International consultancy IFAAS (Islamic Finance Advisory & Assurance Services – www.ifaas.com ) and Mercy Corps (MC), a global non-governmental, humanitarian aid organisation, are working together to unlock the potential of Islamic finance (hereon also referred to as ‘interest-free finance’) to address the issue of financial inclusion in Ethiopia.
Mercy Corps’ work in this area is partly-funded by the United Kingdom’s Department for International Development (DFID). Ethiopia is one of the top-five recipients of UK-aid, according to DFID’s own sources.
MC appointed IFAAS based on its established expertise in this area, to conduct the project in 2018. The primary objective was to undertake a comprehensive assessment of the Ethiopian financial industry, including banking, insurance and microfinance to identify the obstacles in the development and growth of Shariah compliant financial services that are critical to financial inclusion initiatives in Ethiopia.
Ethiopia counts around 34% Muslims amongst its near 100 million population, second largest in Africa. However, according to the World Bank Statistics in 2017, only 35% of the population have an account with a regulated financial institution, a rate that is significantly below the global average (it is estimated to be much lower among the Ethiopian Muslims). The availability of interest-free finance is therefore a crucial element to any financial inclusion programme in Ethiopia.
IFAAS and MC have worked closely with the Ethiopian industry stakeholders including but not limited to the policy makers, regulators and market players to fully understand the challenges, aspirations, limitations and expectations, during the execution of this impact-driven project.
The key findings of the study have highlighted a wide range of challenges and gaps in the areas of policy framework and regulatory infrastructure, awareness and capacity building, market intelligence and product development.
Speaking on the aforementioned project and going forward, Josh Ling, Director of Financial Inclusion at Mercy Corps, said, “The study carried out by IFAAS into interest-free finance in Ethiopia is instrumental to our financial inclusion work in the country, which in turn aims to support the government’s strategy for financial inclusion. Moving forward with the main priorities identified by IFAAS, we are working closely with policy makers and the National Bank of Ethiopia to accelerate the availability of interest-free financial products that will make a difference to those who need them”.
Najib al Aswad, Director at IFAAS, added, “Our overarching aim was to develop a roadmap for MC with a set of sustainable and scalable interventions for the development of interest-free finance in Ethiopia. These interventions were structured to ensure that the interest-free finance sector plays an active role in the economic development of the country and achieves the national targets for financial inclusion. We are pleased that MC is facilitating the implementation of our recommendations. We also look forward to seeing our work delivering positive and real impact to the livelihood of the country’s population. Limited financial inclusion is a real issue in the country, and across Africa as a whole, and MCs’ work in this area is critical in tackling poverty in the region”.
Following the success of this project, MC has appointed IFAAS to assist a leading Ethiopian microfinance company in setting up its Islamic window and accordingly offering interest-free microfinance products to the deprived local communities.