Islamic Microfinance on the Rise

CGAP MUSLIMSAn estimated 1.28 million clients around the world use Sharia-compliant microfinance services, a four-fold increase since 2006, according to a Consultative Group to Assist the Poor (CGAP) study released Wednesday April 3rd.  Nearly a third of all institutions reported the launch of their Islamic microfinance operations in the last five years, and the number of providers offering these products has doubled since 2006.  Ninety-two percent of Sharia-compliant loans are concentrated in East Asia/the Pacific and Middle East/North Africa regions.   Additionally, 82% of Islamic microfinance clients reside in just three countries: Bangladesh, Sudan, and Indonesia.  Indonesia is home to the largest outstanding portfolio at $347 million.  Despite this growth, the sector is limited in terms of the number of service providers, product offerings, and overall outreach.  It remains challenging for providers to create sustainable business models.  Forty-three percent of institutions surveyed reported they relied on donations to finance at least some portion of their business because the operating costs of Sharia-compliant products, particularly profit-and-loss sharing products, are so high.  With around 650 million Muslims living on less than $2 a day, Islamic finance models could be the key to providing financial access to millions of poor Muslims.  Experts say the most important factor is to drive down costs so that clients don’t have to choose between their religion and their wallet.

About Katherine Rodota

Katherine is a recent graduate from Cal Poly San Luis Obispo where she studied International Business and French. She is currently working at a private equity firm in the San Francisco Bay Area. Katherine loves to travel, and recently spent her summer volunteering in Mauritius.