Islamic Microfinance Advances and Converges with Fintech

> Posted by Center Staff

“Despite its recent years of rapid growth, Islamic finance is still in its early stages of development,” the World Bank wrote last year. Today in 2016, this is still the case, but this banking segment is certainly demonstrating advances that might suggest otherwise.

Today and tomorrow in Nairobi, delegates from 35 countries are convening to attend the Global Islamic Microfinance Forum. The event, hosted by the AlHuda Centre for Islamic Banking and Economics, seeks to explore the latest developments and trends in the sector, catalyze innovation in the industry, and boost awareness on how Islamic finance can support social development and poverty alleviation. Once the forum concludes there will be a two-day workshop on how to develop, operate, and sustain Islamic microfinance institutions.

Islamic finance has grown at roughly 10-12 percent annually over the past decade. Between 2011 and 2014, Sharia-compliant financial assets rose from US$ 1 trillion to 2.1 trillion. In many Muslim countries, Islamic finance assets have been growing faster than conventional banking assets. In non-Muslim-majority counties, Islamic finance has also seen substantial progress breaking ground in new countries and growing in already-established markets, including China, Kenya, Nigeria, Tanzania, South Africa, and the U.K. It’s estimated that there are over 1,500 organizations working in Islamic finance across 90 countries – 40 percent of which are non-Muslim-majority countries.

Islamic microfinance makes up a small slice of the Islamic finance pie, at roughly 1 percent. However, a report by TechNavio forecasts that Islamic microfinance will grow at a compound annual growth rate of about 20 percent between 2014 and 2018.

Globally it’s estimated that out of the 1.6 billion Muslims in the world, only 14 percent use banks, and that there are 650 million Muslims living on less than 2 dollars a day. Further advancing Islamic finance and Islamic microfinance, expanding formal banking options for those whose religion precludes them from conventional banking, would yield huge financial inclusion benefits.

One challenge cited as hindering the take-up of Islamic finance is lack of product diversity. More and more microfinance institutions have Sharia-compliant offerings, but they are largely limited to cost-plus-mark-up (non-interest-bearing) loans called murabaha. However, the widespread advent of fintech is also penetrating the Islamic finance realm.

At the Global Islamic Microfinance Forum, there will be awards given for the Best Technology Provider for Islamic Microfinance, and the Best Mobile Banking Product.

Last week, we saw what’s being touted as the world’s first licensed Islamic P2P/crowdfunding platform, EthisKapital. The platform received a license from the Securities Commission of Malaysia to offer P2P funding for real estate development projects and SMEs.

EthisKapital is the result of a partnership between two Sharia-compliant crowdfunding platforms, EthisCrowd and Kapital Boost. EthisCrowd was recently named the Best Islamic Crowdfunding Platform at the 6th Global Islamic Finance Awards in Jakarta. EthisCrowd has roughly 17,000 registered members who have invested in building around 5,000 houses for lower-income Indonesians.

Singapore-based Kapital Boost is a platform connecting SMEs in Southeast Asia to sources of capital.

In Indonesia, Allianz is piloting a Sharia-compliant mobile phone-based loan service called Trust Network Finance (TNF). Micro-enterprises receive funding, and in return TNF receives a minority stake in the business.

And this is just a sample of what’s been happening in the Islamic inclusive finance space. We will look forward to following future developments in this area. In Indonesia for example, which is the largest Muslim country by population, and where according to the Global Findex only 13 percent of adults have formal loans, there are more smart phone subscribers than in any Asian country aside from China and India with 55 million individuals.

Have you read?

Sharia and Savings: Islamic Microfinance

Islamic Microfinance, the Poorest of the Poor, and More – Top Picks of the Microfinance Blogosphere – April 13, 2011

Asset-Based Financing and Flexible Repayment Schedules to Better Serve Africa’s Smallholder Farmers

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