Microfinance Practice: [MFP] CGAP Newsflash: Islamic Microfinance Gaining Momentum, Still Room for Growth

CGAP Newsflash: Islamic Microfinance Gaining Momentum, Still Room for Growth

A new CGAP focus note reports that an estimated 1.28 million clients use Sharia-compliant microfinance services globally, a four-fold increase since 2006. The report, Trends in Sharia-Compliant Financial Inclusion, finds that the overall supply of Islamic microfinance products is still small relative to the conventional microfinance sector, but it is growing rapidly.

"With around 650 million Muslims living on less than $2 a day, Islamic finance models could be the key to providing financial access to millions of poor Muslims," says Mayada El-Zoghbi, microfinance specialist at CGAP and co-author of the report. "Many traditional microfinance products conflict with the Sharia's ban on interest-based transactions or are otherwise not in line with Islamic financial principles, making them inaccessible to observant Muslims."

According to the report, 255 financial service providers offer Sharia-compliant microfinance products. Ninety-two percent of these providers are concentrated in two regions - East Asia and the Pacific and the Middle East and North Africa.

"While Islamic microfinance is definitely gaining momentum, it is a sector still dominated by a handful of service providers in a handful of countries offering primarily two products," notes Michael Tarazi, senior regulatory specialist and co-author of the report. "The key is to drive down costs so that clients don't have to choose between their religion and their wallets."

Read the report in its entirety on CGAP.org.

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