MSME finance key to Islamic banking growth

The micro and small and medium sized enterprises (MSME) finance industry serves as a key driver of sustainable growth of Islamic banks, according to a recent report.

Expanding this business line depends on the development of external factors of this market segment, as well as on how Islamic financial institutions can enhance their technical infrastructures in serving MSMEs, explained the Cibafi Global Islamic Bankers Survey from 83 heads of Islamic banks in 35 countries.

The key challenges in Islamic MSME finance discovered from the Survey include, among others, over leveraged and poor credit rating, lack of acceptable collateral and guarantees, underdeveloped industry infrastructure for MSMEs finance, the need to build in-house expertise for Islamic MSME finance such as specialized MSME units, lack of variety of Shariah-compliant financing products for MSMEs, etc.

In this regard Cibafi (General Council for Islamic Banks and Financial Institutions) has taken the initiative of organising a series of Roundtable Meetings for executives of Islamic financial institutions to tackle the profound structural problems in the Islamic MSME finance industry.

The first Meeting will be convened on December 9 and 10 in Kuala Lumpur, Malaysia, in collaboration with INCEIF – Global University of Islamic Finance, with the aim to discuss and share the recent developments in competitive and innovative strategies on Shariah-compliant SME and value chain finance.

Aligned to the spirit of Malaysia towards Islamic economy, the key to generate sustainable performance of SME finance relies on how Islamic financial institutions are able to bring the SMEs into the “global value chain in the economy”. In that case, the business model of Islamic finance has huge potential in achieving this objective, since there are various Islamic financial contracts that can fit and accommodate different types of underlying businesses. The meeting will discuss barriers and breakthroughs for Islamic financial institutions to bring SMEs into the global value chain.

The second Roundtable Meeting will be convened in February 2016 in Jeddah, Saudi Arabia, in collaboration with the Islamic Development Bank (IDB). As the Survey shows a great interest from Islamic banks to build in-house expertise for Islamic SME finance, the Meeting will discuss cutting-edge capabilities for Islamic financial institutions to sustain the SME business through advanced technologies, distinctive product and services innovation, customized risk management, equity mode of finance for SMEs, etc.