance: Final Thoughts Islamic Microfinance sector can play a significant role in inclusive growth and sustainable development – key to achieve the United Nation’s Sustainable Development Goals (SDGs) It is too important sector to left to charities and NGOs and too risky to leave without regulation and supervision. If developed and supervised properly, Islamic Microfinance could be a game-changer for the Islamic World and a role model for the rest of the world. Thank You