A two-day Islamic Microfinance Symposium was organized by the Tunisian Association of IslamicÂ Economics at Tunis in partnership with the Islamic Research and Training Institute (IRTI) of theÂ Jeddah-based Islamic Development Bank Group and the GIZ, Germany during March 05-06, 2014.Â The two day event witnessed intensive discussions on several important sub themes. Day OneÂ was devoted to a comprehensive coverage of the multitude of modes of Islamic microfinance by ProfÂ Dr Ridha Sadallah, President of the Association followed by a presentation on organizational modelsÂ of Islamic microfinance by Dr Turkhan Ali Abdul Manap from IRTI. Dr Saadallah focused on recentÂ decisions by Shariah scholars with respect to output sharing in the Muzaraâ€™a contract that mightÂ be of great relevance for Islamic microfinance practices. The sessions were anchored by DrÂ Ezzedine Khoja, former Secy General of AAOIFI and presently, head of the Zitouna Bank. DayÂ 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 DrÂ Anas Hasnawi, a well-known figure in the field who narrated from his experiences, especiallyÂ from the various initiatives under the Bank Khartoum to highlight the risk factors and possibleÂ ways to mitigate the same. The second presentation on developing a corporate governance frameworkÂ for Islamic MFIs was made by Dr Mohammed Obaidullah from IRTI.
Using a stakeholder expectations model of corporate governance, Dr Obaidullah emphasized theÂ point that the corporate governance framework for conventional MFIs is too narrow to serve theÂ purpose of Islamic MFIs. The former focuses on the Board of Directors as the pivot in realization ofÂ expectations of various stakeholders and in particular, of shareholdersâ€™ wealth maximization.Â There are major differences between the respective objectives, strategic focus as well as theÂ 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 localÂ community as powerful influencers of the way Islamic MFIs would operate. He also emphasizedÂ that the corporate governance guidelines issued by the Islamic Financial Services Board for IslamicÂ FIs in general, that primarily focus on the rights of the unrestricted investment account holdersÂ (mudarabah depositors) and Shariah compliance may have limited relevance for Islamic MFIs.Â Credibility and social acceptance factors as well as the high levels of local communityÂ participation demand that Islamic MFIs must look beyond Shariah compliance and ensure thatÂ their programs and activities are governed by the objectives (maqasid) and spirit of Shariah. AnyÂ institution accepting zakat funds, does so as an agent of the zakat payer and is uniquelyÂ accountable to the payer to ensure that the funds are not only separated from other sources ofÂ funds â€“ philanthropic and otherwise â€“ but also allocated among beneficiaries deemed eligible byÂ the Shariah. Any institution accepting cash waqf as mutawalli/ nazir is equally accountable toÂ respect the wishes of the waqif or the donor and ensure flow of benefits to intended beneficiaries.Â While in case of zakat funds good governance would require their early utilization andÂ distribution, in case of awqaf good governance would require their prudent investment andÂ generation of safe returns. While the above concerns may be addressed partially in a well-developedÂ legal and regulatory framework, the fact remains that such legal and regulatoryÂ framework governing zakah, awqaf, mutuals, and microfinance institutions are grosslyÂ inadequate, underdeveloped and ambiguous in most countries. Hence Islamic MFIs need toÂ 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.Â Mr Zubair Mughal, CEO, Alhuda CIBE, Pakistan narrated Islamic microfinance experiences fromÂ Pakistan. Dr Anas Hasnawi discussed about his experiences with Khartoum Bank and the PalestinianÂ Initiative of IDB. Dr Mohammed Obaidullah shared details regarding the IDB Groupâ€™s overallÂ approach in developing Islamic microfinance across the globe. He emphasize the fact that the IDBGÂ modelâ€™s uniqueness lies in adding a â€œsmartâ€ factor to Islamic microfinance modes, which seeks toÂ provide additional value to the beneficiaries. For instance, the â€œsmartâ€ factor in murabaha as usedÂ in a IDB project in Senegal is to enable the beneficiaries purchase commodities at heavilyÂ discounted prices, which materialized through better bargaining power with bulk purchases byÂ IDB. The â€œsmartâ€ factor in the musharakah plus salam financing used in a IDB project in Guinea isÂ to impart ownership of land to the landless beneficiaries through declining musharaka. TheÂ â€œsmartâ€ factor is what differentiates Islamic microfinance modes from mainstream Islamic financeÂ modes.
The closing session of the symposium was presided by the Honâ€™ble Minister of Islamic Affairs ofÂ Tunisia.Â The symposium was followed by a brainstorming session for drafting recommendations towardsÂ strengthening the Islamic microfinance sector in Tunisia and more specifically, for examining theÂ case for a dedicated regulatory framework for Islamic microfinance sector in Tunisia. The sessionÂ was anchored by consultants from GIZ, Germany.
Mohammed Obaidullah | March 14, 2014