Islamic Microfinance Prospect and Challenges in West Africa

Salaudeen Jubril Abdullah PhD4th Global Islamic Microfinance Forum

November 1-2, 2014Dusit Thani Hotel Dubai U.A.E

The Objectives

• The aims of this presentation are to explore the possibilities of introduction of Islamic Microfinance banks in West African countries, present the need for Islamic Micro-finance banks, as well as to look at the prospects and challenges that come with the introduction of the system. Already some few Islamic financial institutions have begun operations in Nigeria, Guinea and Senegal, but, they are to some extent at experimental level. The fact that West Africa has the second largest number of Muslims in Africa after North Africa should have attracted the attention of global communities concerned with the development of Islamic Micro finance world wide. But, despite the large population not much has been achieved in the spread of the system in the region, even in Nigeria with more than 60 million Muslims.

Outline

• West Africa

• Financial dualism

• Islamic Micro Finance in West Africa

• Prospect of IMFI in W/Africa

• Challenges of IMFI in W/Africa

• The Future of IMFI in W/Africa

• Summary

• End of presentation

West Africa in brief

• Located at the Western part of Africa

• Mostly Sub-Saharan Africa

• Made up of 16 nations

• Colonized by Britain and French

• Significant cultural and Religion Diversity

• Primitive farming methods

• The region fall under equatorial region

• Mineral resources that include crude oil, gold, diamond and bauxite.

Financial Dualism

• Formal Financial Sector ( CB, FI, Stock exchange etc)

• The Informal Financial Sector ( Esusu, daily contribution,

and cooperatives)

• Large informal business sectors ( population in rural areas, un-

banked, low literacy, but with skills, ideas and willing to work)

• Absence of other financial institutions in the rural areas

• A major consequence of a large informal sector is difficulty in economic management.

Islamic Micro Finance in W/Africa

• The west African region and Islamic Microfinance need each other for mutual benefits;

• Islamic Micro finance system will help acceleratethe region economic growth and development, and help reduce inequality and poverty.

• While the region will provide the Islamic Micro Finance system with new growth area with itspopulation of over 300 million people.

Efforts of past Government

• Some of the programmes tailored to address the problems of financial dualism, poverty and unemployment by successive Nigerian governments are;

• Rural banking scheme,• Peoples Bank, • operation feed the nation (OFN),• green revolution, • Nigerian Bank of Commerce and Industry (NBCI),• Nigerian Agricultural and Cooperative Bank, • Nigerian Economic Reconstruction Fund (NERFUND),

cont

• Nigerian Directorate of Employment (NDE),

• Family Economic Advancement Programme(FEAP),

• Poverty Alleviation Programme (PAP),

• Nigerian Industrial Development Bank (NIDB),

• Bank of Industry (BOI),

• Nigerian Agricultural Cooperative and Rural Development Bank (NACRDB), community banking and recently microfinance banking.

And the Result?

• Big Failure!!!• Programs to aimed at inclusion• High interest element ( 4% monthly)

• No trained manpower• Unstable government ( coup and counter coup)

• lack of banking culture in the rural areas and among the urban poor

• Religion and Culture of the people are not considered

• Lack of basic infrastructure

The Future

• 70% of the region population is engaged in the informal sector or agricultural production.

• Conventional microfinance banks in Nigeria serve less than one million people against the over 40 million that require their services.

• Enormous market for Islamic microfinance banks.• 65% of the entire population of w/Africa has no

access to banking services• There is an enabling law for Islamic Microfinance

in Nigeria, so it is with other countries in the region and at worst discussion has commenced.

Challenges

• The region is face with,

-regular changes in government policies,

- lack of requisite human capital,

- infrastructural inadequacies and socio-cultural misconceptions.

- banks are further inhibited by corruption -frauds and forgeries and poor corporate governance.

Conclusion

• The capacity building for the practitioners

• improving social infrastructure in the country. power supply constitutes huge cost to microfinance banks.

• Training of clients in financial literacy before disbursing loans.

End of Presentation

Thank You