37th Midi de la microfinance et de l'inclusion financière
Durning the 37th Midi de la Microfinance, hosted by ADA and the InFiNe.lu network at the Banque de Luxembourg, the experts of Islamic microfinance,Mohammed Kroessin, Head of Global Islamic Microfinance Unit, Islamic Relief Worldwide UK, and Fadoua Boudiba, Senior Investment Manager for MENA and Africa, Triodos, explained the challenges of the development of this sector in the world. The discussion was moderated by David Demulier.
Sharia-compliant financing is unique and differs significantly from conventional microfinance. The sector seeks to provide an economic empowerment tool for the poor or disadvantaged on the basis of sharia-compliant financing methods that avoid interests because of the proposed ethical value of the Islamic economy. The prohibition of usury by the Muslim religion allowed to develop another form of finance and microfinance.
Many ideas have been put in place to circumvent these prohibitions, based on a principle of partnership between investor and customer. The two eventually form a couple who wins or loses together. "A sort of marriage that assumes all risks, both profits and losses," explains Fadoua Boudiba.
Various products are constantly being developed in this sector to meet the many needs, but during the Midi, an emphasis was placed on two products most used: Salam and Murabaha:
• The first is an agreement between the microfinance institution (MFI) and the entrepreneur, who sells a product delivered at a later date for a specific price paid in advance. In other words, it is an early term sale, used mainly in the agricultural sector.
• The second product, used 70% of the time, refers to a profit made by the MFI resulting from a sale transaction of a commodity for a given price plus a certain margin of profit agreed between the MFI and the customer. The profit margin can be either a percentage of the purchase price or a lump sum.
Mohammed Kroessin explains that "this is the putting into practice of the old principles of cooperative finance of Muslim society, retransmitted in the present society".
Fadoua Boudiba of Triodos Bank also pointed out that in many countries where Islamic finance is practiced there is a demand for these financial services also from non-Muslims who prefer this kind of partnership with the sharing of Risk that a simple debt with interest rates. In Malaysia, half of Islamic banking clients are non-Muslims!
Despite the growing development, with new markets that also open up to this need, such as Tajikistan and Middle East countries, the sector faces many challenges, due to lack of regulation. Paradoxically, countries like Saudi Arabia do not yet recognize the products of Islamic finance.
But just as traditional microfinance has had a tough start in terms of attractiveness to investors, Sharia-compliant finance will also have to be patient before it can grow thanks to international investors.
In conclusion, Gilles Franck, board member of ADA, stressed the common objectives of both types of microfinance: creating social benefit and reducing poverty. Moreover, they can perfectly coexist in order to let customers around the world choose between these different practices and products.
Same debate, coorganized with BRS, took also place in Brussels at the Microfinance Lunchbreak on December 13, 2016 at the auditorium of KBC.
Mohammed Kroessin (MA, PhD) is a development economist with over 15 years experience of working with Islamic development and financial institutions. He has formerly worked for Chambers of Commerce in the UK, was Asst. CEO of Muslim Aid, a visiting research fellow at Aston Business School (UK), a research associate at the University of Birmingham (UK), where he has also completed his PhD on the political economy of Islamic finance.
Heading Islamic Relief’s Global Islamic Microfinance Unit, he is leading on the strategic transformation of a global microfinance portfolio spanning 12 countries towards sustainability and social investment grade. He currently serves on the board of two Islamic microfinance institutions in Bosnia and Kosovo and also has worked with and researched Islamic financial institutions in Africa, Asia, the Middle East and Europe.
Previous to joining Triodos Bank, Fadoua was working with Incofin as a Senior Investment Manager.
Prior to that she was active as an Operation Analyst for Microfinance at IFC based in Egypt covering the entire MENA region. She worked on advisory's side handling technical assistance projects mainly on Risk Management, Housing microfinance, Products development, Islamic Microfinance research.
She also worked for PlaNet Finance in Morocco as an operations consultant. At this position, she led technical assistance missions mainly in rural microfinance NGOs where she has been responsible for market surveys, policies and procedures design and product development.
Before that she worked with Sanabel, the Arab network of Microfinance in Egypt where she wrote many papers about Islamic Microfinance. In addition, Fadoua has 4 years of experience in the banking sector as an Investment fund Manager for Citibank and as an operations fund analyst at Euroclear.
From April 2013 to August 2016, David was seconded from Caisse des Dépôts to the European Investment Bank to work as a business development officer for the MENA region. His main areas of expertise are SME financing, innovation, microfinance and social economy (civil society).
Strongly interested in Arabic culture and passionate about the Middle East, he starts to learn Arabic three years ago. He travelled regularly to the region where he has led various projects with structural impact to ensure not only the success but the sustainability of the projects.
He is eager to share ideas and business opportunities related to the Middle East and Maghreb which emphasis the participation of local actions.
David holds Masters’ degrees in law, corporate finance, management and Islamic finance.
Prior to joining Caisse des Dépôts, he worked in the private sector and held various positions in Eastern France in the fields of project finance, real estate and SME financing. In 2006, he worked as an expert investor in project finance with the Caisse des Dépôts. In 2008, David took charge of managing relations with competitiveness clusters, incubators and managers of investment funds (Board Member for seed, venture capital and private equity vehicles) at the Alsace Regional Directorate of the Caisse des Depots.
David is also currently a lecturer in Corporate Finance at Sciences Po, Strasbourg.