THE ROLE OF ISLAMIC FINANCE IN SUPPORTING MICROENTERPRISES AND SMES AGAINST COVID-19
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THE ROLE OF ISLAMIC FINANCE IN
SUPPORTING MICROENTERPRISES AND
SMES AGAINST COVID-19
Project Team:
Lead Researcher:
Professor Mehmet Asutay (Durham University)
Researchers:
Professor Zu'bi Al-Zu'bi (University of Sydney)
Dr Nur Dhani Hendranastiti (Universitas Indonesia)
Dr Mücahit Özdemir (Sakarya University)
Lamine Mbacke (African Institute of Islamic Finance)
09.09.2021
The Aim and the Focus of the Research Report
1 To analyse and explore the responses of Islamic financial institutions to support MSMEs against
the severe effects of the COVID-19;
To investigate the potential role of the institutions and instruments of Islamic financial sectors in
2 local, regional and international levels particularly focusing to MSMEs;
To explore the role of Islamic finance during the COVID-19 crisis and point the good practices
3 and weaknesses through in-depth analysis of the four OIC member countries (Indonesia, Kuwait,
Jordan, and Senegal) and one non-OIC member country (Russia).
To develop policy recommendations to the OIC member countries, including consideration for
4 alternative institutional and instrumental development need in the Islamic finance sphere for
MSMEs;
To present the findings and policy recommendations to the members of the COMCEC Financial
5 Working Group.
INTRODUCTION BACKGROUND INFORMATION
COVID-19 PANDEMIC
Confirmed Cases
221,134,742
Deaths
4,574,089
(as of 7 September 2021)
5,352,927,296
vaccine doses have
been administered as
of 5 September 2021
Source: https://covid19.who.int/
4
Real GDP Growth Forecasts
5,5%
4,2% 4,2%
3,7%
IMF OECD
-3,5%
-4,2%
2020 2021 2022
Worst economic performance since the Great Depression in 1929
Relatively strong recovery is expected for 2021, many countries will not be able to reach
pre-COVID-19 levels until 2022 (Moody’s Investors Service, 2021)
5
Sources: IMF, World Economic Outlook Update, January 2021; OECD Economic Outlook, Volume 2020 Issue 2
Backbone of Economy: Micro, small and medium enterprises (MSMEs)
– Global Perspectives
Challenges during the COVID-19;
decreased demand,
high fixed costs,
Constitute Average number lack of adequate capital,
of MSMEs per debt / loan related challenges,
1,000 people difficulties in accessing affordable financing, etc.
of all companies
Measures;
deferral of tax,
Account for in OIC member social security,
countries rent, utility and debt payments,
loan guarantees and deferments,
grants and subsidies, etc.
of employment
in the World in the World Challenges;
2 billion people have had no support from
their governments
41% of that government support was only a 6
one-off payment (OXFAM, 2020)
Sources: World Trade Organisation; IsDBPOLITICAL ECONOMY OF COVID-19
GDP of the OIC Member Countries Comparative Economic Performance (GDP) (PPP in Current USD)
1,2E+12
1E+12
8E+11
6E+11
4E+11 Source: SESRIC (2020, p. 30)
2E+11
Increased government expenditures
Expansionary fiscal policy and increased budgetary
0 deficit
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Afghanistan Albania United Arab Emirates Azerbaijan Benin Burkina Faso
Bangladesh Bahrain Brunei Darussalam Cameroon Comoros Djibouti Monetary policy –quantitative easings
Algeria Egypt, Arab Rep. Gabon Guinea Gambia, The Guinea-Bissau
Guyana
Kuwait
Indonesia
Lebanon
Iran, Islamic Rep.
Libya
Iraq
Morocco
Jordan
Maldives
Kazakhstan
Mali
Increased domestic and foreign debt
Mozambique Mauritania Malaysia Niger Nigeria Oman
Pakistan West Bank and Gaza Qatar Saudi Arabia Sudan Senegal The return ‘large state’ despite the neo-liberal policies
Sierra Leone Somalia Suriname Chad Togo Tajikistan
Turkmenistan Tunisia Turkey Uganda Uzbekistan Yemen, Rep. since 1980sPolicy Responses towards Pandemic
Support Types to SMEs During Pandemic - Global
Debt finance
Employment support
Tax Economic Policy Responses of OIC Countries to COVID-19 as of 27 April 2020
Business costs
Other finance
# of
Demand
Policy Category Intervention Type Implementing
Business climate
OIC Countries
Business advice
Fiscal Policy Fiscal stimulus package 42
Type of Measures and Their Percentages Interest rate cut 26
Demand; 54; 3% Business Business Monetary stimulus package 19
climate; 45; 3% advice; 35; 2% Monetary Policy
Other finance; 64;
4% Other monetary policy measures 45
Direct monetary policy
Business intervention to control BoP and 5
costs; 136;
9% Balance of Payments (BoP) and exchange rate
Debt finance; 594;
37% Exchange Rate Policy Accompanying monetary policy
intervention to stabilise BoP and 15
Tax; 314; 20%
exchange rate
Source:
SESRIC (2020)
Employment
support; 358; 22%
Note: Total number of OIC Countries available in the database is 52.
Source: World Bank (2020), Note: Percentages in the figure
show share of each type of support in the total of support
measuresDevelopments in Islamic Finance Market
Share of Global Islamic Banking Assets by Country (%) Global Sukuk Issuances (2001-2020, USD billion)
Others 174,6
Brunei
Sudan 145,7
Oman 137,6 136,3
Jordan 123,2
Egypt 116,7
107,3
Pakistan
Bahrain 93,2
87,9
Indonesia
Bangladesh 66,8 67,8
Turkey 50,2 53,1
Qatar 37,9
Kuwait
24,3
UAE
Malaysia
Saudi Arabia
Iran 2001- 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
0,0% 5,0% 10,0% 15,0% 20,0% 25,0% 30,0% 35,0% 2006
2020 2019 Core Islamic Finance Markets (S&P Expectations for 2020 and 2021)
Islamic Finance Components, 2020 (USD)
Islamic
Islamic Outstanding Takaful
Region Funds’ Total Share
Banking Sukuk Contributions
Assets
GCC 979.7 280.4 46.3 12.3 1,318.7 48.9%
South-East Asia 258.2 366.4 41.9 4.1 670.6 24.9%
The Middle East
499.0 18.9 22.8 5.5 546.2 20.3%
and South Asia
Africa 43.1 1.7 1.5 0.6 46.9 1.7%
Others 61.8 22.1 31.3 0.6 115.8 4.3%
Total 1,841.8 689.5 143.8 23.1 2,698.2 100.0%
Share 68.3% 25.6% 5.3% 0.9% 100.0%
9
Sources: IsDB (2020), IFSB (2021), IIFM (2021) and S&P (2021)Developments in Islamic Finance Market - Reflections
Low to mid single-digit growth in 2020-2021 (S&P, 2021)
NPL ratio is expected to increase
Central banks’ measures:
(i) lowering reserve requirements,
(ii) lowering of the regulatory capital buffer,
(iii) Sukuk buying programs (IsDB)
Islamic finance’s support to MSMEs is crucial
Holistic approach is needed
Islamic social finance instruments
Opportunities for Islamic FinTech
10METHODOLOGY
Critical review of the
existing body of
knowledge
(i) Primary data:
• Semi-structured interviews with stakeholders in
case countries: the bankers, financiers, Shari’ah
scholars, regulators, policy-makers (supply-side),
Data and chamber of merchants and artisans (demand-
side).
• Structured questionnaires: Broader Islamic
finance representatives in OIC member countries
(ii) Secondary data
• Databases
• Reports
• Policy documents, etc.
Policy Recommendations:
Synthesis i) Short-term
ii) Long-term
12CASE COUNTRIES
Russia
Jordan
OIC member countries
Indonesia
Jordan
Senegal
Kuwait Indonesia
Non-OIC member country
Russia
Kuwait
Senegal
14Case Countries
Indonesia Largest Muslim populated country in the world
The largest Muslim economy in the world, and therefore it is among the G20 countries
Economic performance is supported by a very large sector of MSMEs
Rich institutional diversity in Islamic finance
Enhanced public policy towards Islamic financial infrastructure
Developed non-banking financial sector
Kuwait Natural resources rich rentier economy in the Gulf Cooperation Council (GCC)
Developing strategies to contribute to the growth of MSMEs, which is an important pillar of its 2030 Vision
High market share of Islamic banks (more than 40 per cent)
Government initiatives to support MSMEs
Jordan An emerging market economy in the MENA region
Reliance on its manufacturing sector for development which makes MSMEs a vital dynamic of its economy and society
Well established and steadily growing Islamic banking and finance
Refugees have been an essential part of its MSMEs sector
Senegal Representing the African dynamics by being a regional economic and financial hub for Francophone West Africa
Emerging and increasing interest in Islamic finance
Being a Muslim majority country (about 96% of the population is Muslim)
MSMEs play an important role in the growth of the economy and social development of society
Russia An observer in the OIC due to its large Muslim populations
Eight recognized republics with Muslim majorities within the Federation
Newly developing Islamic finance sector
Heavily dominated by the manufacturing and production sector, MSMEs constitute the economy's backbone 15OVERVIEW OF THE STUDY
Covid-19 Pandemic
Conditions and Its Research
Impact On MSMEs Covid-19 Pandemic
Methodology: Policy
Financing and and Islamic Finance
Selected Case Studies Recommendations
Performance: Global
Perspective
2 3 4 5
• Political Economy • Distinct Features • Survey Findings • Short-term
of COVID-19 of Islamic • Case Study: recommendations:
• Effects of Finance Indonesia heavily based on
Pandemic on • The Performance • Case Study: the findings of
MSMEs of Islamic Kuwait the results
• Policy Responses Financial • Case Study:
by OIC Member Institutions Senegal • Long-term
Countries • Islamic Financial • Case Study: recommendations:
towards Institutions and Jordan structural in its
Pandemic Their Response to • Case Study: form and
the Pandemic Russia reflective of the
• Islamic Social • Country-Specific findings
Financing Policy
Institutions Recommendations 17
CONCLUSIONSURVEY FINDINGS
Demographic Information
Gender Frequency Percent
Female 67 26.3 Multinational Vocational
Male 188 73.7 Development Institution; Associations, 3, 1%
6; 2%
Total 255 100 MSME Owner; 8; 3%
Academic Degree Frequency Percent
Bachelor's Degree 28 11
High School 1 0.4
Master's Degree 110 43.1
Academics or
PhD 116 45.5 Islamic Banker & Professional Researcher;
Total 255 100 Financer; 51; 20% 109; 43%
Age Frequency Percent
20-30 57 22.4
31-40 116 45.5
41-50 54 21.2
51-above 28 11
Total 255 100 Financial Services
Average 38 - Authority or Equivalent;
Professional Experience (Year) Frequency Percent 18; 7%
1-5 65 25.5
6-10 64 25.1 Economic and Financial
11-20 87 34.1 Bureaucracy; 15; 6%
21-above 39 15.3
Total 255 100
Average 12 - Conventional Banker &
Financer; 13; 5% Central Banker; 20; 8%
Country Groups and Respondents Frequency Percent Civil Society Chambers of Commerce
# of OIC Member Countries (MCs) 28 70.0 Organisations / NGO; 9; and Industry; 3; 1%
4%
# of non-OIC MCs 12 30.0
Total 40 100
# of respondents from OIC MCs 226 88.6 255 responses from 28 OIC MCs and 12 non-OIC MCs have received.
19
# of respondents from non-OIC MCs 29 11.4 Despite all the efforts, the number of respondents from demand side representatives
Total 255 100 was remained relatively low.COVID-19 Effect on MSMEs and Policy Responses
Question: “What are the main challenges, financial and non-financial, faced by MSMEs during the COVID-19? Please rank from 1 to 7
1: most important, 7: least important.”
0% 20% 40% 60% 80% 100%
Sales (reduction in sales)
54% 12% 11% 11% 4% 4% 4%
"#2.27 average"
Liquidity shortages
12% 20% 17% 15% 19% 11% 6%
"#3.66 average"
Supply chain problems
7% 16% 21% 17% 15% 16% 8%
"#3.95 average"
Operational difficulties
7% 11% 18% 21% 18% 14% 11%
"#4.17 average"
Reduction in the supply of labour
8% 19% 11% 10% 16% 10% 26%
"#4.4 average"
Difficulties to access appropriate sources of finance
5% 10% 12% 15% 13% 31% 14%
"#4.73 average"
Financing/credit restructuring
7% 12% 11% 10% 14% 15% 31%
"#4.81 average"
#1 #2 #3 #4 #5 #6 #7 20COVID-19 Effect on MSMEs and Policy Responses
Question: “In what ways COVID’s impacts on MSMEs have adversely affected financial institutions?
Please choose as many as you consider appropriate
100 250
90
80 185 182 200
70 168
60 150
50
40 89 100
72,5 71,4
30 65,9
20 34,9 50
10 8
3,1
0 0
Need for Increase in non- High uncertainty Decrease in No adverse effect
rescheduling of performing loans in financial financing demand
financing markets
% of total respondents (lhs) # of responses (rhs)
21COVID-19 Effect on MSMEs and Policy Responses
Question: “In what ways COVID’s impacts on MSMEs have affected financial institutions, positively?
Please choose as many as you consider appropriate
0 10 20 30 40 50 60 70 80 90 100
Increase in the adoption of online channels for sales
79,6
and distribution
Accelerated the adoption of fintech solutions 67,1
Developing capacity to create new trainings to
47,1
MSMEs for e-commerce and fintech solutions
Accelerated product development 27,8
Non financing related offerings (such as mobilization
25,9
of zakah funds to MSMEs)
No positive effect 5,5
22COVID-19 Effect on MSMEs and Policy Responses
“Question: Do you think that the government in your resident country has acted/introduced appropriate measures to
support MSMEs during COVID-19?”
# of respondents # of countries
No; 95; 37%
No; 18; 44%
Yes; 23; 56%
Yes; 160;
63%
23COVID-19 Effect on MSMEs and Policy Responses
Question: What public policy measures were developed by the government in your resident country to support MSMEs
during COVID-19?
Please choose as many as you consider appropriate
0 10 20 30 40 50 60 70
Cash support
Tax relief/reduction
Credit guarantee
Wage subsidies
Lowering capital requirements of banks
financing to MSMEs
Training for e-commerce and fintech solutions
No support from government
24COVID-19, Islamic Finance and MSMEs
Question: In what ways have Islamic banks facilitated MSMEs’ expectations under COVID-19 conditions in your resident
country?
Please choose as many as you consider appropriate
0,0 10,0 20,0 30,0 40,0 50,0 60,0
Financing restructuring
Principal and installments deferment
Not any particular support from Islamic banks
Facilitating public policy solutions for financing in supporting
MSMEs
Reduction in financing rates for MSMEs
Use of zakat funds to alleviate the financial difficulties of MSMEs
Qard al hassan offerings for short-term financing needs
Training offerings for fintech solutions
Larger share of portfolio for financing of MSMEs
No Islamic bank in my resident country
Other
25COVID-19, Islamic Finance and MSMEs
The Role of Islamic Finance in Supporting MSMEs During COVID-19
Strongly Strongly
Statements Agree Neutral Disagree Average*
Agree Disagree
The profit and loss (PLS) financing by Islamic
34.1% 39.2% 20.8% 5.1% 0.8%
finance for MSMEs will help to reach resilience 4.01
(87) (100) (53) (13) (2)
during and after the crisis.
Islamic finance’s real economy orientation has
31.0% 41.2% 20.8% 6.3%
been witnessed as an important quality to face 0.8% (2) 3.95
(79) (105) (53) (16)
the challenges posed by COVID-19
Islamic finance is seen as a viable solution to the 29.4% 27.1% 6.3% 2%
35.3% (90) 3.90
crisis after the COVID-19 pandemic. (75) (69) (16) (5)
OIC member countries have benefitted from the 8.6% 29.4% 47.8% 1.6%
12.5% (32) 3.31
Islamic finance potential during COVID-19. (22) (75) (122) (4)
Islamic banks have played a supporting role
13.3% 29% 28.2% 20.8% 8.6%
towards MSMEs in my resident country during 3.18
(34) (74) (72) (53) (22)
COVID-19.
Note: *Weighted average (out of 5). The numbers in parentheses show the number of the respondents 26COVID-19, Islamic Finance and MSMEs
Question: Which of the following Islamic finance institution(s) provide the most effective solution for tackling financial
problems faced by MSMEs?
Make between 1 and 3 choices
0 5 10 15 20 25 30 35 40 45
Islamic banks 42,7
Islamic microfinance institutions 40,8
Zakat funds 32,9
Islamic fintech institutions (ie. crowdfunding) 31,0
Waqf 27,8
MSMEs specialised Islamic Fund 14,5
MSMEs specialised Islamic Bank 12,2
Islamic insurance companies (Takaful) 11,4
27COVID-19, Islamic Finance and MSMEs
“Questions: Which instrument(s) is(are) more suitable for supporting MSMEs during the “first”, “second”, “third” and
“fourth” stage of COVID-19? (more than one instrument can be selected).
Please make between 1 and 5 choices
The first preferred The last preferred
Instrument Type 1st stage 2nd stage 3rd stage 4th stage
stage stage
57.6% 35.3% 41.2% 27.8%
Qard al-Hasan 1st 4th
(147) (90) (105) (71)
46.7% 23.5% 27.8% 19.6%
Zakat 1st 4th
(119) (60) (71) (50)
39.6% 46.7% 45.1% 63.5%
Mudarabah 4th 1st
(101) (119) (115) (162)
39.6% 18.0% 24.3% 18.0%
Waqf 1st 2nd-4th
(101) (46) (62) (46)
38.4% 45.5% 44.7% 57.6%
Musharakah 4th 1st
(98) (116) (114) (147)
37.3% 17.6% 24.7% 14.1%
Sadaqa 1st 4th
(95) (45) (63) (36)
19.6% 29.0% 29.8% 42.4%
Murabahah 4th 1st
(50) (74) (76) (108)
15.7% 29.8% 28.2% 33.3%
Ijarah 4th 1st
(40) (76) (72) (85)
15.3% 28.6% 24.7% 27.1%
Salam 2nd 1st
(39) (73) (63) (69)
9.8% 31.8% 22.4% 22.7%
Istisna' 2nd 1st
(25) (81) (57) (58)
28
Note: The numbers in parentheses show the number of respondents selecting this choice. Stage 1. Shutdown impact; Stage 2. Supply chain disruption; Stage 3. Demand
depression; Stage 4. Recovery (International Trade Centre,2020, P. 29-30)Survey Findings - Conclusion
Concerns over the current performance of Islamic finance within the existing institutional
form within the market economy.
Asymmetry between the expectations (what ought to be) from Islamic finance and the
practice of Islamic banking is evident in the survey results.
References to traditional Islamic economics/social welfare institutions such as zakat, waqf
and sadaqah along with qard al-hassan.
Islamic banking and finance should be rescued from being grafted into a straitjacket in
which they are only operating with mudarabah and organised tawarruq.
Islamic banking and finance has a critical potential to make a difference as envisaged by the
founders of the Islamic economics and banking movement.
Concerns over institutional constraints and regulative environment has been grafting
Islamic finance towards market logic beyond Islami’s normatively defined forms and
operational mechanism.
Urgent need to provide the authentic operational environment for Islamic banks.
29CASE STUDIES
INDONESIA Presented by Dr Nur Dhani Hendranastiti
The Role of the MSMEs in the Indonesian Economy
Wholesale and retail trade
64 million
Units of MSMEs
Agriculture, hunting, fishery, and forestry
Processing industry
Government and Society services
Construction
2,045 T
Export value (in IDR)
Provision of accommodation and the provision of
eating and drinking
Real estate, Business Ownership, and Business
Services
Transportation, warehousing and communications
61%
of GDP
Financial intermediaries
Mining and quarrying
Electricity, gas and water
121 million
people employed
0 100.000 200.000 300.000 400.000 500.000 600.000
32
Source: Kemenkop (2018) Source: Bank Indonesia (2015)The Nature of Financial Challenges Faced By MSMEs under the
COVID-19
Difficulty in buying
materials
Decrease in
sales Difficulty in paying
wages
Difficulty in paying
transportation costs,
rental fees
Increase in non-
Difficulty in repaying
performing loans in
their loan
banking sector
33The Trajectory of Islamic Finance: Institutionalization, Legal and Regulatory Framework, and Financial
Standing
14 20
Islamic Banks Islamic windows
Bank Muamalat The first corporate For the conventional banks
Indonesia sukuk
163 13
Islamic rural banks Islamic insurance
1992 1997 2002 Recent 9 10
Islamic financing Islamic fintech
companies
Including financing companies,
venture capital, and infrastructure
4
Shariah mutual financing Islamic pension fund
fund
80+11
Islamic microfinance+Baznas
1 60 5 Microfinance
Islamic Securites Bank Wakaf Mikro Islamic specialized financial institutions
Crowdfunding Such as guarantee company, pawn shop, housing secondary
financing, Permodalan Nasional Madani, LPEI 34Islamic Financing Provisions For MSMEs: Institutions, Products, And Offerings
Financing for MSMEs by Islamic Banks Financing for MSMEs by Islamic Rural Banks
90.000,00 25,00% 7.000.000,00 70,00%
80.000,00
6.000.000,00 60,00%
70.000,00 20,00%
60.000,00 5.000.000,00 50,00%
15,00%
50.000,00
4.000.000,00 40,00%
40.000,00
10,00%
3.000.000,00 30,00%
30.000,00
20.000,00 5,00% 2.000.000,00 20,00%
10.000,00
1.000.000,00 10,00%
0,00 0,00%
0,00 0,00%
Kas.20
Şub.20
May.20
Şub.21
May.21
Oca.20
Eyl.20
Eki.20
Oca.21
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
Mar.20
Mar.21
Nis.20
Haz.20
Ağu.20
Tem.20
Nis.21
Ara.20
Financing (in million IDR) Financing for MSMEs/Total Financing
Working Capital (in billion IDR) Investment (in billion IDR) Financing to SMEs (in billion IDR)
Working capital/total financing Investment/total financing
35
Source: OJK (2021)The Nature and Type of Support Including Islamic Financial Support Extended By
Various Institutions to the MSMEs in Indonesia
Type Program name Description Reach out by May 2021
Direct Productive Support Cash support IDR 2,4 million per MSME 9.8 million business units
Financial Investment financing Revolving Fund Agency (LPDB) distributing 11.8 million business units
– cooperatives funds as a low-interest loan via
cooperatives
Financial Financing placement Distributed as low-interest loan by bank Credit delivered at amount of
IDR 380.05 T (# of debtor:
5.13 million)
Financial Interest subsidy Subsidy for bank’s interest rate
Financial Credit assurance for Loan insurance for SMEs provided for Working capital loan: 30.78
SMEs banks through credit insurance companies trillion (# of debtor: 1.65
to cover potential of SMEs to default million)
Financial Electricity subsidy 100% electricity for MSMEs who subscribes
for B1 450 VA and I1 450 VA
36
*The support is channeled through both conventional and Islamic financial institutionsThe Nature and Type of Support Including Islamic Financial Support Extended By
Various Institutions to the MSMEs In Indonesia
Type Program name Description
Final income tax
Fiscal Subsidy for final income tax for SMEs
for SMEs
e-learning program EDUKUKM
Podcast series to provide guideline in
digital business model
Trainings
Webinar series SPARC campus
Video series with the theme of New
Normal
Buddy program for sales in e-commerce
Digitalisation Digitalizing MSMEs that are supervised by
PLUT-KUMKM
*The support is channeled through both conventional and Islamic financial institutions 37The Nature and Type of Support Including Islamic Financial Support Extended By
Various Institutions to the MSMEs In Indonesia
1
POJK No.11/POJK.03/2020
(i) Financing for less than IDR 10 2 Restructuring Scheme
(i) Decrease in interest/principal
3 Bank’s Strategy in the New
Normal
billion can be based only on (ii) Decrease for the delayed (i) Adopt digital technology in
the punctuality of principal interest/principal communicating with the
repayment and/or clients (phone, online)
interest/margin/profit (iii) Extend the period
(ii) Provide financing/loan to
sharing/ujrah until 31st of (iv) Increase the facility line MSMEs that still have the
March 2021
(v) Convert the credit into equity potential by analysing the
(ii) Debtor who gets restructuring participation only for certain business and macroeconomic
facility can still be classified as period condition
good borrower
(iii) Cooperate with e-
(iii) Bank can still provide commerce/fintech platform to
loan/financing for debtor gather MSMEs database
affected by pandemic
(iv) Strengthen the credit scoring
system and adopt digital
lending
*The regulation and strategy applies for both conventional and Islamic banks 38Islamic Social Finance and Financial Support for MSMEs
248% 30%
Increase of social funds collected in 2020 compared to 2019
Increase of social fund collected
from January to May 2020
(BAZNAS, June 2020)
88.7%
70% Has been distributed under various programs in BAZNAS, such as
support for medical, non-medical, and economic activities
Increase compared to June 2020
79
Online trainings for the muzakki (entrepreneurs)
Collaboration with the digital platform and
e-commerce in the social fund collection Also taking part in the health emergency project, providing logistic
A new group of muzakki (zakat payers) packages, cash for work, cash assistance, and providing cooked
during the pandemic wanted to help others food for direct consumption (Hudaefi et al., 2020)
39Best Practices and Policy Recommendations
POLICY RECOMMENDATIONS:
BEST PRACTİCES:
The institutional operational logic of Islamic
banks should be enabled.
Relaxation of loan repayment and
providing subsidy for loan margin
To employ various Islamic financial
institutions for different scale of enterprises
The Islamic social funds efficiently Enabling environment that empowers SMEs
empowering
Developing micro-takaful for the MSMEs
Emergency and contingency funds in the form of
Shari’ah compliant manner qard al hassan
The use of technology to support for MSMEs
Efficient international collaboration and cooperation within
OIC
40JORDAN
Economic Structure and the Role of MSMEs
40000 10 Emerging market economy
35000 8 Significant immigration.
30000
25000
6 Between 2010-2019, the economic growth rate
20000
4 demonstrated declining yet steady performance.
15000
2
MSMEs for the general economy as well as for the
0
10000 immigrant communities are vital.
5000 -2
0 -4
Jordan - GDP (constant 2010 US$, million) Jordan - GDP growth (annual %)
Classification of MSMEs in Jordan by Central Bank Distribution of Enterprises in Jordan in 2021
Business Employment Scale Assets/Turnover
Micro 1-4 < 100K JOD Classification Number Percentage
Small 5-19 100K - 1M JOD Micro 169086 89.1%
Medium 20-100 1M - 3M JOD
Small 16858 8.8%
More than 98% of the economy comprised of MSMEs firms.
Medium 3036 1.6%
Employs 70% of the total workforce (Sanad, 2021).
Contribution to GDP is around 50 % (DOS, 2021). Large 948 0.5%
78% of the MSMEs registered at the Ministry of Industry and Trade
Total 189772 100%
are in the services sector (MIT, 2021).
Access to finance is a major problem for MSMEs in Jordan, where the Source: DOS (2021)
financing gap ranges between 35 and 40% (World Bank, 2021).The Trajectory of Islamic Finance in Jordan
Main Indicators of Islamic Banking Sector in Jordan
Item 2019Q4 2020Q1 2020Q2 2020Q3 2020Q4 Islamic banking started in 1983 with the Law No.
CAR (IFSB) 21.84% 21.21% 23.17% 22.14% 22.79% 13 issued by Central Bank of Jordan.
Gross The four Islamic banks in Jordan constitute 17% of
nonperforming
financing (gross
2.64% 2.87% 2.69% 2.59% 2.19% the total assets of the banking system.
NPF) ratio Islamic Banks in Jordan:
Net - SAFWA Islamic Bank,
nonperforming
financing (net
5.70% 6.73% 5.30% 5.93% 4.10% - Jordan Islamic Bank,
NPF) to capital - Islamic International Arab Bank,
Return on assets
1.96% 1.76% 1.80% 1.72% 1.67%
- Al-Rajhi Bank.
(ROA)
‘Net NPF to capital’ demonstrating declining trend
Return on equity
(ROE)
20.00% 18.13% 18.43% 17.81% 17.25% during the COVID-19 period.
Cost to income 48.29% 52.67% 49.86% 49.86% 50.60% The trends in the main indicators does not show
Number of Islamic
4 4 4 4 4
any significant adverse impact on Islamic banking
banks
performance in Jordan.
Total assets
(million national 8,857.9 8,960.6 9,126.6 9,676.7 9,803.5
currency)COVID-19 Conditions and Islamic Financing Responses for MSMEs
The first COVID-19 case was reported on 2nd March.
Jordan experienced two main waves of infection, centred around November 2020 and March 2021, and as of July 2021
The country had one of the strictest initial responses, with borders closed, returning travellers quarantined, and full and partial
curfews implemented in the first half of 2020.
According to survey of 1,190 MSMEs in April 2020 found that just 7% were operating as normal, with 51% completely closed.
The majority of companies reopened in May. Percentage of Enterprises Surveyed in April 2020 with the Means to Contribute
8
Salary for at least Month
7,1
6,4
% earnings decrease
7 80
6
% enterprises able to pay salary
5 70
4 2,8
3 1,8
60
2 1
0,3 50
for 1 month
1 0,2
0
40
30
20
10
0
Sector Micro Small Medium Large
Source: Building Markets, 2020
Size of enterprise
The sectors in Jordan most strongly affected by the COVID-19 The ability of enterprises to contribute salary markedly decreased as
pandemic are tourism, entertainment, travel, and retail. the size of the company decreasedCOVID-19 Conditions and Islamic Financing Responses for MSMEs
Defence The Value of Credit Facilities Granted by Banks to SMEs
Date
order Impacts on MSMEs 2000
Credit granted / million JOD
passed
number
Mar 19, A law to delay and alter aspects of the social security law. Enterprises can
1 1500
2020 suspend social security payments for three months and pay in installments.
Enterprises resuming operations must pay workers full wages; they can negotiate
Apr 8, 1000
6 to reduce wages by no more than 30%. Enterprises not resuming operations after
2020
April 1st should pay workers 50% wages.
Apr 17, Programmes to protect businesses, freelance workers and daily wage workers 500
9
2020 and workers in private sector.
May 3, Enterprises and individuals have extension of submission of withholding tax 0
10
2020 statements.
May 3, Specific measures to reduce transmission, including face masks and gloves to be
11
2020 work in public serving spaces.
Small-sized enterprizes Medium-sized enterprizes
Jun 15,
13 Financial guarantees for businesses in travel and tourism liquidated.
2020
Percentage of Total Credit Facilities Granted by Banks to SMEs to Total
Jun 15,
14 Enterprises in the tourism industry cannot lay off workers. Private Sector Credit Facilities
2020
% total credit granted to MSMEs
Sep 19, Introduction of strict penalties on individuals and businesses that do not comply
16 11,5
2020 with health safety measures.
Oct 22, 11
19 Restaurant operations restricted to 50% capacity
2020 10,5
Steps Taken by the Ministry of Finance to Support MSMEs during the COVID-19 Pandemic 10
Date Details 9,5
Sales tax exemption on hygiene products and medical equipment; introduction of price 9
March 18, 2020 ceilings on essential products; postponement of 70% customs duty collections due from 8,5
selected companies; decreased social security contributions from private sector. 8
50 million JD additional spending for COVID-related costs; 81 million JD for temporary
March 31, 2020
cash transfer program for unemployed and self-employed.
Support for tourism sector by allowing payment of 2019 tax liability instalments penalty-
June 15, 2020
free; reducing general sales tax and service tax for hotels and restaurants.
CBJ’s financial measures to support MSMEs:
December 3, Funding to protect more than 170,000 in hard-hit sectors; additional support for tourism - allowing banks to postpone repayments for clients in affected sectors;
2020 sector. - broad reductions in interest rates;
448 million JD COVID stimulus package, including job-protection program (113 million - and a reduction in cost and expanded coverage of guarantees on MSME loans,
March 31, 2021
JD).COVID-19 Conditions and Islamic Financing Responses for MSMEs Public Sector Provision of Shari’ah Compliant Financial Solutions to MSMEs JOD500 million soft financing program for supporting MSMEs. The financing is provided by both Islamic banks and non-Islamic banks and is guaranteed by the Jordan Loan Guarantee Corporation The latest program launched by the Central Bank of Jordan, worth JOD 700 million JOD, is targeted to help MSMEs to bring their businesses up to speed with the demands of the recovery stage of the pandemic and grow bigger and quickly and Islamic banks will play a major role in it.
COVID-19 Conditions and Islamic Financing Responses for MSMEs
Responses of Islamic Banks towards MSMEs and Their Shari’ah Compliant Solutions
The Islamic banks
customised their offerings,
collaborated with government and the Central Bank of Jordan, and
expanded their charitable giving especially from Zakat funds and qard al-hassan financing.
JIB increased its qard al-hassan financing by 290% to support MSMEs during the pandemic.
IIAB
expanded its kafalah system by 80% to facilitate MSMEs gaining access to finance and
expanded sukuk issuance and investment to support the government’s plans.
Safwa Bank also followed suit,
increasing its qard al-hassan giving by 88%,
donating JOD 1 million to Himmat Watan, and
participating actively in the government scheme to support the MSMEs through their product
Inhad which is an initiative that aims at reducing unemployment for new graduates through giving
them extra access to finance through the pandemic.
Al-Rajhi Bank responded differently to the challenges of COVID-19 on the MSMEs, focusing on the
digital side of the process.Jordan - Best Practices The best practices of the banks included cooperation with the Central Bank of Jordan and the different entities of the government to provide interest free loans to MSMEs with eased eligibility criteria Longer grace periods, easier financing, longer financing terms, letters of credit, letters of guarantee, salary subsidies to needy clients, and payments deferral. The banks eased the terms of musharakah and murabaha contacts for the clients. The banks’ swift change to e-banking and digitilisation demonstrated their resilience and their ability to quickly adapt and respond to crisis.
Jordan - Country-specific Policy Recommendations The Jordanian government needs to keep supporting the growing shift towards Islamic finance as it has proven to be efficient, responsive and resilient in the direst of situations. Helping Islamic finance institutions to provide their classic and innovative solutions in the digital age, such as through digital selling of loans and easy online applications for and management of loans is crucial to this end. This can be supplemented by work on reducing credit sensitivity analysis, extending Islamic banking to uncharted areas such as blockchain finance, e-supply chain, and e- agriculture. Developing non-borrowing services, improving the skills of both employees and MSME owners, and giving considerable and exclusive attention to women’s empowerment projects.
KUWAIT
Economic Structure and the Role of MSMEs
GDP Trends (2006-2021)
Gross Domestic Product and Its Growth (2006-2019)
160.000,00 12
140.000,00 10
8
120.000,00
6
100.000,00 4
80.000,00 2
60.000,00 0
-2
40.000,00
-4
20.000,00 -6
- -8
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Kuwait - GDP (constant 2010 US$, million) Kuwait - GDP growth (annual %)
A GCC member country
Sectoral Distribution of the Economy (2010-2019)
Economy is dominated by the rent extracted from hydrocarbon
80
export
70
60
Kuwait aims to diversify its economy (Vision 2035)
50
Since 2012, there is a visible increase in the value-added of the
40
services sector
30
Economic diversification policies require the development of the
20
private sector, for which SMEs play an essential role.
10
Kuwait is expected to show a dynamic bounce back in post-covid.
0
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Agriculture Industry ServicesEconomic Structure and the Role of MSMEs National Fund for Small and Medium Enterprise Development (KNF) established in 2013 with KD2 billion, which have remained the main public financing body along with commercial conventional and Islamic banks. KFN defines “an SME as a small company with capital of less than 250,000 KD and 1 to 4 Kuwaiti employees. A medium-sized company is considered to have capital of between 250,000 and 500,000 KD and employs 5 to 50 Kuwaiti nationals” According to the KNF, “Entities that employ less than 50 Kuwaiti people and have an asset base of less than KD 500,000 with revenues of less than KD1,500,000 are considered as SMEs” (Markaz, 2021). In 2019, “SMEs contribute around 3% of the GDP, with the gross value added by the SMEs of KD 1,216 million” (World Bank, 2016). “There are approximately 25,000 to 30,000 SMEs in Kuwait, representing about 90% of a total number of companies” (Markaz, 2021). “Less than 7% of Kuwaiti national workforce or about 27,000 work in the SME sector ” (Markaz, 2021). A majority of the Kuwaitis nationals (81 percent) are employed in the public sector (Markaz, 2021). Economic diversification requires the development of the MSMEs sector.
The Trajectory of Islamic Finance in Kuwait
Share of Islamic Banking Assets in the Domestic Banking Sector (3Q2020)
Main Indicators of Islamic Banking Sector in Kuwait 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Iran
2019 2020 2020 2020 2020
Item Sudan
Q4 Q1 Q2 Q3 Q4
CAR (%) 18.1 16.6 16.6 16.5 17.7 Saudi Arabia
Gross nonperforming Brunei
financing (gross NPF) 1.6 1.6 2.3 2.3 1.9
Kuwait
ratio (%)
Net nonperforming Malaysia
financing (net NPF) to 6.0 10.8 10.4 10.0 8.1
Qatar
capital (%)
Return on assets (ROA)
1.3 1.1 0.2 1.0 1.0 Share of Kuwait’s Islamic Banking Assets in the Global the Islamic Banking Assets
(%)
Return on equity (ROE) (%) (in 3Q20)
12.1 10.4 1.6 9.8 10.2 Others; Egypt; 0,9% Oman; 0,7% Brunei; Iraq; 0,4%
(%) 1,2% Jordan; 0,7% 0,4%
Sudan; 0,8% Palestine; 0,2%
Net profit margin (%) 23.1 20.1 3.4 21.1 23.0 Pakistan;
1,3% Indonesia; 2,1%
Cost to income (%) 27.7 26.7 27.4 26.4 30.8 Bangladesh; 2,3%
Number of Islamic Turkey; 3,0%
6 6 6 6 6 Bahrain; 3,5%
banks
Total assets
(billion national 35.3 37.0 37.6 38.1 38.9 Saudi Arabia; 28,5%
currency) Kuwait; 6,0%
Qatar; 6,5%
The emergence of Islamic banking and finance can be traced back to the
1970s in Kuwait initially, with the conceptual engagements in the early 1970s
leading to the establishment of the first Islamic bank in 1977 with the Kuwait UAE; 9,2%
Iran; 22,1%
Finance House.
Malaysia; 11,4%Islamic Financing Provisions for MSMEs: Institutions, Products, and Offerings
Distribution of Financing According to the Islamic Contracts Distribution of Financing According to the Economic Sectors
35,0%
70,00%
30,0%
60,00%
25,0%
50,00%
20,0%
40,00%
15,0%
30,00%
10,0%
20,00%
5,0%
10,00%
0,0%
0,00%
2013A 2014Q4 2015Q4 2016Q4 2017Q4 2018Q4 2019Q4 2020Q1 2020Q2 2020Q3 2020Q4
2013A 2014Q4 2015Q4 2016Q4 2017Q4 2018 Q4 2019Q4 2020Q1 2020Q2 2020Q3 2020Q4 Oil/gas Trade Industry
Murābahah Commodity Murābahah/ Tawwaruq
Construction Real Estate Equity purchase financing
Salam Istisnā`
Agriculture/fishing Investment companies Banks
Ijārah / Ijārah Muntahia Bittamlīk Muḍārabah
Mushārakah Diminishing Mushārakah Services Households Other
The most important institution for SMEs financing is KNF which does not Conventional and Islamic banks have been providing financing for SMEs,
openly operate in Islamic finance terms. Some of the banks have relevant SMEs department to finance and monitor
As the explanation provided by all the interviews, the financing provided by the progress of their financing.
KNF is akin to the qard al hassan instrument of Islamic finance, as no return Kuwait International Bank (KIB), an Islamic bank, and Kuwait Finance House
or profit-sharing is included in the operations. (KFH) have an important SMEs portfolio.
Banks, including Islamic banks, work in a coordinated manner with KNF by The available financings for SMEs are somewhat limited within the system.
acting as the handler of the applications for a fee from KNF for each
evaluated application. This process supports the Shari’ah compliant nature, at
least on the form.COVID-19 Conditions and Islamic Financing Responses for MSMEs
SMEs faced loss of revenue, negative demand shock and temporary business closure as well as income loss due to
COVID-19.
As “limited cash reserves coupled with labour shortages in the SME segment due to COVID-19 lockdown is
brewing the perfect storm” (Markaz, 2021) creating further uncertainties on the sustainability of SMEs.
The Central Bank of Kuwait took up some immediate measures for SMEs:
- Discount rate reduced to a historic low of 1.5 percent
- Repo rates, overnight, one-week and one-month reduced to 1 percent, 1.25 percent, and 1.75 percent
respectively
- Capital adequacy ratio lowered from 13% to 10.5%
- Risk weight for SMEs lowered from 75% to 25%”
“Kuwait Banking Association announced a moratorium period up to 6 months on bank loans including waiver of
interest and charges (if any for postponement) for retail clients (citizens and expatriates) and SMEs” (KPMG,
2020).
At individual Islamic bank levels, various initiatives have been developed, too. For example, KFH (2021) reported
that “As part of a strategic initiative in collaboration with the Ministry of Justice, Kuwait Finance House (KFH) is
covering over KD20 Million in debts to release approximately 10,000 defaulting debtors and those whom the
court ordered to be brought before it” in line with Shari’ah compliance.
Islamic banks have provided deferment and restructuring of financings and instalments for SMEs in difficulty.Kuwait - Best Practices The Kuwaiti government, together with the public and private sector, has acted in an integrated and coordinated manner to support SMEs in line with the Kuwait Vision 2035. Kuwait has prioritised the development of special institutionalisation for SMEs financing as early as 1995, culminating in one institution, namely KNF (established 2013). However, the effectiveness and efficiency of KNF is questioned in relation to developing the sector. KFN providing qard al hassan like financing except for a one time fee. Having KNF working closely with Islamic and conventional banks to evaluate the applications rather than creating its own structures for this purpose should be considered a good practice. One of the Islamic banks, paying off the financing (debts) of a certain number of people as part of social good or CSR, which should be sustained beyond the COVID- 19 period to reveal the determining nature of Islamic ethics on business.
Kuwait - Country-specific Policy Recommendations Necessary databases for MSMEs to create effective responses and develop efficient policies. A new mandate and strong leadership for KNF to effectively and efficiently utilise abundant resources for the development of the private sector through SMEs. KNF and other bodies should also support technology start-ups and fintech. KNF should run training programmes to develop the new generation of SMEs with technological skills. Islamic banks should enhance their technological capabilities and Fintech for their own operations and also help with their financial conduct with SMEs. Qard al-hassan type of financing should be made available by also Islamic banks to uphold the Islamic moral imperatives. Developing a road map for the employment of the new generation through SMEs will lessen the burden on the public sector lead to innovation through the technology-oriented nature of youth. Islamic logic require stakeholding institutionalisation so that well-being of other individuals and the welfare of the larger society can be achieved. Islamic banks are expected to proactively support SMEs through partnership by using PLS and risk- sharing financing methods.
SENEGAL
Economic Structure and the Role of MSMEs
Trends in Senegal’s GDP and Economic Growth
30.000,00 8 With an average growth rate of over 6% over the past four
25.000,00
7
years, Senegal is the second largest economy in francophone West
6
20.000,00
Africa.
5
Senegal has implemented reform programs such as the Plan
15.000,00 4
Senegal Emergent (PSE) since 2012 for better competitiveness of
3
10.000,00 the economy in key sectors such as agriculture, industry, tourism,
2
5.000,00 transport infrastructure and extractive industries.
1
As an open economy, the country is a preferred investment
- 0
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 destination.
Senegal - GDP (constant 2010 US$, million) Senegal - GDP growth (annual %)
Economic Definition of MSMEs in Senegal Distribution of MSMEs in Senegal
Micro Small Business Medium Enterprise 0,4% 0,2%
1,2%
Turnover 900.000$-
180.000 $ 180.000$->900.000 $
>3.600.000$
Professional, Civil, Commercial, Craft, Agricultural, Industrial or Service 16,4%
Activities
Provider
Individual Company
MSMEs make up the vast majority of Senegalese businesses (over 90% of
businesses in Senegal) Micro Business
MSMEs contributes to 40% of the GDP (source General Directorate of Taxes and Small Business
Domains) and constitute a significant source of unemployment reduction in the Medium Company
country. Big Company
The difficulty of access to traditional bank credit for micro-small and medium-sized
enterprises, as they are not always able to meet the eligibility criteria. 81,8%
Furthermore, considering the supply side, a weak microfinance supply is another
critical barrier in the country.
Source : ANSD/RGE 2016The Trajectory of Islamic Finance in Senegal
Main Indicators of Islamic Banking Sector in Senegal
Item 2019-Q4 2020-Q4 The first Islamic bank, Banque Massraf Fayçal Al Islami of
Return on average equity 14.95 14.03 Senegal (MFIS) was established in 1983 (current Islamic Bank
(ROAE)%
Return on average assets 1.70 1.64
of Senegal)
(ROAA)% Currently following institutions provide Islamic banking;
Net interest margin (interest 3.25 3.58 - The Islamic Bank of Senegal
earning assets)% - The Islamic branch of Coris Bank International of Senegal
Cost to income (Efficiency) 56.30 55.91
ratio%
- The Islamic branch of BNDE (National Bank for Economic
Total assets 369,275 437,666 Development).
Senegal issued the first sovereign sukuk on the regional
financial market worth FCFA 100 billion in 2014. The second
2017 2018 2019 issuance of FCFA150 billion was made in 2016.
With the support of the IsDB, Senegal has set up PROMISE
XOF XOF
Balance Sheet of
Banks in Senegal
XOF 5.912.745,00
($10 578)
6.428.658,00 6.870.721,00 (Islamic microfinance) with a financing line of FCFA 47 billion to
($11 500) ($10 474)
provide Islamic finance based financing for the MSEMs.
Balance Sheet
In Senegal, even if there is an increasingly growing interest,
XOF 94.522,00 XOF 92.275,00 XOF 99.645,00
Islamic Bank of
($169) ($165) ($144)
Islamic finance remains at the embryonic stage in a country
Senegal (BIS)
where the banking sector is growing with a total balance sheet
Share of BIS 1,60% 1,44% 1,45%
of FCFA7,609.3 billion or USD13.7 billion in 2019 (BCEAO
Annual Report)Islamic Financing Provisions for MSMEs: Institutions, Products, and Offerings
Islamic Finance Products and Offerings for MSMEs
Institutions Products Offering
Faced with the virtual absence of financing for
Banque Murabaha, Istisna, MSMEs by the traditional banking system,
Ijara, Mudaraba
Islamique du BIS and Coris Bank Baraka support MSMEs on
different types of needs by offering them
MSMEs resort to financing by Senegalese Islamic
Sénégal
tailored Islamic products by intervening either: on banks (BIS and Coris Bank Baraka), especially
risk capital, on investment, on operations, on cash
by financing programs set up Islamic
Murabaha, Istisna,
Ijara, Mudaraba microfinance (PROMISE, PAMECAS).
CORIS BANK
BARAKA
Musharaka, Qard al-
Hassan
Second-tier banks, such as Ecobank, the Islamic
Mudaraba, Ijara,
Apart from the products offered, MSMEs do not
Bank of Senegal (BIS), are intensely active in
PROMISE
Moucharaka, Qard al-
Hassan, Salam,
have the possibility of having a current account offering financing products intended for MSMEs
at the PROMISE level.
Murabaha to share this market niche with MFIs.
Unlike other Islamic financial institutions, Pamecas
Murabaha (goods, only offers Murabaha in goods, equipment and
PAMECAS
equipment, real estate) real estate. Therefore, their offer is very limited
for MSMEs.COVID-19 Conditions and Islamic Financing Responses for MSMEs
“COVID-19 delayed due loan payments as customers faced inability to meet their payment.
To do this, the BCEAO had imposed on banking players to extend maturity periods to allow customers to
repay their debt.
They had to restructure many Islamic loans for customers to allow them to survive the crisis.
Nonetheless, since a few months ago, according to the BIS manager, most of the customers were able to
get back on track after these supports”. (Interviewee)
To better support, Senegal in the face of declining economic growth, the International Islamic Trade Finance
Corporation (ITFC), of IsDB, approved murabaha financing of EUR 8 million for the benefit of the Islamic Bank of
Senegal (BIS) and aimed at supporting trade finance operations of the Senegalese private sector, in particular
MSMEs.
In Senegal, more than 407,000 MSMEs and micro-enterprises represent 90% of enterprises that will
benefit from this financing.
Another EUR12 million Shari’ah compliant funding agreement to support Senegalese MSMEs affected by the
COVID-19 outbreak has been signed by the Islamic Corporation for the Development of the Private Sector (ICD)
of IsDB, and the National Bank for Economic Development (BNDE) Senegal.
IsDB, through its various Islamic financing facilities, remains one of the main actors for the revival of the Senegalese
and West African economies.Senegal - Best Practices The government has taken important steps to improve the country’s business environment in responding to the adverse impact of the pandemic. With higher number of people included in the banking system and better evolution of Islamic microfinance while expanding training offers in Islamic finance, Senegal could be part of the global Islamic hub. The IsDB PROMISE program of FCFA 47 billion (over USD80 million), in its inception phase, is expected to impact strongly and positively the MSMEs touched by the COVID-19. The start of operations of Taysir Finance, the first fully-fledged Islamic microfinance institution approved by the Central Bank of West African States (BCEAO) in the ECOWAS (West African Monetary Union of Eight countries), is expected to play a crucial role in poverty alleviation for MSMEs.
Senegal - Country-Specific Policy Recommendations The lack of Islamic finance product offering organizations for MSMEs beyond BIS and Islamic windows of some institutions (most of them in the course of being approved by the Central bank of Senegal) is a major hindering factor considering the strong demand for Islamic products from the population (bottom-up) and from the strong need of musharakah Islamic investments products from infrastructure financing to MSMEs’ growth needs (top-down). Encouraging and strengthening the development of Islamic finance product offerings such as Taysir Finance newly approved fully Islamic microfinance institution. Accelerating from the Central Bank the approval process and also push for the establishment of new Islamic banks, takaful institutions, waqf, and zakat fund and Islamic financing institutions. With bottom-up to and top-down strategies, considerable demand for Islamic finance products by MSMEs, more and better diversified Islamic finance product offerings on the market will undoubtedly help for MSMEs impacted by COVID-19.
RUSSIA
Economic Structure and the Role of MSMEs
Muslim Majority Republics in Russia Federation
Largest Muslim population in Europe.
The official number is uncertain, and several
estimates range from 15 million to 35 million,
which constitutes %15-30 of all populations
(Aleshin & Radchenko, 2018).
Muslim population would be 30% of the total
population within 15 years estimated by
Grand Mufti of Russia Ravil Gainutdin (The
Moscow Times, 2019).
Eight recognized Muslim majority republics:
Volga Federal Region (Tatarstan,
Bashkortostan), the North Caucasian Federal
Region (Chechnya, Ingushetia, Dagestan,
Kabardino-Balkaria, Karachay-Cherkessia),
and Southern Federal Region (Adygeya)
Source: Authors (map was created by using mapchart.net).
Significant Muslim minorities live in Moscow,
The fifth observer state in OIC in 2005 with Bosnia and Saint Petersburg, Orenburg, Ulyanovsk, and
Herzegovina (1994), Central African Republic (1996), Kingdom Yekaterinburg cities (Cura, 2019; M. Hajjar &
of Thailand (1998), and Turkish Cypriot State (1979) (OIC,
Habib, 2019).
2021).Economic Structure and the Role of MSMEs
Definition of SMEs in the Russian Federation Distribution of SMEs in the Russian Federation based on Firm Size (employees) as of
10 August 2021
Type Employees Revenue (RUB million)
SMEs (up to 250) # of firm Share
Micro Up to 15 Up to 120
Individual entrepreneurs 3,363,164 59.8%
Small 16-100 Up to 800
Micro (up to 15) 2,053,528 36.5%
Medium 101-250 Up to 2000
Small (16-100) 186,772 3.3%
Medium (101-250) 17,533 0.3%
Distribution of SMEs in Muslim Majority Federations (as of 10 August 2021) Total 5,620,997 100.0%
0 20.000 40.000 60.000 80.000 100.000 120.000 140.000 160.000
2.993
Distribution of SMEs in Eight Region of Russia as of 10 August 2021
Adygea
11.723
15.078
8.551
Dagestan
27.722
36.970
2.119
Ingushetia Micro
2.191 Small
4.387
4.651 Medium
Kabardino-Balkar Individual entrepreneurs
12.734 Total
17.724
2.251
Karachay-Cherkess
8.126
10.592
3.383
Chechnya
10.371
13.991
43.240
Bashkortostan
72.905
120.297
SMEs constitute 22 percent of the total GDP and
62.250 Employ 30 percent of the country's labour force.
Tatarstan
83.342
151.276The Trajectory of Islamic Finance in Russia
Existing Islamic Financial Institutions and Islamic Windows in Russia (in 2021) First Islamic financial Institution, Badr-Bank (later Badr-Forte Bank), established
Institution in 1997. The bank was delicenced in December 2006 by the Central Bank of
Name Locations
or Product
Islamic financial services
Russia (Gabbasova, 2016).
Inception
date
Other big conventional banks and small initiatives offered several shariah-
Retail and corporate financing based on compliant products to the clients between 1997-2017.
Amal Finance
Tatarstan murabaha, leasing (ijarah), salam, istisna’, Many of them were closed due to either internal decisions or government
and some 2010 mudaraba and asset management on mudaraba-
House
other cities. basis. Current accounts, saving accounts on qard
interventions.
hasan basis Currently, there are several Islamic financial services providers across Russia,
IFC “Ash-Shams
Asset management for corporate and individual particularly in Tatarstan.
Moscow 2010 clients based on muḍārabah, brokerage services
Capital”
based on wakālah
Not any takaful company yet.
TIIC – Tatarstan While the number of employees of Islamic finance institutions in Russia is at
International
Tatarstan 2010
Project financing for projects with the minimum total least 150, the total number of clients is around 40,000 (Kalimullina, 2020).
Investment amount of $3 mln. on mushārakah-basis
Company
Investment deposits based on mudaraba; corporate
LaRiba Finance Dagestan 2011
and retail financing with murabaha and musharaka Islamic Finance Assets in Russia (million RUB)
Ak Bars Bank Tatarstan 2011 Providing Islamic mortgage and recently started 6000
Eurasian Leasing 5179
Tatarstan 2012 Leasing (ijārah) services for corporate clients
Company 5000
Providing small shariah-compliant financing to the
Barakat Chechenya 2012
poor people through qard al hasan and Murabaha 4000
Investment deposits based on muḍārabah, 3300
Masraf Finance CAGR (2010-2019): 48%
Dagestan 2013 corporate and retail financing with deferred 3000
House
payment
Fincity Chechnya 2017 Murabaha financing 2000 1535
Tatarstan Investment deposits based on mudaraba; corporate 893
Nur Finance 2020 671
and Moscow and retail financing with murabaha 1000 578 649
291 413
Serving as an online payment platform to clients in 199
SHOOKRU Moscow 2021
Moscow. It is based on the Murabaha. 0
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Source: Gabbasova (2016); Kalimullina (2020) and interviews by authors
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