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Islamic Banking Opportunities Across Small and Medium Enterprises in MENA

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Islamic Banking Opportunities Across Small and Medium Enterprises in MENA Empty Islamic Banking Opportunities Across Small and Medium Enterprises in MENA

Post by claud39 on Fri Apr 12, 2019 7:52 am

Islamic Banking Opportunities Across Small and Medium Enterprises in MENA



Islamic Banking Opportunities Across Small and Medium Enterprises in MENA IFC-Logo





Islamic Banking Opportunities Across Small and Medium Enterprises in MENA Executive Summary In partnership with the Canadian Department of Foreign Affairs, Trade and Development, the Danish International Development Agency, Japan, Switzerland’s State Secretariat for Economic Affairs and UKaid.


DISCLAIMER “IFC, a member of the World Bank Group, creates opportunity for people to escape poverty and improve their lives.We foster sustainable economic growth in developing countries by supporting private sector development, mobilizing private capital, and providing advisory and risk mitigation services to businesses and governments. This report was commissioned by IFC through its Access to Finance Business Line in the Middle East and North Africa to highlight the need for Islamic Banking across the region.” “The conclusions and judgments contained in this report should not be attributed to, and do not necessarily represent the views of, IFC or its Board of Directors or the World Bank or its Executive Directors, or the countries they represent. IFC and the World Bank do not guarantee the accuracy of the data in this publication and accept no responsibility for any consequences of their use.”

This research is funded under the MENA MSME Technical Assistance Facility, a joint initiative between IFC and the World Bank. The facility is supported by the Canadian Department of Foreign Affairs, Trade and Development, the Danish International Development Agency, Japan, Switzerland’s State Secretariat for Economic Affairs and UKaid.


01. Preface Small and medium enterprises (SMEs) are now widely recognized as engines of economic growth and key contributors to sustainable gross domestic product (GDP) of all countries, including those in the Middle East and North Africa (MENA) region. These businesses predominantly operate in the manufacturing and service sectors and create employment opportunities for both skilled and unskilled persons. However, market conditions and regulatory environments are not always supportive of the growth of SMEs and access to formal finance is one of the main obstacles they face. IFC’s Financial Institutions Group (FIG) in MENA provides investment and advisory services to the region’s banks and other financial institutions to build their capacity in SME banking so that they can profitably and sustainably reach out to the SME sector. This is achieved through providing equity finance, lines of credit, risk sharing facilities, trade finance, disseminating best practices, improving processes and products, and streamlining delivery channels. Ultimately, IFC’s goal is to increase the number of banks and financial institutions that offer financial and banking services to SMEs in a profitable and sustainable manner. IFC is recognized globally as an SME finance market leader owing to its global expertise and knowledge. There is a huge demand for Islamic products by SMEs in the MENA region and, according to this study, approximately 32 percent of such businesses remain excluded from the formal banking sector because of a lack of Shariah-compliant products. In order to reach out to SMEs demanding Islamic products, and as part of IFC’s initiative to enhance its SME investment and advisory services offerings to Islamic financial institutions, we needed to better understand the market from both the demand and supply sides in order to identify any gaps or niches where IFC could assist and add value. With this objective, IFC commissioned a study in nine countries of the MENA region, which includes Pakistan, to better understand the demand and supply for Islamic banking products (both asset and liability products and other banking services) in the SME sector. The countries chosen for this study are: (1) Iraq, (2) Pakistan, (3) Yemen, (4) Kingdom of Saudi Arabia, (5) Egypt, (6) Lebanon, (7) Morocco, (8) Tunisia, and (9) Jordan. The scope of the study was to: (i) identify the countries in the MENA region facing gaps in financing and banking needs of SMEs in the Islamic products space; (ii) conduct a supply side benchmarking to review current capacity of financial institutions to offer Islamic products to this sector; (iii) conduct a demand side benchmarking to identify key SME customer needs for Islamic products and see how well they are currently being served; and (iv) review the current enabling environment and readiness levels of banks in terms of the regulatory framework and Shariah compliance. The study reiterates several of the now well researched and documented reasons for the lack of access to finance for SMEs. However, more importantly, the study reveals that, there is a potential gap of $8.63 billion to $13.20 billion for Islamic SME financing within un-served and underserved SMEs categories, with a corresponding deposit potential of $9.71 billion to $15.05 billion across these countries. This is due to the fact these un-served and underserved SMEs do not borrow from conventional banks, only owing to religious reasons. This potential is a “new to bank” funding opportunity, which is still untapped, as banks and other financial institutions lack adequate strategic focus on this segment to offer Shariah-compliant products. 



Figure 1: Islamic Funding and Deposit Potential Across MENA and Pakistan ($bn) This Regional Executive Summary provides a comparative analysis of the SME potential across these countries and the opportunities available to Islamic institutions to tap this potential. The nine individual country reports provide a deeper insight into the SME landscape and potential opportunities for Islamic banks in each country. The reports also highlight the measures that banks may need to take to successfully target the Islamic banking potential of SMEs. IFC acknowledges the commitment and cooperation of Israa Capital Management Consultants, Dubai, who carried out this study on our behalf. IFC thanks them for their dedicated efforts and contribution in compiling the individual country reports and the comparative analysis contained in this executive summary. Mouayed Makhlouf Regional Director IFC – Middle East and North Africa

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https://www.ifc.org/wps/wcm/connect/7ab5500045503ad09e619ec66d9c728b/Executiv+Summary+final+31-8-2014+.pdf?MOD=AJPERES
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