MICROFINANCE PUBLICATION ROUND-UP: Islamic Social Finance, Transforming Client Complaints into Loyalty, Microinsurance Profitability

“Islamic Social Finance Report 2014,” by Thomson Reuters and the Islamic Research and Training Institute, published by Zawya, 2014, 64 pages, available at: http://www.zawya.com/islamic-finance/isfr/

This report examines opportunities and challenges for Islamic social finance in Bangladesh, Brunei Darussalam, India, Indonesia, Malaysia, Pakistan and Singapore. The objective of Islamic social finance, according to the authors, is to meet the needs of the poor and to reduce poverty through practices such as zakah, a levy on wealth collected from rich Muslims; awqaf, Islamic donations by individuals, families and organizations based on the value of owned land and buildings; and nonprofit microfinance institutions (MFIs) that use profit-and risk-sharing models as opposed to interest-based lending. The authors conducted personal interviews, focus group discussions and workshops with representatives of organizations such as ministries of religious affairs, central banks, regulatory bodies, networks and private nonprofit organizations to collect data on regulatory frameworks, supporting institutional networks, transparency, accountability and governance. One finding identifies a need for professionally managed zakah- and awqaf-financed microfinance programs that can serve a larger portion of the population. The authors also suggest supporting programs to: (1) meet basic health and education needs; (2) develop economic and business skills; (3) provide emergency grants or credit; and (4) provide guarantees against credit default. Other recommendations of the authors include: (1) establishing definitions for permanent and temporary awqaf, (2) easing the regulatory framework for microfinance activities to improve transparency, accountability and governance and to allow Islamic MFIs to raise deposits from the public, (3) increasing transparency and improving governance to minimize fraud and mismanagement; and (4) easing legal restrictions on: new awqaf; accepting awqaf from non-Muslims and institutions; and easing the definition of awqaf to include movable, financial and intangible assets such as intellectual property, financial securities, stocks, bonds and vehicles.

“FINCA Azerbaijan: Transforming Clients’ Complaints into Loyalty for Life;” by The Azerbaijan Microfinance Association, FINCA Azerbaijan, The Microfinance Centre and The Social Performance Task Force; published by The Microfinance Centre and The Social Performance Task force; 2014; 8 pages; available at: http://www.mfc.org.pl/sites/mfc.org.pl/files/FINCA_SP_Fund_ENG.pdf

This case study provides an overview of the process of developing and implementing a mechanism to handle client complaints within FINCA (The Foundation for International Community Assistance) Azerbaijan under the guidelines of the “Universal Standards for Social Performance,” a framework designed by the Social Performance Task Force with the aim of assisting microfinance institutions (MFIs) in expanding their focus on social goals. One theme of the client complaint management strategies is to address the reluctance of vulnerable people to complain due to the fear of losing access to services. The strategies include: (1) helping staff develop new attitudes toward complaints; (2) improving communication to clients about complaint procedures; (3) introducing a toll-free telephone hotline for complaints; and (4) creating complaint reports that facilitate analysis and decision-making. FINCA Azerbaijan plans to improve the complaints mechanism by: (1) visiting clients after complaint resolution; (2) broadening the organization’s management information system to track complaints; (3) using technology such as short message service (text messaging) to deliver responses to clients regarding their complaints; adding new categories of complaints based on frequent complaints for example “delay in lending process”; and (4) assessing customer satisfaction periodically to serve as an early-warning signal in case of problems.

“Business Case for Microinsurance Part II: Follow-up Study on the Profitability of Microinsurance; by Janice Angove and Aparna Dalal; published by The International Labor Organization; 2014; 46 pages; available at: http://www.microinsurancefacility.org/publications/mp30

Based on the findings from a three-year study of six insurers in India, Kenya, the Philippines and South Africa, this report explores the drivers of profitability in microinsurance with a focus on achieving scale, controlling claims costs and managing other expenses. A portion of the research seeks to assess the impact of corrective measures the insurers took to address challenges that were indentified in a study by the same authors that was conducted in 2009. Some of the continuing challenges that the authors highlight are: continuing to add new products, balancing the servicing of existing policies with the generation of new sales, and dealing with increased competition. Rather than solely competing on price the authors note that the insurers focused on fostering customer loyalty, differentiating products, improving the servicing of products and reducing costs. Furthermore, differentiated pricing, fraud prevention and improving efficiency were among the methods insurers used to keep expenses low. The insurers also invested in new products and expanded their distribution chain because of new opportunities in the market; one example is investing in new premium collection mechanisms such as mobile money. In closing, the authors identify greater efficiency and increased customer loyalty as key drivers of higher business volumes and greater profitability.

By Chikondano Faith Chisala, Research Associate

Sources and Additional Information

[1] Zawya, 2014, “Islamic Social Finance Report 2014,” http://www.zawya.com/islamic-finance/isfr/

[2] The Microfinance Centre, 2014, “FINCA Azerbaijan: Transforming Clients’ Complaints into Loyalty for Life,” http://www.mfc.org.pl/sites/mfc.org.pl/files/FINCA_SP_Fund_ENG.pdf

[3] International Labor Organization, 2014, “Business Case for Microinsurance Part II: Follow-up Study on the Profitability of Microinsurance,” http://www.microinsurancefacility.org/publications/mp30

MicroCapital, April 26, 2014, “EBRD, EFSE to Loan $16m to FINCA Azerbaijan to Support Micro-, Small, Medium-sized Enterprises (MSMEs), Agricultural Lending,” https://www.microcapital.org/microcapital-brief-ebrd-efse-to-loan-16m-to-finca-azerbaijan-to-support-micro-small-medium-sized-enterprises-msmes-agricultural-lending/

MicroCapital, April 12, 2014, “AlHuda Centre of Islamic Banking and Economies (CIBE) to Provide Training, Capacity Building Services to Organization of Islamic Cooperation (OIC) Member Countries,” https://www.microcapital.org/microcapital-brief-alhuda-centre-of-islamic-banking-and-economics-cibe-to-provide-training-capacity-building-services-to-organization-of-islamic-cooperation-oic-member-countries

MicroCapital, March 12, 2014, “Using Subsidies for Inclusive Insurance: Lessons from Agriculture and Health by Ruth Vargas Hill, Gissele Gajate-Garrido, Caroline Phily, and Aparna Dalal; Published by International Labour Organization,” https://www.microcapital.org/microfinance-paper-wrap-up-using-subsidies-for-inclusive-insurance-lessons-from-agriculture-and-health-by-ruth-vargas-hill-gissele-gajate-garrido-caroline-phily-and-aparna-dala/

MicroCapital, February 26, 2014, “Inclusix Index of Financial Inclusion in India; Obstacles to Access in Microinsurance; Microfinance in Kenya,” https://www.microcapital.org/microfinance-publication-round-up-inclusix-index-of-financial-inclusion-in-india-obstacles-to-access-in-microinsurance-microfinance-in-kenya/

MicroCapital, August 6, 2013, “Banco De La Gente Emprendedora (BanGente) Hosts Fifth International Microfinance Forum in Caracas, Venezuela to Review Universal Standards for Social Performance Management,” https://www.microcapital.org/microcapital-brief-banco-de-la-gente-emprendedora-bangente-hosts-fifth-international-microfinance-forum-in-caracas-venezuela-to-review-universal-standards-for-social-performance-managemen/

MicroCapital Universe Profile: FINCA Azerbaijan, https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=FINCA+Azerbaijan

MicroCapital Universe Profile: International Labor Organization, https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=International+Labour+Organization+%28ILO%29

MicroCapital Universe Profile: Social Performance Task Force (SPTF) https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Social+Performance+Task+Force

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Chikondano Faith joined MicroCapital after holding various rolse at a commercial bank, where she improved and diversified her skill set by exploring many banking functions including: trading, treasury management, credit analysis and business development. She developed an interest challenges faced by entrepreneurs in emerging economies after taking up a small business development and entrepreneurship course during her undergraduate studies at the University of Pretoria in Pretoria, South Africa. She holds also Masters degree in Strategic Management from the University of Derby, her independent study topic focused on strategies to support Small and Medium Enterprises (SMEs) in Malawi. In working with MicroCapital, she hopes to expand her knowledge of microfinance and to use this internship as a foundation to pursue a career in micro and developmental finance. Chikondano Faith enjoys travel, drawing, jazz music, and improving her French during her spare time.