3rd Global Islamic Microfinance Forum' 2013
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AlHuda-Centre of Islamic Banking and Economics (CIBE) is a well known name in Islamic Banking and Finance sector which focuses on training, awareness, advisory and publications on Islamic Banking & Finance in order to promote the industry. AlHuda CIBE has organized a successful Conference "3rd Global Islamic Microfinance Forum" held on 6th & 7th October, 2013 in Dubai. AlHuda CIBE is very much pleased to share the topics and presentations being held in the Forum.
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3rd Global Islamic Microfinance Forum' 2013
- 2. Setting the Future Research Agenda for Islamic microfinance: Establishing the Evidence Base for Impact and Sustainability Dr Mohammed Kroessin Global Microfinance Advisor ISLAMIC RELIEF WORLDWIDE
- 3. Islamic microfinance research Agenda • Why research? • An emerging research agenda • How can IMFIs drive research? • The way forward
- 4. Islamic microfinance research Why research? - What is research? - Academic / IF fiqh - Market research - R&D / product development - Knowledge generation - Pure knowledge: academia - Applied knowledge: product development
- 5. Islamic microfinance research An emerging research agenda • What do we know: – I-MF in academia: very little interest in I-MF (Habib Ahmed) – I-MF R&D: some internal product development & innovation (GrameenJameel etc.) – I-MF market research: slowly emerging (IRTI, Kuwait Finance House, CGAP etc.)
- 6. Islamic microfinance research An emerging research agenda • Knowledge gaps (what don‟t we know) Sustainability Outreach / impact
- 7. Islamic microfinance research An emerging research agenda • Significance of knowledge gaps: “Sustainability”
- 8. Islamic microfinance research An emerging research agenda • Significance of knowledge gaps: “Sustainability in the I-MF context” – Social • non exploitative financing modes • Ethical vs. Sharia complaint – Environmental • Renewable resources (energy, raw materials, pollution) – Economic • Financial viability
- 9. Islamic microfinance research An emerging research agenda • Research questions about “Sustainability” – Uptake of I-MF (0.5% of global MF is Shari‟ah compliant, CGAP survey 2008) • Economic behaviour of clients • Socio-political analysis • Effectiveness of marketing strategies
- 10. Islamic microfinance research An emerging research agenda • Significance of knowledge gaps I: Impact/Outreach – I-MF still relatively small (IBBL RDS in Bangladesh 500k clients) – Business models not easily scalable – Outreach: depth vs. breadth – Impact
- 11. Islamic microfinance research An emerging research agenda • Significance of knowledge gaps II: Impact/Outreach – Evidence for social impact vs. rhetoric “In the development NGO sector internationally there has be an increasing recognition of the weakness of institutional learning and accountability and a growing gap between the rhetoric of agencies and the reality of what they achieve” (IMP-ACT).
- 12. Islamic microfinance research An emerging research agenda • Research questions: Impact/Outreach – What is the impact of I-MF products that are in economic terms very similar to conventional products (i.e. Murabaha, Qard Hassan with 15% mark-up/fee as compared to conventional MF with 15% interest)? – How can we measure the impact especially of the salient features of I-MF, i.e. equitable financing? – How can I-MF make a difference in particular contexts, i.e. Is asset-based financing or P/L better mitigating against external economic shocks etc?
- 13. Islamic microfinance research How can I-MFIs drive research? • building partnerships with academia – privileged access to data – encourage research – engage in critical debate
- 14. Islamic microfinance research How can IMFIs drive research? Case study: El Shaarani Centre for Islamic Business and Finance partnership with IR - At Aston Business School, Birmingham: - Shared research agenda - Looking for a market niche - Looking to be relevant to industry and society (Research Assessment Exercise) - Research on client behaviour (marketing) and comparative impact assessment
- 15. Islamic microfinance research The way forward -consortium-based research allows smaller I-MFIs to contribute by pooling resources -Global players (e.g. IRTI, WCMP) to take lead on global issues - bridge competitive „industry‟ -conceptualise and operationalise research - knowledge exchange
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Notes de l'éditeur
- Thank you, Mr Chairman.Assalamu ‘alaykum – I wish you all a good morning. It is indeed a pleasure and honour to be with you this morning, although not in person but in spirit – courtesy of modern technology, bithn Allah. Please accept my apologies for the inconvenience and please bear with us in case the connection proves to be slightly unstable.
- Over the next 20 minutes I would like to talk to you about a very important yet often forgotten aspect when we take stock and talk about the future of Islamic microfinance in events such as this excellent Global Islamic Microfinance Forum organised by Al Huda.The topic I would like to present to you today is that of research on sustainability and impact, 2 crucially important areas that we need to understand to drive the future growth of the Islamic microfinance sector. I will talk about:why we need research,what research might entail, how Islamic microfinance institutions can drive forward a research agenda and the potential way forward.
- Well, what do we mean when are we talking about ‘research’?In the field of Islamic microfinance:we have to consider academic research and jurisprudential reasoningMarket and marketing related researchAnd researchand development (R&D) type of workBut the big differentiation lies in The pure pursuit of knowledge for knowledge’s sake, andThe generation of applied and applicable knowledge that might lead to new products
- So what do we know about Islamic microfinance?Well, in comparison to the bodies of knowledge available on conventional microfinance we do know relatively little. This is of course, given that Islamic microfinance is relative novelty and still evolving not surprising.But there isn’t also a lot of research on microfinance within the Islamic knowledge sector, which is growing but still primarily concerned with more commercially applicable knowledge of Islamic finance fiqh.Academics dealing with Islamic finance have also not really investigated the micro dimension, with some notable exceptions, for example, Prof Habib Ahmed of Durham Business School.Similarly, there is only relatively little R&D going on and the Grameen-Jameel Award for Innovation and Sustainable Growth is a praiseworthy effort to bring some of it to the forefront. And market research takes place for example in the work of the Islamic Development bank’s Research and Training Institute or that of the Kuwait Finance House , but yet again many of the reports produced are one-off and no real knowledge benchmark has been established.
- So what kind of areas of knowledge are particularly underdeveloped and constitute real gaps in our understanding of Islamic microfinance?In my opinion both sustainability and outreach - impact would be have to placed on top of an emerging research agenda, because similarly to conventional microfinance they are key to any expansion and successful operational model for Islamic microfinance.
- Of course we have to understand these terms first of all and I suggest that sustainability in the context of Islamic finance and economics cannot mean sustainable financial returns on investment.There is and should be more to sustainability in the Islamic context than meets the eye or our conventional counterparts can sometimes be obsessed with.Sustainability, as this diagram shows entails a number of dimensions:The social sphereThe environmental sphere, andThe economic sphere Only where all there spheres overlap, can we talk about real sustainability.
- And particularly in the Islamic microfinance sector, any research into sustainability must entail investigations of:The social sphere to understand principles and practices of non-exploitative financing modes deployed. We also need to cast the net wider as ethical finance actually has a much wider understanding than Sharia compliant, which only focuses on the issue of riba and halal use. What happened to the tayyab? Similar to our meat consumption this is an often forgotten aspect.The environment, particularly as we do need to see ourselves as Muslim as custodians of the fragile plant earth and we cannot afford to squander god-give resources such as energy or raw materials and remorselessly pollute our own habitatBut of course we also have look at economic and financial viability of our dreams of socially just world.
- So amongst the many possible areas for investigation in the field of sustainability, perhaps one stands out as the human dimension is of course key.Whilst we have to appreciate that the Islamic microfinance sector is still relatively small, one has to wonder why the uptake – in form of Islamic microfinance products - for some of the principles outline earlier is extremely small. For example, the 2008 CGAP survey of Islamic microfinance found that in the Muslim world with a population of nearly 1.5 bn people – many of them very poor - only 0.5% of microfinance is Shari'ah compliant.This raises some interesting and for policy makers extremely important research questions, particularly:To understand why Muslim consumers display particular economic behaviourBut also we need to better understand the socio-political realities in which Islamic finance seeks to operateWhich should help us to develop better marketing strategies for a product that we all believe to be the better alternative to conventional financial products.
- Secondly, the area of impact and outreach is also of crucial importance. As we have said, Islamic microfinance is still relatively small, with some notable exception such as the Islami bank Bangladesh's Rural Development Scheme with over 500,000 poor clients.Related to the relative lack of outreach and impact is the lack, perhaps, of scalable models and I am particularly keen to hear more about the Akhuwat model later on.But also, impact might be limited by a trade-off between depth and breadth in outreach. This means that on the basis of financial viability we might be forced to focus on large customer numbers rather than reaching specifically the ultra-poor. But this is really a separate discussion.But either way, we simply don’t know enough about how to create and manage social impact, despite the proliferation of many possibly successful models around the Muslim and non-Muslim world. Even in conventional microfinance, the conceived wisdom that lending to the poor is an all cure has also been revised in the light of some interesting impact studies that for example the Grameen Foundation or the UK Department for International Development have commissioned recently.
- Similarly, it is time for Islamic microfinance institutions to move forward and put evidence forward for the real socio-economic impact of their inventions.“In the development NGO sector internationally there has be an increasing recognition of the weakness of institutional learning and accountability and a growing gap between the rhetoric of agencies and the reality of what they achieve.” We simply must move on from either anecdotal evidence or from overemphasising financial sustainability since Islamic microfinance was ultimately conceived as poverty reduction strategy.
- So, what would be important research questions in the field of impact and outreach?Well for once, What is the impact of I-MF products that are in economic terms very similar to conventional products (i.e. Murabaha with 15% mark-up as compared to conventional MF with 15% interest)?And, well, if its not the effective ‘interest’ or mark-up rate that counts,How can we measure the impact especially of the salient features of I-MF, i.e. the claim that is equitable or participatory financing?And if we claim that Islamic microfinance lends itself better to the need of the poor, How can I-MF make a difference in particular contexts, i.e. Is asset-based financing or P/L better mitigating against external economic shocks etc?
- But let us now move on from the questions that might hypothetically be asked to how we can actually facilitate this important research process.This is compounded, of course, by the fact that the Islamic microfinance sector is still very small and new, and only where it is linked to large commercial or social investment institutions, robust in-house research capacity might be present. But this is really rare. Nevertheless, there is considerable potential to collaborate with academic institutions, although their interest might be in the pursuit of pure knowledge over applied knowledge. However, they might or will be interested because of the knowledge gap and the very fact that you or me can give them privileged access to data.We also have to use fora such as today’s to encourage research and be prepared that sometimes the findings are not entirely favourable and are not reading like PR.We simply need to foster critical debate for the sake of allowing Islamic microfinance to explore its growth potential.
- Let me introduce you to the case study of a research partnership that Islamic Relief has recently struck with a leading business school in the UK. The El Shaarani Centre for Islamic Business and Finance at Aston Business School in Birmingham, where also Islamic Relief is headquartered, have now began to develop a shared research agenda around Islamic microfinance.For the University, it gives them a particular market niche since Islamic finance higher education provision has become rather competitive . It also allows them to underline the relevance for and impact on society in their Research Assessment, grading British Higher Education institutions.But it also helps Islamic Relief to answer some important questions on client behaviour and the socio-economic impact of our work, that will ultimately help us to deliver a better product or service to our stakeholders, the poor.
- So, the way forward that I suggest is for smaller and larger Islamic microfinance institutions is to pool their limited resources and work in consortia with others, including academia.But also global players such as the World Congress of Muslim Philanthropists and the Islamic Development Bank’s Research and Training Institute must also take the lead on global issues for importance to all of us.As honest brokers, they can:gap a perhaps relative competitive industryConceptualise and lead on carrying out researchAnd act as knowledge exchangeBut perhaps most importantly it is for all of us is to recognise that these difficult questions about sustainability and impact are crucially important for the future of Islamic microfinance. Thank you very much.