Back to Home FINANCING THE POOR: TOWARDS AN ISLAMIC MICRO-FINANCE A one-day symposium, involving conventional micro-finance practitioners and Islamic finance industry professionals to discuss the issues and challenges surrounding the implementation of Shari.a-compliant micro-finance initiatives, to be held at the Harvard Law School on April 14th, 2007. PURPOSE: Islamic finance, though endowed with a core foundational goal of social justice and the eradication of interest, has become in the eyes of many an option primarily for the rich and not for the common man. Micro-finance, though often criticized for charging high interest rates to its rather poor clients, has demonstrated successes as a finance tool in helping to reduce poverty and to encourage economic growth in often neglected, rural areas. Indeed, these organizations have justified their fee structure through various models. For example, Grameen Bank treats its borrowers as shareholders while BRAC (Bangladesh Rural Advancement Committee) asserts that its fees are part of a service charge for providing services such as monitoring, supervision, advice and insurance. Both Islamic finance and micro-finance have the noble goal of economic justice. This symposium seeks to bring representatives from both industries to discuss the role of the Islamic Finance industry in expanding access to financial services to the poor, through existing micro-finance organizations or the development of new shari.a- compliant micro-finance organizations. Potential areas of exploration include the role of the Islamic Finance industry as a source of funds for microfinance initiatives as they approach capital markets for financing. This may also include the harnessing of traditional Islamic financial institutions such as zakat and waqf to augment the poverty alleviation tasks of micro-finance programs. In addition, we hope that through the collaboration of industry and academia, this symposium will promote the development of alternative financial instruments, products and structures that may better serve the needs of increasingly sophisticated micro-finance institutions while creating alternatives on the ground for borrowers from micro-finance institutions in order to induce increased transparency, accountability, efficiency and reduce the cost of accessing financial services for the poor. Misperceptions and misconceptions about both Islamic finance and microfinance are rife. Too often, these industries view each other with suspicion and distaste. A partnership between the Islamic finance and microfinance to serve the poor, particularly in Muslim economies, can be mutually beneficial . and ultimately beneficial in the battle against poverty. However, these industries must first communicate. This seminar proposes to kick-start such communication, and ultimately, cooperation. SPECIFIC TOPICS FOR SYMPOSIUM SESSIONS: I. The Story Thus Far a. Keynote addresses A knowledgeable person in microfinance to discuss the practical experience of running a micro-finance organization. b. Position Paper Presentation of a position paper that will review the industry.s past and present performance in Islamic micro-finance. It will also review the models used by current Islamic and non-Islamic micro-credit institutions. The paper should also discuss the acceptability of conventional microfinance contracts from the perspective of Islamic Finance. In addition, the paper should present the latest innovations in conventional micro-financing and highlight possible areas of collaboration between the Islamic Finance industry and conventional micro-finance practices. The keynote address and presentation will serve to provide a context and background to further discussions on the issues and challenges concerning the implementation of Islamic micro-finance. II. Envisioning Islamic Micro-Finance Case studies and proposals that discuss approaches that may be taken in trying to implement Islamic micro-finance initiatives. (Note: These documents will be circulated to Panelists prior to the symposium.) What role can Islamic finance institutions play as a source of funding for micro-finance? What avenues exist for cooperation between Islamic finance and micro-finance institutions? Can Islamic financial products and structures provide credible alternatives for micro-finance institutions to adopt? What additional infrastructure and support should institutions develop if they attempt to venture into micro-finance? What are the issues and challenges that may arise in trying to implement micro-finance and how can institutions change to cope with them? What models can be used to finance micro-credit activity? Explore opportunities in incorporating private investment, charity funds, Islamic finance money as well as money from traditional sources such as zakat and waqf. How do institutions that have conventional microfinance and Islamic finance arms reconcile both operations? How can Islamic finance players collaborate with conventional banks with micro-financing divisions to explore deals? III. Another point of view: Perspectives from the Islamic Finance Industry Panel discussion involving authors of proposals and representatives from the Islamic finance as well as conventional microfinance industry. Is Islamic micro-finance a viable venture for Islamic finance practitioners? Based on past experience with other areas of Islamic finance, what are potential problems that may arise from Islamic micro-finance initiatives? Are these proposals feasible and how will they fit within the existing framework of the Islamic finance industry? What kind of governance and regulations are required to facilitate the implementation of these proposals?