Millions of Nigerians can have access to micro-credit through the activities of Islamic microfinance banks in the country. This plays a major role in tackling poverty and serves as a tool for economic empowerment.
Mr. Adnan Opeyemi Salaudeen, Research Assistant, International Islamic University, Malaysia explained the role of Islamic microfinance institutions in economic development & poverty alleviation.
He said apart from micro-credit, Islamic microfinance banks provide micro-savings, deepen financial inclusion, and accessibility to other financial services to poor people, low-income earners, and unbanked communities.
Assessing the factors hindering the establishment of Islamic microfinance banks in Nigeria, Salaudeen highlighted the following;
- The Share Capital: There are three (3) categories of microfinance as One unit, State unit and National unit, the share capital required for establishing a microfinance bank in Nigeria is that One unit must have N30m capital and cannot open more than one branch within the local government. Share capital is a huge challenge for Islamic microfinance.
- License: Licenses are not feasible for Islamic microfinance to get, unlike conventional microfinance.
- Framework: The Central bank only issued the BOFIA Act for banks but provided only guidelines for Islamic microfinance banks and the framework is not good enough for IFIs.
- Scholars and Shariah advisory committee need to take action to see the establishment of the Bank Act and proper framework for Islamic microfinance.
- Awareness: Globally Islamic finance industry is facing huge challenges in terms of awareness.
- Human Capital: Human capital resources for Islamic finance are low in terms of training and schools.
- Islamic Fintech: Financial digitalization is winning the whole world and IFIs should embrace technology.
- Misconception: The misunderstanding of IFIs is at a high level in Nigeria. Most Nigerians believe it is only for Muslims, and also some believe Islamic financial institutions are charitable organizations for Islamization.
Sharing his thoughts on how to enhance financial inclusion through Islamic microfinance, the research assistant believed that social finance is scarce. He decried the fact that the poverty rate across Muslim countries is high.
The researcher was optimistic that financial inclusion can be enhanced through credit plus. He highlighted five steps to achieve a credit plus plan, which include;
- Micro Savings
- Micro Credit by giving loans to people
- Micro Takaful: Islamic microfinance banks can also offer insurance by using micro Takaful to help them with risks such as credit risk, feasibility risk.
- Integrations: With more products, Waqf fund, Zakat fund, sadaqah fund can engage all these in institutions for social finance and enhance financial inclusion.
- Training: Building capacity, creating more awareness on the value of the credit plus plan
Speaking further, he explained how institutions and governments could key into Islamic Microfinance banks to achieve inclusive economic growth in Nigeria. According to him, institutions could assist at the Macro, Meso, and Micro levels.
“The Government can create Musharakah products with microfinance to generate fund or Sukuk, also the government with Central Bank of Nigeria (CBN) need to come up with legal and supervisory frameworks. The government needs to open the door for International ventures, he added.
He stressed that training centers, universities, experts, religious centers, and Islamic scholars are needed to achieve Islamic financial literacy and influence people positively, invest in social finance, and have clear documentation to explain to people what Islamic finance is all about.
Microfinance is a poverty alleviation mechanism that provides credit and other financial resources to poor, low-income households and SMEs. The initiative of microfinance started in 1976 with Grameen Bank in Bangladesh.