Microfinance Institutions in OIC Member Countries STATISTICAL, ECONOMIC AND SOCIAL RESEARCH AND TRAINING CENTRE FOR ISLAMIC COUNTRIES (SESRIC) Microfinance Institutions in OIC Member Countries Mazhar Hussain, Senior Researcher Economic and Social Research Department

Microfinance Institutions # of MFIs Reported Data 2005 384 MFIs in 37 OIC countries accounted for 35% of the total MFIs reported data 2014 267 MFIs in 34 OIC countries accounted for 26% of the total MFIs reported data

Outreach of MFIs Active Borrowers- Millions Gross Loan Portfolio- Billion USD 2005 25 million active borrowers (53% of the total) with a gross loan portfolio of USD 5 billion (29%) 2014 27 million active borrowers (26% of the total) with a gross loan portfolio of USD 16 billion (18%)

Outreach of MFIs Distribution of Active Borrowers, 2014 Distribution of Gross Loan Portfolio, 2014 Top-10 countries accounted for 91% of the total active borrowers of all MFIs in OIC countries in 2014 …with Bangladesh alone accounting for 64% Top-10 countries accounted for 85% of gross loan portfolio of all MFIs in OIC countries in 2014 …with Bangladesh alone accounting for 33%

Islamic Microfinance Institutions 225 IMFIs in 19 countries as of March 2013 compared to 126 IMFIs operating in 14 countries 225 IMFIs in 19 Countries IMFIs are highly concentrated in East Asia and Pacific and MENA regions… accounting for 92% of the total IMFIs in 2013 Source: CGAP Focus Note 84, March 2013

Outreach of IMFIs 1.28 million Clients Active Clients IMFIs provided sharia-compliant products and services to 1.28 million clients in 2013 compared to 0.3 million clients in 2008 1.28 million Clients Despite an upward trend still….accounting for only 5% of OIC and 1% of world total in 2014 82% of total clients are living in three OIC countries: Bangladesh (35%), Sudan (33%) and Indonesia (14%)

Million $ worth of portfolio Outreach of IMFIs Loan Portfolio IMFIs were managing 625 million$ worth of fund portfolio in 2013 compared to 198 million$ in 2008 625 Million $ worth of portfolio Supply of Islamic Microfinance accounts for a tiny fraction (0.7%) of the world and 4% of the OIC total MFIs loan portfolio 91% of total portfolio is distributed in three OIC countries: Indonesia (55%), Lebanon (21%) and Bangladesh (15%)

Micro credit Micro Equity Products and Services Qard hasan Mudaraba Murabaha Bai bithaman ajil Ijarah Salam Micro Equity Mudaraba Musharaka

Portfolio by Type of Product Murabaha and Qard Hasan are the most widely offered Shari’a-compliant financing by IMFIs…accounting for over 91% of the total portfolio

Regulatory Framework

Institutional Indicators

On-going Issues and Challenges High transaction costs Market Penetration Less variety of products Sustainability and funding

Drivers of Change/Growth

Findings of Survey… 65% of respondents have stated that the higher cost of microfinance drives beneficiaries into severe debt. This indicates that the operations and transactions costs of microfinance need to be reduced in order to better serve the needs of the poor. There should be a more standardized framework for microfinance in order to increase effectiveness in helping the poor. Most survey respondents have stated that the way to ensure Shariah compliance in microfinance is through oversight by the Shariah boards. Good governance is also essential so that operating costs will be formed on the basis of pricing. 72% of respondents consider volunteerism to be an important part of microfinance, as it will enable microfinance institutions to reduce operating costs and will also build relationships with the community and the poor to further reduce financial and societal exclusion. The establishments of skills empowerment centers that ensure clients are given adequate training prior to being provided financing as well as financial services.

Integration of Waqf and Islamic Microfinance Microfinance institutions continued to face two primary challenges; access to affordable finance and inadequate human resources confronted both by the providers and recipients of services. Existing models have largely failed to adequately overcome all the challenges. In order to address these two primary challenges, this study aims to develop an Integrated Waqf-based Islamic Microfinance (IWIM) model, which comprises six components, namely Waqf, Islamic microfinance, human resources, Takaful, project financing and poverty alleviation, and validate and test the IWIM model in the three selected countries.

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