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Islamic finance

Looking for new ways to serve Muslim microfinance clients

Mayada El-Zoghbi's picture
“To alleviate poverty in Pakistan, we have to focus on the farmers,” says Farida Tariq, founder and chief executive officer of Wasil Foundation, a microfinance institution. “But many farmers will not opt for interest-based lending because of religious reasons.”
 
To address this gap, Wasil started offering a Sharia-compliant microfinance package aimed specifically at smallholder farmers.
 
Wasil Foundation: Islamic Financing to Farmers

Wasil is an example of how microfinance and Islamic finance can be successfully combined.
 
An estimated 650 million Muslims live on less than $2 a day. Examples like Wasil show that Islamic microfinance can play a key role in bringing the poor into the financial mainstream in a way that doesn’t force them to choose between their religious practices and their wallets.

But despite an impressive increase in the number of financial service providers that offer Sharia-compliant microfinance products in Muslim countries, Islamic microfinance is still limited to a few countries. The range of offerings is narrow as well – most are largely focused on the cost-plus-markup product known as murabaha, which is geared toward asset purchases. 

Islamic Finance Grabs Headlines in London and Istanbul

Abayomi Alawode's picture



Talk about timing! This week has seen back-to-back initiatives that underscore the growing importance of Islamic finance – and the significant role that the World Bank Group can play in unleashing its potential for financing international development.

This Tuesday, October 29, Prime Minister David Cameron of the United Kingdom announced that the U.K. will become the first non-Muslim country to issue a Sukuk or Islamic bond, with a £200 million issue planned for early 2014. Cameron also announced plans for a new Islamic index on the London Stock Exchange. These initiatives are all part of a grand plan by the U.K. government to turn London into a global capital of Islamic finance.

The very next day, on Wednesday, October 30, World Bank Group President Jim Kim inaugurated the World Bank Global Islamic Finance Center in Istanbul. Envisioned as a knowledge hub for developing Islamic finance globally, the center will conduct research and training as well as provide technical assistance and advisory services to World Bank Group client countries interested in developing Islamic financial institutions and markets.

Can Islamic Finance spur Inclusive Growth & Sustainable Development?

Abayomi Alawode's picture


Islamic finance can connect millions around the globe to the economy (Credit: The Reboot, Flickr)

In the wake of the global financial and economic crisis, the need for a new development model which is more sustainable and also fosters inclusive growth has become more apparent. Could Islamic finance be the answer? Islamic finance promotes risk-sharing, connection to the real economy and emphasizes financial inclusion and social welfare.  Can these dimensions contribute to inclusive growth and sustainable development?

Islamic finance is based on two intrinsic features: risk-sharing and the link between financial transactions and the real economy. Because all financial contracts are backed by real sector assets and risk-sharing among partners, including financing institutions, Islamic financial instruments have relatively more stability than conventional instruments and tend to be more flexible against unanticipated shocks. This critical link brings prudence to the system, promotes equity relative to debt, broadens financial participation, and minimizes overall vulnerability.

Can Islamic Microfinance spur Inclusive Prosperity?

Ahmed Rostom's picture


Can Islamic Microfinance give more people access to the financial services they need to grow their business? (Credit: DFID, Flickr Creative Commons)
Research has shown that financial sector development and the efficiency of financial systems are closely linked to economic growth. Ensuring the provision of financial services to the poor can also address the challenge of poverty alleviation and directly target financing towards economically and socially underprivileged groups. Appropriate financial services, such as savings services, investment, insurance, and payment and money transfer facilities,  enable the poor to acquire capital to engage in productive ventures, manage risks, increase their income and savings, and escape poverty.

Can Socially Responsible Investing bridge the Gap between Islamic and Conventional Financial Markets?

Michael Bennett's picture

Islamic finance is growing in countries like Malaysia (Credit: Asian Development Bank, Flickr Creative Commons)

Over the last three decades, the concepts of Islamic finance have captured the attention of researchers. One of the core principles of Islamic finance is the prohibition of interest and debt-based financing. Instead, economic agents are encouraged to engage in financial instruments of risk-sharing rather than risk transfer.  Although the principles of Islamic finance go back several centuries, its practice in modern financial markets became recognized only in the 1980s, and began to represent a meaningful share of global financial activity only around the beginning of this century. The growth of this market has been driven by the high demand for Islamic financial products, as well as the increasing liquidity in Gulf region due to high oil revenues.  Table 1 shows the growth trend in Islamic finance for the banking sectors by different regions, with estimates of total Islamic banking assets reaching $1.8 trillion by the end of 2013. Figure 1 shows how the growth of the Islamic financial sector in 2006–10 period surpassed the growth of conventional financial sector in all segments of the market, ranging from commercial banking, investment banking, and fund management to insurance in several Muslim-majority countries.

The Nitty Gritty of Supporting Islamic Finance, from MIGA

Hoda Atia Moustafa's picture

MIGA recently closed its second transaction supporting a project with an Islamic financing structure—the first was for a port project in Djibouti back in 2007. For this new project, MIGA provided political risk insurance to two financial institutions, Deutsche Bank Luxembourg and Saudi British Bank, for their $450 million financing to the Indonesia telecoms company PT Natrindon Telepon Selular, or NTS.