The global Islamic microfinance industry: a vision for going forward Dr Mohammed Kroessin Head, Islamic Microfinance Islamic Relief Worldwide

Topics IR’s microfinance portfolio Reviewing our progress Profile of the Islamic microfinance industry: supply & demand

Islamic Relief’s i-mf portfolio

Geographical spread Bosnia Palestine Russia (Chechnya) Kosovo Mali Chad Malawi Kenya Bangladesh Pakistan China Yemen Sri Lanka Sudan Ethiopia 1 xxx

I-MF Programme overview Start year: 1994 (Bangladesh) Total clients: +50,000 (since inception) Total beneficiaries: +170,000 (since inception) Active clients: 14,289 Active loan portfolio: $ 5,640,143 Avg .recovery rate: >97% Status: Q3/2015 IRW turn-over 2014: $277m

I-MF delivery Delivery mechanism Client relationship Direct project-based: Palestine, Sudan, Bangladesh, Mali SHG/village bank: Sudan, Bangladesh Collaboration w. commercial banks: Kenya (FCB) , Sudan (SSDB) & Pakistan (Meezan) Subsidiaries registered as MFI, NBFI: Kosovo, Bosnia, Russia. Palestine, Bangladesh & Pakistan currently transforming Client relationship Group lending: Bangladesh, Sudan, Kenya, Mali, Yemen, Kenya Individual: Pakistan, Bosnia, Kosovo, Chechnya & Palestine

Reviewing our Progress

I-MF at the cross-roads Competition from crowd-funding & fin tech Insufficient scale (capital & business model) Not attracting & retaining talent Thursday, 15 November 2018

4th GIMFF resolution Sharia-compliant financial inclusion & the SDGs Transforming the Islamic microfinance Active co-operation and collaboration of all stakeholders Embracing the variety of financial and socially sustainable business models Adapting existing and new capital mobilisation mechanisms Conducive regulatory and policy environment for Sharia-complaint financial inclusion donors should focus on capacity building of I-MFIs I-MFIs collectively develop comprehensive global standards Launching a global Islamic microfinance campaign With the international community currently drawing up the new development agenda post-2015, we believe that Sharia-compliant financial inclusion can truly unlock sustainable and equitable development outcomes for poor communities around the globe. Transforming the still nascent Islamic microfinance sector is therefore absolutely critical and is both a huge challenge but also an even greater opportunity. Achieving sustainability and outreach of Sharia-compliant financial inclusion requires the active co-operation and collaboration of all stakeholders, including international finance institutions such as the Islamic Development Bank (IDB), their research and training institute IRTI, bi-lateral donor agencies from the Muslim world, the private sector including Islamic banks and Islamic microfinance institution the world over. We welcome and embrace the variety of financial and socially sustainable business models that the sector has to offer to provide the poor with not just loans but also savings, insurance, food security, business advice and value chain support services. Establishing a successful and thriving Sharia-compliant microfinance sector also means embracing and adapting existing and new capital mobilisation mechanisms such as equity from social and financial investors and crowd-funding. Governments in countries with significant Muslim majorities are called upon to create an enabling and conducive regulatory and policy environment for Sharia-complaint financial inclusion that incentivises civil society organisations and the private sector to engage. Similarly to the thriving conventional microfinance industry international donors should focus on capacity building of I-MFIs. Islamic Microfinance institutions should collectively undertake to develop comprehensive global standards to measure and disclose their performance—both financially and socially. To launch a global Islamic microfinance campaign to establish a working relationship with all concerned parties such as multi-lateral organisation, governments in preparation for the 5th Global Islamic Microfinance Forum in Malaysia in 2015

Profile of the Islamic microfinance industry: supply & demand

IF, MF & I-MF Reference points: Conventional microfinance sector Islamic finance industry $ 90 BILLION (portfolio outst.) $ 1.5 TRILLION (AuM) Phase 1 Experimental Phase 2 Replication of good practice Phase 3 Expansion and full commercialisation 1950 1960 1970 1980 1990 2000 2010 2015 Rural credit Mit Ghamr Dubai IB Grameen MiX Sovereign Sukuk Compartamos Thursday, 15 November 2018

The Islamic finance industry US$ 750bn Over 70% of people living in Muslim majority countries do not use formal financial services Islamic microfinance accounts for only 0.5% of global microfinance despite a global Muslim population of about 1.2 billion CGAP survey (2008) AuM 2014 (est. ) Active loan portfolio 2014 (est. ) Jan 2015

The challenge: the demand side What do poor people want? inclusive finance (outreach, depth) finance for consumption smoothing, investment & emergency expenditure flexible products affordable (values vs. wallet?) ethical finance (compatible with their faith)

Global trends: The supply side CGAP : Trends in Sharia-Compliant Financial Inclusion (2013)

Global trends: The supply side

Global trends: The supply side

Clients & products

Global trends: The supply side

Challenges: The supply side Low institutional technical capacity, policies and procedures Scalable models Outreach & depth High transactions costs Economies of scale Efficiency vs. welfarist model Capital mobilisation ‘Shari’ah Compliance’? (AAOIFI - local mufti)

Going forward

Future prospects: Opportunities Although there is an estimated 1.28 million clients in 19 countries using Sharia-compliant microfinance services, Islamic microfinance represents less than 1% of global microfinance programmes (CGAP, 2008) Likely to increase significantly in the future because: Growth of worldwide Islamic finance industry - mainstreaming Growth of ‘Muslim’ institutional donors (IDB, IRW etc.), philanthropists and social investors Market saturation & competition opens up new fields Conventional Microfinance profitable (Compartamos)

Crossroads 2015 Business model? Charity (Akhuwat) For profit/social enterprise (IBBL) Scale/ Outreach? National – global Local – GSLA Impact? RTC evidence from convention MF 0 or – I-MF?

A platform for future action Support services Conducive policies, incentives & regulation Invest and collaborate with social development agencies Promote & facilitate economic growth Savings mobilisation Put values first Local poor communities Development agencies Governments & multi-laterals Islamic financial institutions IF literacy Social performance Financial performance Thursday, 15 November 2018

AlHuda Center of Islamic Banking & Economics - Pakistan AlHuda CIBE FZ LLE - U.A.E P: + 971 56 9286664, + 971 55 938 99 00 AlHuda Center of Islamic Banking & Economics - Pakistan Ph: (92-42) 35913096 - 98, Fax: (92-42) 35913056 Email: info@alhudacibe.com Website: www.alhudacibe.com