Islamic Microfinance Symposium at Tunis

A two-day Islamic Microfinance Symposium was organized by the Tunisian Association of Islamic Economics at Tunis in partnership with the Islamic Research and Training Institute (IRTI) of the Jeddah-based Islamic Development Bank Group and the GIZ, Germany during March 05-06, 2014. The two day event witnessed intensive discussions on several important sub themes. Day One was devoted to a comprehensive coverage of the multitude of modes of Islamic microfinance by Prof Dr Ridha Sadallah, President of the Association followed by a presentation on organizational models of Islamic microfinance by Dr Turkhan Ali Abdul Manap from IRTI. Dr Saadallah focused on recent decisions by Shariah scholars with respect to output sharing in the Muzara’a contract that might be of great relevance for Islamic microfinance practices. The sessions were anchored by Dr Ezzedine Khoja, former Secy General of AAOIFI and presently, head of the Zitouna Bank. Day Two of the event was devoted to some interesting and emerging themes in Islamic microfinance.

The first presentation on risk analysis and management in Islamic Microfinance was made by Dr Anas Hasnawi, a well-known figure in the field who narrated from his experiences, especially from the various initiatives under the Bank Khartoum to highlight the risk factors and possible ways to mitigate the same. The second presentation on developing a corporate governance framework for Islamic MFIs was made by Dr Mohammed Obaidullah from IRTI.

Using a stakeholder expectations model of corporate governance, Dr Obaidullah emphasized the point that the corporate governance framework for conventional MFIs is too narrow to serve the purpose of Islamic MFIs. The former focuses on the Board of Directors as the pivot in realization of expectations of various stakeholders and in particular, of shareholders’ wealth maximization. There are major differences between the respective objectives, strategic focus as well as the stakeholders of conventional MFIs and the Islamic MFIs. Major stakeholders for an Islamic MFI
that involves an integration of zakah, awqaf, not-for-profit and for-profit modes include the local community as powerful influencers of the way Islamic MFIs would operate. He also emphasized that the corporate governance guidelines issued by the Islamic Financial Services Board for Islamic FIs in general, that primarily focus on the rights of the unrestricted investment account holders (mudarabah depositors) and Shariah compliance may have limited relevance for Islamic MFIs. Credibility and social acceptance factors as well as the high levels of local community participation demand that Islamic MFIs must look beyond Shariah compliance and ensure that their programs and activities are governed by the objectives (maqasid) and spirit of Shariah. Any institution accepting zakat funds, does so as an agent of the zakat payer and is uniquely accountable to the payer to ensure that the funds are not only separated from other sources of funds – philanthropic and otherwise – but also allocated among beneficiaries deemed eligible by the Shariah. Any institution accepting cash waqf as mutawalli/ nazir is equally accountable to respect the wishes of the waqif or the donor and ensure flow of benefits to intended beneficiaries. While in case of zakat funds good governance would require their early utilization and distribution, in case of awqaf good governance would require their prudent investment and generation of safe returns. While the above concerns may be addressed partially in a well-developed legal and regulatory framework, the fact remains that such legal and regulatory framework governing zakah, awqaf, mutuals, and microfinance institutions are grossly inadequate, underdeveloped and ambiguous in most countries. Hence Islamic MFIs need to address the concerns and expectations either through self-regulation or good governance.

The subsequent session was devoted to case studies of real-life projects and country experiences. Mr Zubair Mughal, CEO, Alhuda CIBE, Pakistan narrated Islamic microfinance experiences from Pakistan. Dr Anas Hasnawi discussed about his experiences with Khartoum Bank and the Palestinian Initiative of IDB. Dr Mohammed Obaidullah shared details regarding the IDB Group’s overall approach in developing Islamic microfinance across the globe. He emphasize the fact that the IDBG model’s uniqueness lies in adding a “smart” factor to Islamic microfinance modes, which seeks to provide additional value to the beneficiaries. For instance, the “smart” factor in murabaha as used in a IDB project in Senegal is to enable the beneficiaries purchase commodities at heavily discounted prices, which materialized through better bargaining power with bulk purchases by IDB. The “smart” factor in the musharakah plus salam financing used in a IDB project in Guinea is to impart ownership of land to the landless beneficiaries through declining musharaka. The “smart” factor is what differentiates Islamic microfinance modes from mainstream Islamic finance modes.

The closing session of the symposium was presided by the Hon’ble Minister of Islamic Affairs of Tunisia. The symposium was followed by a brainstorming session for drafting recommendations towards strengthening the Islamic microfinance sector in Tunisia and more specifically, for examining the case for a dedicated regulatory framework for Islamic microfinance sector in Tunisia. The session was anchored by consultants from GIZ, Germany.

Mohammed Obaidullah | March 14, 2014