Bahrain’s Family Bank: Pioneering Islamic Microfinance
Much has been written about the success of microfinance throughout the world, but did you know that nearly 40 percent of microfinance clients in predominantly Muslim countries (such as Syria, Jordan, Egypt, and Algeria) refuse microfinancing because it conflicts with their religious beliefs? Under Islamic law, the conventional practice of charging interest for loans – or the very means by which conventional microfinance institutions maintain operational sustainability – is prohibited. So how can the estimated 1.5 billion Muslims worldwide access microfinance products? Institutions like the Family Bank in Bahrain attempt to provide an answer by offering microfinance services that are fully compliant with Islamic banking laws.
The Family Bank, inaugurated in the Kingdom of Bahrain in January 2010, is the first formal Islamic microfinance bank in the world. While the tiny island kingdom is one of the wealthy Gulf countries, some Bahrainis still live off of government welfare payments. Unemployment strikes women, the youth, fresh graduates, and disabled persons, and the dependency rates are relatively high for the region. While larger banks in the Kingdom offer financing, their smallest product size begins at BD 7,000 (%7eUSD 19,000), which is far too high for the financing requirements of microenterpreneurs. Furthermore, these macrobanks demand collateral, insurance, and a commercial registration in order to apply for funding – all of which the neediest Bahrainis lack.
The Family Bank, therefore, entered the market in attempt to service the need for access to Islamic microfinance. By partnering with Grameen Trust, the Family Bank has merged the lauded Grameen banking model with Islamic finance to produce a final product that can work for the local Bahraini context. All financing is based on trust, requires no collateral or commercial registration for acceptance, is forgiven in the event of death or grave disability, and is offered at fees that are 40 percent lower than competing institutions. As a pioneer Islamic microfinance bank, the Family Bank is actively fulfilling its responsibility to set high standards and craft a successful, replicable model across the Middle East and throughout the world.
The not-for-profit bank offers three financing programs: (1) group-based financing adopted from the Grameen group-based lending model; (2) microenterprise financing for the expansion of an existing microenterprise and; (3) NGO/MFI financing to support their socioeconomic development projects. For each activity the Bank finances, it places special emphasis on income generation, empowerment, and skills enhancement. Clients are also obligated to open a savings account with a mandatory monthly savings deposit to encourage sound financial management and good savings discipline.
In addition to its financial services, the Bank offers non-financial support in the form of entrepreneurial and vocational training, business counseling, and professional networking. The Family Bank’s several local and international corporate and NGO partners lead the vocational training workshops according to their individual specialty, and clients are encouraged to visit the Bank at any time to sit with one of its staff members for advice and guidance.
To date, the Family Bank has disbursed loans to 200 clients and one NGO. By the end of 2010, it seeks to meet the anticipated demand of 1,000 individuals, 350 microenterprises, and 5 NGOs in Bahrain.