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A Further Niche Market: Islamic Microfinance in the Middle East and North Africa
Nov 2008, Frasca, A.

Exploring the use of Islamic finance instruments

This paper examines whether there is potential synergy between microfinance and Islamic finance. It also explores the possibility of expanding microfinance facilities in the MENA region by offering Islamic financial instruments to those reluctant to try conventional financial instruments.

The paper presents case studies of two Islamic finance projects, namely, the Sanduq project in Syria and the Hodeidah microfinance program in Yemen, to demonstrate that Islamic MFIs can compete with conventional MFIs in the MENA region. Doing as well as their conventional microfinance counterparts, they can meet the demand for religiously tailored financial services from lower income groups.

As the microfinance sector moves toward a for-profit model and players in the Islamic finance movement call for a return to social development values, there is potential for both movements to serve the MENA region through Islamic microfinance institutes. The future growth of Islamic MFIs within the MENA will be dictated by new regulation on their legal status and ability to:

Maintain competitive rates that cover increased operating costs of Islamic financial products;
Become self-sufficient by expanding outreach and seeking commercial sources of funding.

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Journal Volume/Pages:
25

Publisher(s):
Center for Middle Eastern Studies & McCombs School of Business, University of Texas at Austin