Microfinance: Our Way (2)

he Effectiveness of Regulatory and Supervisory Framework of Islamic Microfinance in Sudan
Abd Elrahman Elzahi Saaid Ali
29 Dul Hijjah 1435H | October 23, 2014
Islamic


The above argument indicates that Sudan government has created enabling environment that might paves the road for the CBOS to issue Sharia’h base policies to establish Islamic microfinance providers. The strong stand-up of the CBOS to implement the Sudan government strategy. This strategy is intended to promote Islamic microfinance sector, and to boom the economic growth are showed by the policy of allocation ofminimum of 7% of Islamic financing portfolio to microfinance clients in the year 2000 and this allocation has increased gradually year by year until reached 12% by the year 2014 as indicated in the table 1. Secondly, the establishment of Islamic microfinance units throughout the banking system including the Central Bank of Sudan was indicated as a good move towards establishing effective supervisory structured body to regulate Islamic microfinance throughout the financial system in the country. Moreover, the CBOS also permitted Islamic banks in Sudan to establish their own microfinance company providers based on the rules and regulations issued specifically for that purpose.

Despite the more efforts exerted by Sudan government and the CBOS particularly to promote Islamic microfinance, the microfinance beneficiaries in Sudan are remain unreached. Sudan microfinance sector is associated with many foreseen and unforeseen challenges. More than one reasons turn the Sudan to be very poor country with unbelievable internal refugees around the big cities. The noticeably main reasons is that the continues civil wars for long-time, the separation of the rich South region, the long economic sanctions by the USA, the changeable political climate in the Arab numbering countries and the corruption of the civil servants. These factors might create for the first time bad economic conditions since the emerging of the National Salvation Government in 1989.

Due to the mentioned unfavorable economic situation, the poverty has scaled-up all over the country without any exemption between the urban and the rural areas. The estimated target microfinance clients reach 9 million between 2000 and 2011. The CBOS record showed that only 260,000 microfinance clients have been reached during this period8. These records indicated that only 2.9% out of the expected Islamic microfinance beneficiaries have been reached by March 2011. Despite the existence of considerable Islamic microfinance portfolio, the donations and the technical assistants given by the multilateral institutions such as the Islamic Development Bank and the IMF, the dispensed budget remained far less than appropriated amount throughout the 11 years after the actual initiative of the establishment of Islamic microfinance sector within the country financial system framework.

The failure of the Islamic microfinance providers in Sudan to reach the expected beneficiaries indicated a big failure of the microfinance policies and regulatory framework that designed by the CBOS. The evidence in table-1 indicates the relationship between the allocated budget for Islamic microfinance out of the financing portfolio based on the CBOS policies and the actual amount allocated for the microfinance for the period from 2000 up to 2010. Contrary to the expectation, this relationship is inversely related. The actual utilization budget of the provision of the microfinance portfolio is decreasing yearly while the CBOS raises the ceiling of the provision until reach 12% in the current year 2014, from 7% in the year 2000. It is difficult to understand the basis on which the CBOS increase the planned allocated budget for the microfinance yearly at the time the actually utilization of the Islamic microfinance provisions are less than 2% in the recent years between 2000-2010.


This might explain either the weakness of the microfinance policies issued by the CBOS policies, which might done just for show or the strong resistance of the Islamic microfinance provider to these policies. Most of Islamic microfinance providers in Sudan are specialized government Islamic banks. The CBOS has identified certain Islamic and specialized banks through which to implement Islamic microfinance policies. In addition to these banks, few non-banks microfinance providers are dually licensed under microfinance rules and regulation policies. Given the high risk of the Islamic microfinance sector, the continuous local wars almost in all the targeting rural areas, Islamic microfinance providers might not willing to grant microfinance beneficiaries. Moreover for the same reasons that might be why the microfinance providers confined themselves in most cases only to the urban areas. This is likely might be part of the clear limitations for Sudanese Islamic microfinance providers to spread in the rural and the remote areas.
Secondly, the CBOS allows the Islamic microfinance providers particularly the deposit takers, to design their own terms and conditions for granting microfinance beneficiaries. This might further made inconsistency in microfinance criteria. In addition to that, the evidence showed these criteria also did not considered the diversity of the microfinance beneficiaries across the country. Some microfinance criteria required the applicant should prove he lived at least two years in Khartoum and obtain certain level of educations, among others10.
These are not applicable for those who are dually refuged to the cities from the rural areas with home and jobless. If we comparing with those days when Muslim refugee to Madina from Mekkah, the found good treatment from the resident which established the rule of conduct for Muslim regards their refugees brothers until today. For a country, claiming applying Shariah and Shariah based finance might be unacceptable practices.

Others reason of the underperformance of Islamic microfinance in Sudan might be related to the lack of well-trained Islamic microfinance providers and the illiteracy of the beneficiaries of the microfinance themselves about many issues related to the nature of this sector. These issues might included but not limited to the visibility of microfinances projects and marketability of the output later on. The diversity of Islamic microfinance beneficiaries in Sudan in terms of the geographical rural areas, climates, tribalism system, farms and non-farms based activities, livestock, trading, religious and the political climate need well trained bankers and microfinance providers staff to deal with different issues at the same times. The nature of the microfinance projects and the level of the education of the beneficiaries particularly in the rural areas in Sudan required special and independent treatment before granting the microcredit. It is unfair to ask from ignorance cattle breading or poor farmers that used traditional tools to cultivate his inherited land for study visibility or residential certificates. They need capacity building on how to select the project, apply for it, managed it and finally selling their output. Most of the poor need also to be taught to differentiate between the microcredit and the charity.

Finally, despite of the comprehensive development of Islamic finance infrastructure in Sudan, which create favorable Islamic microfinance environment, Sudan like other African countries faces the challenges of the basic infrastructures. The country lack the reasonable quality and the development of the basic utilities such as energy, water, transportations (land and marine), warehouses, rural infrastructure, and low cost technologies which are very essential for the Islamic trade finance11. The quality of the basic infrastructure and the nature of Islamic finance through the providers might receive the product in kind might one of the strong reason that restricted the Islamic microfinance to the urban areas. The mater more complicated by imposing various tax on every good and services. Like African country Sudan, depend completely on tax revenue. The country imposes nearly more than one types of taxes most of them even unknown to the rest of world including Muslim countries, like Shaheed tax, wounded tax, etc. Hence, the quality of the basic infrastructure and the existence of the diversity of high tax raise the cost of Islamic microfinance and represent strong hinder against the development and the outreach of Islamic microfinance in Sudan.

Hence, despite of the government support and the efforts exerted to regulate Islamic microfinance sector the Sudanese regulatory and supervision Islamic microfinance model it seem lack of the effectiveness to reach clients particularly in the rural areas. These results is consistence with previous studies that showed supervision might reduce the profitable microfinance institutions outreach. If this claim right, it might showed negative signal weather Sudanese Islamic microfinance intended to serve the goals of the social and financial inclusions or follow the theory of the win–win rhetoric of “poverty alleviation with profit as it found in conventional microfinance providers12