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Promoting Inclusive Markets and Financial Systems

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Spotlight on Financial Inclusion Leaders Series: Expanding Islamic Microfinance in Azerbaijan

SEEP is pleased to announce a new series of case studies developed with support from Citi Microfinance titled Spotlight on Financial Inclusion Leaders. This series profiles selected microfinance associations, showcasing the ways in which they are supporting their members and meeting the challenges of value-added growth in financial inclusion. These associations are leaders in implementing innovative and locally-responsive approaches to financial inclusion. Their work is having a clear and measured impact on the lives of their clients, and their experiences bring valuable new knowledge to the industry at large.

The first installment in the series is available now!

"Expanding Islamic Microfinance in Azerbaijan: The case for industry coordination to serve new client segments"

amfa_logoIn 2010, members of the Azerbaijan Microfinance Association (AMFA), representing some of the largest Microfinance Institutions (MFIs) in Azerbaijan, began to notice an increase in client drop-outs. The MFIs conducted client exit surveys to determine why the clients had suddenly stopped using their services. The surveys revealed that after a pilgrimage to Mecca, many clients felt that they could not continue taking traditional loans as these were inconsistent with their religious beliefs. Other AMFA members confirmed similar findings across several regions of the country considered to be particularly devout.

To further investigate this issue, one of AMFA’s members independently recruited an Islamic microfinance expert and carried out a rapid market assessment. Current estimates suggest that approximately 17-25% of the Azerbaijan microfinance market would choose Islamic microfinance products if available. In addition, it is expected that given a choice between Sharia-compliant banking services and Western banking services, current and future clients would choose services that abide by Sharia law.

Islamic Finance at a Glance

Islamic banking and finance refers to an entire system of banking activities that are consistent with Sharia principles. It prohibits:
  • Predefined interest loans
  • Trading in financial risk, which is considered gambling
  • Investing in businesses which are considered harām (forbidden), such as businesses that sell alcohol, pork, or produce un-Islamic media
Overall, it is estimated that roughly 2/3 of the Muslim microfinance market either prefers or requires Islamic financing.
amfa cover lgIn an effort to meet the this increasing client demand for Islamic microfinance products in Azerbaijan, a broad group of diverse stakeholders led by AMFA is working to enact legislation and build the capacity of financial service providers to deliver these products. By mid-2015, it is expected that both the legal framework and the requisite support services will be in place to enable wide access to Islamic microfinance, thereby enhancing overall financial inclusion in Azerbaijan.

Read more about AMFA's efforts, the basics of Islamic Microfinance, and what lies ahead for the Azerbaijan market in the full article, available now!  Click here to access a PDF Download of "Expanding Islamic Microfinance in Azerbaijan."

Stay tuned in the coming weeks for three more installments in this series:

  • Expanding e-money services to unbanked clients in Peru
  • Mobile banking for financial inclusion in rural Ecuador
  • Microfinance products for low-income private schools in Pakistan.
We also invite you to join us at SEEP's 2014 Global Network Summit on September 25 to hear from the leaders profiled in the series, and to learn first hand from their experience.

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