Viewpoint: The Case for Islamic Microfinance in Africa
Thursday, September 3, 2015
Professor Badr El Din A. Ibrahim, President of the Microfinance Unit at the Central Bank of Sudan, discusses why Shari'ah-compliant financing is key.
Islamic, or interest-free banking, is a form of financial intermediation that prohibits giving and receiving pre-determined interest (or rate of return), as money has no intrinsic value and financial providers have to share the risk and benefits on profit and loss sharing arrangements; but the system does not exclude sales-based and lease formulae.
Interest-free finance is receiving attention in Europe, Singapore, Hong Kong and many other non-Muslim countries. The UK Government has committed itself to making London the global hub of Islamic finance.
The 2008-09 financial crisis set Islamic finance as an option to the global financial system because of its stability, reducing fragility and volatility. Moreover, Islamic finance also emphasises poverty alleviation and reducing income inequalities.
Yet while interest-free finance has been documented in many regions of the world, little is written about its development in Africa. Therefore, assessing the state of interest-free microfinance in Africa is difficult, because of data limitation. Nevertheless, there seems to be a large un-met demand for interest-free microfinance products in Africa given the large number of Muslims, weak financial inclusion, and the limited Islamic microfinance providers.
In Sub Saharan Africa alone, the Muslim population was estimated to currently stand at 250 million people and to reach 386 million in 2030, according to a 2014 IMF paper on Islamic finance in the region, written by Enrique Gelbard, Mumtaz Hussain, Rodolfo Maino, Yibin Mu, and Etienne B. Yehoue. Muslims are estimated to be 53 per cent of the total population of Africa according to the website Muslimpopulation.com–the site states that 16 out of 47 states have a 50 per cent or more Muslim ratio; this includes Ethiopia, where 50 per cent of the 89.2 million people are Muslim.