IsDB
Microfinance
Experience
“Micro-Credit Financing and Poverty Alleviation in OIC Member States” 9-10 July, 2007, Istanbul
Presentation by A. Slaoui Microfinance Specialist , Islamic Development Bank
THE ISLAMIC VISION OF DEVELOPMENT
Comprehensive
Human Development
Maqasid Al-Shariah
Security & Basic Needs
Knowledge
Honour
Nafs (Self)
Property
Capacity
Building
Nutrition &
health
Higher
Education
Protection
Science &
Technology
Aqal (Knowledge)
Governance
Deen
(Religion)
Values
Nasl (Posterity)
Education
Moral Education
Justice
Sports
Research &
Development
Capacity
Building
Environmental
preservation
Maal (Wealth)
Fiduciary Duty
Islamic Financial Services Industry
Institutional Management of Wealth
Means to an end
Transparency
“Micro-Credit Financing and Poverty Alleviation in OIC Member States” 9-10 July, 2007, Istanbul
Presentation by A. Slaoui Microfinance Specialist , Islamic Development Bank
Significant resources potential for Islamic Microfinance Industry
1.
More than 300 Islamic Financial Institutions
2.
In over 65 countries
3. Managing assets of approximately US$ 1.0 trillion in
Shariah compatible manner
4.
More than 15% annual growth
5. Worldwide recognition
“Micro-Credit Financing and Poverty Alleviation in OIC Member States” 9-10 July, 2007, Istanbul
Presentation by A. Slaoui Microfinance Specialist , Islamic Development Bank
Need for an Islamic Microfinance Development Strategy

Over 3 billion people living on less than two dollars a day

Over 2/3 of world refugees are Muslims





Lowest Five among IDB member countries account for over half a
billion (528 million) of the world’s poor (with incomes below $2 a day)
Lowest Ten account for over 600 million of the world’s poor
Among 500 million micro-entrepreneurs: currently Less than10%, i.e.
50 million, can access credit…
The informal sector represents over 60% of the active population of
most developing countries
Over 7,000 Micro-Finance Institutions (MFIs) have difficulties to
access the capital markets
“Micro-Credit Financing and Poverty Alleviation in OIC Member States” 9-10 July, 2007, Istanbul
Presentation by A. Slaoui Microfinance Specialist , Islamic Development Bank
IDB’s µFinance Current Strategy

Poverty alleviation thru provision of suitable and
sustainable access to financing.

Capacity building

Nurturing entrepreneurship support at grass roots
level

Introduction of Islamic financing modes
“Micro-Credit Financing and Poverty Alleviation in OIC Member States” 9-10 July, 2007, Istanbul
Presentation by A. Slaoui Microfinance Specialist , Islamic Development Bank
Main Features of IDB’s
Current
•
•
•
•
•
•
µFinance Scheme
Country eligibility: Low Income and LDMCs
Mode of Financing: Loan – Service fee 0.75 to 2.5%
Tenor: 25 to 30 years with 7 t0 10 grace period
µproject investment: US$ 5,000 per project
Maturity: 3-5 years
Beneficiaries contribution: 10-20% of project cost
“Micro-Credit Financing and Poverty Alleviation in OIC Member States” 9-10 July, 2007, Istanbul
Presentation by A. Slaoui Microfinance Specialist , Islamic Development Bank
IDB
LDMC loan at 0.75% for 30 yrs incl 10 yrs grace
Government
US$ at max.
2.5% pa
External auditors
Central Bank
US$ account in
commercial local bank
24-30% pa (local currency)
Max 5 yrs incl 2 yrs grace
Physical transfer money
20-22% pa (local currency)
Key:
35% of markup
(operational cost of
NGOs)
Repayment
Revolving fund +
65% of markup
Financial
Intermediary/NGO
Micro-entrepreneurs
(in local currency)
Reporting to/instructing
“Micro-Credit Financing and Poverty Alleviation in OIC Member States” 9-10 July, 2007, Istanbul
Presentation by A. Slaoui Microfinance Specialist , Islamic Development Bank
IDB µFinance Operations
IDB µFinance ACHIEVEMENTS AND IMPACT
“Micro-Credit Financing and Poverty Alleviation in OIC Member States” 9-10 July, 2007, Istanbul
Presentation by A. Slaoui Microfinance Specialist , Islamic Development Bank
The poor request
to start his assistance with a:
Promotional Social Safety Interventions Package :
(i) Literacy & Awareness, Counseling
(ii) Vocational training & Skills upgrading,, career guidance, Management,
(iii) Entrepreneurship & Business linkages promotion (Subcontracting, Franchising and
Clusters and collaborative production networks),
(iv) Community Development Basic skills,
(v) Other Poverty alleviation interventions such as Grants to education, house extension
Balance of
The Poor’s Professional skills
“Micro-Credit Financing and Poverty Alleviation in OIC Member States” 9-10 July, 2007, Istanbul
Presentation by A. Slaoui Microfinance Specialist , Islamic Development Bank
The poor request mobilizing Package of Business Development Services
Counseling, Training
Experiences Networking
access to markets
Counseling, Training Experiences Networking access to markets
“Micro-Credit Financing and Poverty Alleviation in OIC Member States” 9-10 July, 2007, Istanbul
Presentation by A. Slaoui Microfinance Specialist , Islamic Development Bank
Business Incubators
Services
Counseling, Training
Experiences Networking
access to markets
The poor request mobilizing
Package of Business Development Services
“Micro-Credit Financing and Poverty Alleviation in OIC Member States” 9-10 July, 2007, Istanbul
Presentation by A. Slaoui Microfinance Specialist , Islamic Development Bank
Upgrading services for
BDSIs and MFIs
Business Incubators
Services
Counseling, Training
Experiences Networking
access to markets
The poor request mobilizing Package of Business Development Services
“Micro-Credit Financing and Poverty Alleviation in OIC Member States” 9-10 July, 2007, Istanbul
Presentation by A. Slaoui Microfinance Specialist , Islamic Development Bank
The poor request mobilizing Package of Business Development Services
Designing innovative BDS
& appropriate technologies
Adapted to the Poor’ needs
Upgrading services for
BDSIs and MFIs
Business Incubators
Services
Counseling, Training
Experiences Networking
access to markets
Balance of
The Poor’s Professional skills
“Micro-Credit Financing and Poverty Alleviation in OIC Member States” 9-10 July, 2007, Istanbul
Presentation by A. Slaoui Microfinance Specialist , Islamic Development Bank
VISION / STRATEGY / APPROACH
The poor request mobilizing
Package of appropriate Financial Services
Balance of
Poor Self-Sufficiency
Continuing on Skills Upgrading assistance
“Micro-Credit Financing and Poverty Alleviation in OIC Member States” 9-10 July, 2007, Istanbul
Presentation by A. Slaoui Microfinance Specialist , Islamic Development Bank
VISION / STRATEGY / APPROACH
The poor request mobilizing
Package of appropriate Financial Services
“Micro-Credit Financing and Poverty Alleviation in OIC Member States” 9-10 July, 2007, Istanbul
Presentation by A. Slaoui Microfinance Specialist , Islamic Development Bank
MicroInsurance
Micro-Pensions
Education
loans
Micro-Housing
loans
Consumer
loans
Micro-Savings
Micro-Grant
Capital loans
Balance of
Poor Self-Sufficiency
Role of Micro-grants in
IDB Microfinance Operations
Helps groups: high-risk
In immediate Conflicts and Post conflicts environments
In severely disadvantaged rural areas
In intervention situation for the chronically destitute
To
 Rebuild livelihoods
 Replace lost assets



Overcome social isolation
Gain productive skills
Graduate to economic self-sufficiency
“Micro-Credit Financing and Poverty Alleviation in OIC Member States” 9-10 July, 2007, Istanbul
Presentation by A. Slaoui Microfinance Specialist , Islamic Development Bank
FROM IDB µFINANCE EXPERIENCE
Microfinance Projects Design and
implementation mechanism

IDB may adapt Ready-to-Use Microfinance Frame work Package
approach adopted CGAP consortium of donors.
 More IDB involvement in early phase of Projects/Programs
formulation
 Investment in long-term programs in support of a few policy
objectives rather than in short-term stand-alone projects
“Micro-Credit Financing and Poverty Alleviation in OIC Member States” 9-10 July, 2007, Istanbul
Presentation by A. Slaoui Microfinance Specialist , Islamic Development Bank
IFS DEVELOPMENT PROGRAM : THE WAY FORWARD
Awqaf
Sadaqa
Corporate
Donations
Zakat
IDB Pov. All. Fund
Comprehensive
Human
Development
IFS Development
Fund
Other IFS
Others
Community A
Individual Individual
1
2
Community B
Community C
Individual
Individual
Individual
1
2
3
Individual
Individual
Individual
Individual
3
1
2
3
MIcrofInance
“Micro-Credit Financing and Poverty Alleviation in OIC Member States” 9-10 July, 2007, Istanbul
Presentation by A. Slaoui Microfinance Specialist , Islamic Development Bank
18
Lessons to be learnt from IDB experience
Special Services &
treatment
Promotional Social Safety
Net Interventions
•
•
•
•
•
Information, Counseling
Training, skills upgrading
Marketing Assistance
Technology devmt, transfer
Business linkages
Variety of Products
• Respect, connection with
pertinent stakeholders
• Rapid response, and
access to services
WA
ZA
Understanding
the Poor
Rights &
Needs
ZWA
ZWA
• Housing loans
• Education loans
• Life cycle products
No Collateral
Flexible financing
Products
WA
ZWA
• Small initial loan sizes
• Larger loans over time
• Longer terms
Asset Building, Risk
Mitigating Products
• Voluntary savings
• Health and life
insurance
• Group guarantee
WA Waqf applicable
ZA
“Micro-Credit Financing and Poverty Alleviation in OIC Member States” 9-10 July, 2007, Istanbul
Presentation by A. Slaoui Microfinance Specialist , Islamic Development Bank
Zakat applicable
ZWA Zakat &Waqf applic
Lessons to be learnt from IDB experience
Making Economic Policies & Growth Pro-poor
Re-distributive policies (targeting the poor)
• Providing Social Safety Nets to poor & marginalized
groups
• Addressing Social barriers & issues facing women in
economic development
“Micro-Credit Financing and Poverty Alleviation in OIC Member States” 9-10 July, 2007, Istanbul
Presentation by A. Slaoui Microfinance Specialist , Islamic Development Bank
Lessons to be learnt from IDB experience
Making Economic Policies & Growth Pro-poor
Targeted programmes and projects to enable the poor
to benefit from economic growth through :
• Labour intensive projects,
•Telecommunications, electricity, roads, infrastructure,
•Food security projects, post-conflict/reconstruction projects,
•Environment sustainability and renewable energy, micro-credit,
cross-cutting projects, etc.
Continued
“Micro-Credit Financing and Poverty Alleviation in OIC Member States” 9-10 July, 2007, Istanbul
Presentation by A. Slaoui Microfinance Specialist , Islamic Development Bank
“Zakat & Waqf Microfinance” efficiency
Income of USD10 million
Waqf @ 5% return, would
provide average loans of
$100 to 5000 Poor
.90,000
benefeciaries
would be covered if
90% of the Waqf used
in microfinancing.
Appropriate risk management Mechanism should be
established to protect the Waqf from decay.
Zakat, Takaful Funds may be the alternative,
“Micro-Credit Financing and Poverty Alleviation in OIC Member States” 9-10 July, 2007, Istanbul
Presentation by A. Slaoui Microfinance Specialist , Islamic Development Bank
Lessons to be learnt from IDB experience
Promote Islamic Microfinance Houses (IMH)
• Objectives: to complement the Comprehensive Human
Development model by providing access to integrated Islamic
Microfinance financial services to the poor in our member
countries
•The Microfinance Houses Development Programme would
initially entail a pilot project in 5 member countries for creating
and/or strengthening existing Microfinance institutions.
Continued
“Micro-Credit Financing and Poverty Alleviation in OIC Member States” 9-10 July, 2007, Istanbul
Presentation by A. Slaoui Microfinance Specialist , Islamic Development Bank
Lessons to be learnt from IDB experience
The IMH would also undertake other interventions which
would strengthen the livelihood of the poor, such as;
• Investments in public infrastructure, including roads,
communications and education which provide a foundation for selfemployment activities.
• Community-level investments in commercial or productive
infrastructure (such as market centers or small-scale irrigation
infrastructure) to facilitate business activity.
Continued
“Micro-Credit Financing and Poverty Alleviation in OIC Member States” 9-10 July, 2007, Istanbul
Presentation by A. Slaoui Microfinance Specialist , Islamic Development Bank
Lessons to be learnt from IDB experience
“Micro-Credit Financing and Poverty Alleviation in OIC Member States” 9-10 July, 2007, Istanbul
Presentation by A. Slaoui Microfinance Specialist , Islamic Development Bank
 Rural (esp. agricultural) finance
 Services like microinsurance, leasing, and remittances
 Social performance measurement
 Defining the lower limits of viable microfinance and
 Employing other interventions, including grants
 Replicable strategies for unlocking country-level capital markets for
microfinance
 Role of donors relative to international equity and loan funds
 Cost-effective and sustainable ways to combine non-financial development
services with financial services
“Micro-Credit Financing and Poverty Alleviation in OIC Member States” 9-10 July, 2007, Istanbul
Presentation by A. Slaoui Microfinance Specialist , Islamic Development Bank
ISLAMIC FINANCIAL SECTOR DEVELOPMENT
AND QWICK WINS MICROFINANCE INITIATIVES
IDB POVERTY ALLEVIATION FUND
THE ISLAMIC MICROFINANCE DEVELOPMENT
FRAMEWORK
“Micro-Credit Financing and Poverty Alleviation in OIC Member States” 9-10 July, 2007, Istanbul
Presentation by A. Slaoui Microfinance Specialist , Islamic Development Bank
Model of an Ideal Islamic Bank
A Universal Bank covering
•Commercial Banking
•Investment Banking
•Advisory Services
•Custodial Services
•Asset Management
•Zakat Management
•Awqaf Development
•Microfinance
This bank should be a vehicle for equitable
distribution of wealth.
“Micro-Credit Financing and Poverty Alleviation in OIC Member States” 9-10 July, 2007, Istanbul
Presentation by A. Slaoui Microfinance Specialist , Islamic Development Bank
IDB’s Role in Islamic Financial Sector Development
Previous Initiatives
 Equity investments in IFIs  Establishment of eight infrastructure
institutions  Research, training and technical assistance
 Development of financial products/funds (UIF, IBP) and Awqaf
sector
Recent Initiatives
1. “Ten-Year Framework for Developing the IFSI”, Joint Initiative
2. Establishment of a Policy Dialogue Working Group
3. IFSI Development Technical support proposal
4. IFSI Development Program
“Micro-Credit Financing and Poverty Alleviation in OIC Member States” 9-10 July, 2007, Istanbul
Presentation by A. Slaoui Microfinance Specialist , Islamic Development Bank
Macro Perspective: Policy & Regulatory Framework
1. Provide Supportive Legal, regulatory and tax framework
2. Ensure Macroeconomic Stability
3. Keep Inflation in Check
4. Curb Speculative Forces in Financial Markets
5. Integrate Awqaf and Zakah in National Policy
6. Support Civil Society Efforts
“Micro-Credit Financing and Poverty Alleviation in OIC Member States” 9-10 July, 2007, Istanbul
Presentation by A. Slaoui Microfinance Specialist , Islamic Development Bank
Macro Perspective: Policy & Regulatory Framework
Resolves the Unresolved Issues in Banking Sector Regulation
and Supervision that Affect Microfinance
1.
2.
3.
Should there be Prudential Regulation for Non-deposit-taking
MFIs?
Should Non-registered Entities be Prohibited from Lending?
How should Islamic MF be Separated from Conventional MF in a
Dual System?
“Micro-Credit Financing and Poverty Alleviation in OIC Member States” 9-10 July, 2007, Istanbul
Presentation by A. Slaoui Microfinance Specialist , Islamic Development Bank
Meso Perspectives: Infrastructure, Networks,
Technical Service Providers
1.
Basic financial infrastructure,
Range of services required to
reduce transaction costs, increase
outreach, build skills, and foster
transparency
4.
Transparency and Information: Highquality auditors and rating agencies,
credit bureaus, reliable information
software - scarcely available to
Islamic MFIs
2.
Payment Systems: Only large
Islamic FIs have access to
electronic payment systems
5.
Existing MF-specific Agencies expand
scope to include Islamic MF; or
Existing Agencies for Mainstream IFIs
to absorb MF services
3.
MFIs working for the poor may work
through the larger Islamic FIs by
forging alliances with them
6.
Proactive role of Donors in
Development of Islamic MF Rating
“Micro-Credit Financing and Poverty Alleviation in OIC Member States” 9-10 July, 2007, Istanbul
Presentation by A. Slaoui Microfinance Specialist , Islamic Development Bank
Micro Perspectives: Islamic Microfinance Providers
Diverse Organizational Structures:

Informal MF Providers,

Member-Based Organizations,

Non-Government Organizations,

Formal Financial Institutions,

Commercial Banks
Diversity should be given due recognition in regulation
Need to Develop an Integrated Structure
“Micro-Credit Financing and Poverty Alleviation in OIC Member States” 9-10 July, 2007, Istanbul
Presentation by A. Slaoui Microfinance Specialist , Islamic Development Bank
Micro Perspectives: Islamic Microfinance Providers
Shariah Compliance
Shariah Boards
Fiqhi Issues
Divergent Perceptions
Confidence of Users
Collective Resolution of Shariah Issues
“Micro-Credit Financing and Poverty Alleviation in OIC Member States” 9-10 July, 2007, Istanbul
Presentation by A. Slaoui Microfinance Specialist , Islamic Development Bank
RECOMMENDATIONS
Concerted Efforts by ALL Stakeholders to Make Finance Work in
Muslim Communities through Islamic Finance
Cooperatives-NGOs
Efficient Management of Community Assets, Combine Social
and Economic Agenda Effectively,
Islamic
Financial
Institutions
Recognize MF with Distinct Risk-Returns, Undertake
Direct and Indirect Financing, Linkage with Grass-root
NGOs, Facilitate Capital Market Participation of MFIs
Awqaf & Zakah
Funds
Preserve and Develop Community Assets, Undertake
TA, Transform the Destitute into “Bankable” Clients
Government
Agencies
Create Supportive Policy and Regulatory
Environment for IMFIs
“Micro-Credit Financing and Poverty Alleviation in OIC Member States” 9-10 July, 2007, Istanbul
Presentation by A. Slaoui Microfinance Specialist , Islamic Development Bank
“Micro-Credit Financing and Poverty Alleviation in OIC Member States” 9-10 July, 2007, Istanbul
Presentation by A. Slaoui Microfinance Specialist , Islamic Development Bank