IslamicFinance.de

Although uouth under the age of 25 represent the clients of tomorrow, many financial institutions steer clear from viewing youth as customers because it is difficult to serve them in a profitable manner. For financial service providers looking to offer savings products to young clients while still making a profit, there are factors at three levels that affect profitability: the market level, the institutional level, and the client-segment level. Ultimately, these three levels drive costs and revenues for FSPs. As more financial institutions begin to enter the youth savings market, it can be improved and augmented by data. The business case is dynamic and will evolve as more FSPs operate in competitive markets with long-term visions looking at the young people of today as tomorrow’s customers.

Islamic microfinance providers represent a growing and important niche within the market of financial services specifically targeting the poor. Over the last decade, the microfinance sector has built up the infrastructure necessary to carry out such analysis. One piece of that infrastructure, MIX Market, provides access to current and historical financial and social performance information on more than 2,100 microfinance institutions serving some 94 million clients worldwide. MIX Market users can track the performance of other institutions and see impacts of policy interventions and other aspects. The microfinance industry as a whole stands to benefit from gathering this relevant, comparable information on Microfinance through MIX Market.

Since the Government of Indonesia issued the Sharia Banking Law in July 2008, the Islamic banking industry has shown a strong growth. According to data from Bank Indonesia, between 2008 and 2012, Islamic bank assets tripled, increasing by an average of 31.5% annually. But despite their growth, Sharia-compliant financial service providers accounted for only 4.5% of total banking sector assets. Policy discussions around Islamic bank development in Indonesia have largely taken place in the context of increasing financial access, especially to micro, small, and medium enterprises, or MSMEs. Bank officers are the key to stimulate demand for Sharia-compliant financing since they are the main source of education on Islamic products. Empowering Islamic financial service providers to reach more clients is not only good for business, but it is also smart policy.

In Sudan, Sharia-compliant microfinance is the government-mandated rule, not the exception. That’s because the country’s banking system went fully Islamic in the 1980s, legislating Sharia principles. In 2007, the Central Bank of Sudan established a dedicated microfinance unit to foster a conducive policy environment, a regulatory framework, and the intellectual, human, and financial capital to provide those services effectively. Moreover, the Central Bank introduced various Shariah-compliant products, such as musharaka, mudaraba, salam financing and istisna, to meet specific needs of potential customers. Banks were required to channel at least 12% of their total loan portfolio toward microfinance clients. Out of this have emerged several exciting programs that are offering early evidence that the country’s strategy is paying off.

Algeria hopes to stem high unemployment rates among its young population by promoting the development of micro, small and medium sized enterprises (MSMEs). Key to that effort, of course, is the provision of financial services. Therefore, the Algerian government set out to make a Sharia-compliant product available that is both affordable and scalable. In collaboration with several national and international institutions the Algerian Ministry for Industry, piloted one such product in the Ghardaia region of Algeria. Four years later, this musharaka product has provided new opportunities for 167 MSMEs. Given the success of this product, musharaka is now available through Al Baraka branches nationwide. The bank is also working with its nationwide branches to test other Sharia-compliant products, including, murabaha and qard hassan as well as Sharia-compliant micro-insurance products.

In an effort to foster hope and stability among Yemen’s por, Al-Amal Microfinance Bank is working to introduce a range of Sharia-compliant microfinance products aimed at reaching the unbanked. However, demand for Islamic financial products can far exceed the capacity of existing microfinance institutions to provide them. That’s why institutions like Al-Amal are often forced to limit their suite of Sharia-compliant products to one or more products that are relatively simple to administer and offer a clear return. In Al-Amal’s case, the signature Islamic product is murabaha. The mark-up ranges between 14.5% (for purchases more than $5,000) and 24% (for purchases below $5,000). Further development of Al-Amal’s murabaha offering and the introduction of other Sharia-compliant products, will hinge on the bank’s ability to reach Yemen’s rural poor, who represent some 80 percent of the country’s population

A team from Bankable Frontier Associates started a project to study the effect of interoperability in retail payments on the outcome of financial inclusion in Pakistan. The target they set was 100 million Pakistanis to be financially included electronically by 2020. Now the final report is ready and available for the public. Specific ideas for the Pakistani market are provided in the report. These are intended to be implemented in workshops with Pakistan industry. Moreover, the report stresses on the importance of interoperability and the reasons for that as wel as on how people should think about it from a policy and market development perspective and how it should be measured.

CGAP, Deutsche Bank, Islamic Development Bank, and Grameen-Jameel announced the Islamic Microfinance Challenge 2010: Innovating Sustainable, Scalable, and Market-Driven Models. The contest is a joint initiative to promote the innovative design of Shariah-compliant products for Islamic microfinance clients.

The organizers are seeking original Islamic microfinance business proposals which are profitable, sustainable, scalable, and Shariah-compliant. Finalists of this competition will be awarded with grant funds as well as need-based technical support to launch a pilot project of their proposed business idea.

It offers a unique opportunity to showcase innovative business ideas, gain industry-wide recognition, and benefit from the funds and technical expertise of leading institutions in the microfinance and Islamic finance sectors.