innovation in microfinance & sme banking

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Dr Atef El Shabrawy

CEO of family bank, kingdom of Bahrain

[email protected]

Innovation in Islamic M&SME’s banking

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Challenges in Muslim Societies

1. Explosion of demand for Islamic finance (Micro & small): 1. Increasing number of unemployed & fresh graduated

2. Exclusion of poor, (youth and women) from financial services

3. Financial services gap of small & micro finance

2. Threats facing MFI’s

1. Weight of microfinance Central Banks rules & regulations on MFI’s

2. Lack of governance & capabilities of MFI’s

3. Weak capabilities & competitiveness of micro entrepreneurs

1. Low skills and absence of proper training

2. Low value-added businesses (farmers, handcrafts, homemade, …).

Copyright Atef El Shabrawy 2013 : [email protected]

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Example of M&SME’s finance in Bahrain

> BD 20,000

SME Loans

Bahrain Development Bank

Microfinance

Current situation

•Increasing welfare recipients

•High unemployed women %

•Large informal sector

•No specialized finance

•Need to have Islamic finance

Opportunities

Commercial

Banks

> BD >7000

≤ BD 5,000


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Innovation in the creation of the model

1- Shareholders composition

The partnership between government, NGO’s &

private sector..

Paid-up capital: BB5m & allowed BD15m


http://www.kfh.bh/

http://www.bbkonline.com/

http://www.ithmaarbank.com/

http://www.ahliunited.com/

http://www.orphans.gov.bh/

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Innovation in the creation of the in model

2- The financial institution type

Shk Issam Ishaq

Dr Osama Bahr

Dr Mohamden Golam

Sharia Advisory Board

A specialized Islamic microfinance bank licensed by Central Bank of Bahrain


http://www.cbb.gov.bh/cmsrule/default.jsp

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Innovation in the creation of the instution

3- The Target group

Major challenges

• Fear of start

• Lack of incentives

• Lack of support

• Rigid services

1. First time in business 1. Individuals receiving Government aid 2. Productive Families (home-based business) 3. Women/Unemployed youth & Handicapped

2. Small & Micro businesses (Startup’s) 3. NGO’s & Charity funds


Po

vert

y lin

e

Deprived Rich Very poor Relative poor Not poor

Not poor

But vulnerable

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4- The Guiding principles

Major challenges

• Lack of Collateral

• Lack of legal form

• Lack of guarantee

• Lack of experience

• Islamic finance only • Collateral Free finance • No legal or formal entity required • Low cots finance • Target the Financially Disadvantaged • Bank will go to the Poor • Provide Non-financial services


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Key programs

1. Group finance through Grameen BD500 to 3,000 ($0.377=1BD ) 2. Microenterprise finance BD3000 to 7,000 3. Finance schemes through NGOs/ MFI 4. Non-Financial Services (training, counseling, marketing,) Microfinance products : housing, education, live improvement, health finances

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Islamic Developed Products

10/8/2013

• Microcredit 1. Mudharaba Financing

2. Murabaha Financing

3. Murabaha By Tawarrq Financing

• Microfinance 1. Estissnaa Financing

2. Ijara Financing

3. Ijara Manafee Financing

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5- The operational innovation

Major challenges

• Delivery cost

• Credit behavior

• Cost of collection

• Geographic coverage

• Partnership Tamkeen to subsidy the profit rate • Partner with Remittance co. to use branches • Partner with ministries to use their centers • Partnership with NGO’s to deliver • Partnership with collection company • Partnership with BCCI to use business center facilities • Partnership with a legal firm as CS


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6- The Non-financial services innovation

Major challenges

• Low skills

• absence of training

• Low value-added

businesses

1. Pre-disbursement induction training 2. Obligatory entrepreneurship training 3. Monthly meetings, counseling 4. Extensive marketing & sales supports 5. Monthly awards for good customers 6. Incubators and ministerial services links


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7- The Social Innovation

Major challenges

• Lack of ideas

• Social role

• Impact on the bank

• Establish of “Idea Factory” to introduce creative business ideas

• Organization of “Social Business Weeks” • Collaboration with Universities students to train clients • Collaboration with CocaCola to establish “Kiosks” for

disabled


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Partners

NGO’s

http://www.cbb.gov.bh/cmsrule/default.jsp

http://www.bdb-bh.com/index.php?page=content&id=24

http://www.undp.org/

http://www.moic.gov.bh/Moic/En

http://www.bcci.bh/ar/Default.aspx

http://www.ey.com/EM/EN/Home

http://www.hraklf.com/

http://www.solidarity.cc/index/index.asp

http://livepositively.com/home/?wt.mc_id=CCSLP/

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Islamic Developed Products


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Achievements since March 2010

Financed business sectors

About 1700 members

Grameen 1350 & MEF 350 active members


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Achievements since March 2010

0

200

400

600

800

1000

1200

1 2 3

No of clients

2010 2011 2012 0

500

1000

1500

2000

2500

3000

3500

4000

2010 2011 2012 2013 (UptoApril)

Number of created jobs


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Activities & participation..


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Sample of supported businesses


19 Copyright Atef El Shabrawy 2013 : [email protected]

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Thank you for your attention!

www.familybankbh.com

قال هللا تعالى ى عالم

ون إل مؤمنون وسترد

ه وال

فسيرى الله عملكم ورسول

وقل اعملوا

ئكم بما كنتم تعملون هادة فينب غيب والش( 105: التوبة )ال

http://www.familybankbh.com/

innovation in microfinance & sme banking

Economy & Finance