To address this gap, Wasil started offering a Sharia-compliant microfinance package aimed specifically at smallholder 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.
So how can we broaden the range of Islamic microfinance products that serve the needs of poor Muslim clients? In order to help the poor manage their complex financial lives and generate the income they need to rise out of poverty, we need to move beyond murabaha and encourage the development of other Sharia-compliant products and services that assist the poor in building better lives for themselves.
That’s why my organization, the Consultative Group to Assist the Poor (CGAP), partnered with the Islamic Development Bank, Al Baraka Banking Group, and Triple Jump to sponsor the Islamic Microfinance Challenge. The goal of the Challenge was to find new innovative ways to broaden the range of Islamic microfinance products.
The basic idea behind the Challenge is to encourage microfinance providers to broaden their range of Islamic microfinance products and, in doing so, find new ways to serve Muslim microfinance clients.
We received entries from microfinance institutions in 11 countries. Judges selected the Wasil Foundation as the winner for its impact on the lives of its clients, the sustainability of the offering and its potential to scale up in Pakistan and in other predominantly Muslim countries. The judges also chose the Bank of Khartoum from Sudan and Kompanion Invest from Kyrgyzstan as finalists.
Examples like these provide a snapshot of the kind of innovation that is needed to ensure that Islamic microfinance products can meet the financial needs of poor Muslim communities.