Islamic microfinance conference by Muslim Aid Sri Lanka today

By Imran Nafeer

Muslim Aid Sri Lanka (MASL) will facilitate an Islamic Microfinance Workshop on 18 May 2016 as a post conference event of the 8th Islamic Banking and Finance Industry Conference (SLIBFIC). The objective of the Islamic Microfinance Workshop is to share the knowledge and experience in the industry over a decade with wider segments, especially with the Islamic Banking and Finance Sector, Microfinance Practitioners, NGOs, Social Development Organisations. 

Today, Microfinance and Islamic Finance are professionalised industries with diverse products, growing client bases, and widening geographical coverage. Both have developed innovative solutions to cater to populations that are outside the fold of conventional financial access. They share objectives of providing inclusive banking through financing productive, asset-backed activity, and lay special emphasis on economic empowerment through entrepreneurship. These complimentary objectives create a ready framework for the confluence of both sectors into a special niche industry referred to as ‘Islamic microfinance,’ which is just taking off.

High unemployment, poverty, and low levels of financial access in countries continue to create high demand for microfinance. While conventional microfinance has successfully reached large numbers of low income Muslim countries, there is evidence to suggest that there are many potential clients of microfinance that categorically reject products that do not comply with Islamic principles.

Broadly speaking, the market for microfinance in the Muslim world can be divided into three segments: 1) individuals who will accept conventional finance products; 2) individuals who state a clear preference for Sharia-compliant finance but – due to unavailability or price differentials – accept conventional finance, and finally, 3) individuals who only use Sharia-compliant products.  The ratios of these groups fluctuate by region. Overall, it is estimated that roughly two-thirds of the microfinance market in the Muslim world either insists on, or prefers Islamic financing.

Islamic microfinance offers an alternative paradigm for millions of low income people who are currently not served by conventional microfinance. In order to provide access to sustainable services on scale, it is imperative for the industry to adopt innovative and sound practices and prove that these models work. To this end, the industry requires deeper market research and a comprehensive initiative to build the capacity of players in the micro, meso and macro levels, in order to help in developing and implementing appropriate business models.

Muslim Aid Sri Lanka (MASL) is the pioneer in initiating a comprehensive Sharia microfinance package in Sri Lanka. Muslim Aid Sri Lanka is also creating and facilitating the Islamic Microfinance market and conducive environment by providing innovative solutions and creating knowledge among the stakeholders, especially creating awareness among the village community in general on Islamic Microfinance concepts, theories and practices.

Muslim Aid Sri Lanka believes that, low income Muslims especially have no other options for financing than interest based conventional microfinance provision for their livelihood development. It is a fiduciary responsibility of Islamic organisations like Muslim Aid to design and deliver Islamic Based Financial service provisions for the low income segment. 

Muslim Aid Sri Lanka’s Micro Finance program is run with the vision of alleviating both the poverty and dependency that exists within low income segments, especially conflict affected communities. Providing the selected beneficiaries with micro-credit, the Micro Finance team then focuses on inculcating the spirit of competition and excellence within those individuals or groups by providing market linkages, business development services and a close field officer-client relationship that motivates beneficiaries to repay their loans and then expand their enterprises by being granted a second and bigger loan and thus keep growing. 

By targeting the entrepreneurial poor, the Micro Finance Program ensures its funding is not distributed recklessly but only to those who can make progressive sustainable use of it.

Clients belong to all communities and are selected from the segment of the entrepreneurial poor. The large majority of them are sole proprietors where their own kith and kin help out in the running of the business. These enterprises are mainly located in village or market-centres.  In addition to that, we focus on sectors such as agriculture, livestock, fisheries and sub-sectors.

It is evident that low income families require additional non-financial support services to develop their livelihood interventions in a sustainable manner, such as capacity development interventions. Microfinance officers are guided to provide such services when and where it is needed by the clients. These interventions ensure that continuous improvement of the business of the client as well as strengthened relationship between the client and MASL.