MICROFINANCE PUBLICATION ROUND-UP: Social Performance in Nepal, Sharia-Compliant Financial Inclusion, Private Sector Employment

“State of Social Performance in Nepal;” by Mike Krell; published by Microfinance Information Exchange (MIX); March 2013; 10 pages; available at http://www.themix.org/publications/mix-microfinance-world/2013/03/Nepal-development-2013

This report from the US-based nonprofit Microfinance Information Exchange (MIX) examines the social performance (SP) of microfinance institutions (MFIs) in Nepal. While there was only one Nepali MFI reporting SP data to the MIX Market website at the beginning of 2012, there are 37 Nepali MFIs reporting SP data as of March 2013. These MFIs serve approximately 800,000 active borrowers with USD 210 million in loans outstanding and 1.4 million savers with USD 86 million in deposits. Though many MFIs have SP profiles on the MIX Market website, a significant portion of them does not report “quality” SP data according to Mr. Krell. The report notes that “the biggest SP management challenge facing Nepali MFIs is that of tracking outcomes related to institutions’ development goals,” which include poverty reduction, employment generation, development of start-up enterprises, gender equality and women’s empowerment. Mr. Krell laments that “only one Nepali MFI has ever reported client poverty data to MIX,” and calls for improvement in “the robustness of poverty measurement practices.” Ninety-four percent of active borrowers served by Nepali MFIs reporting SP data to the MIX Market website are women, and Mr. Krell highlights the sector’s “gender sensitivity and degree of focus on women” as its “principal SP management strength.”

“Trends in Sharia-Compliant Financial Inclusion;” by Mayada El-Zoghbi and Michael Tarazi; published by CGAP (Consultative Group to Assist the Poor); March 2013; 12 pages; available at http://www.cgap.org/publications/trends-sharia-compliant-financial-inclusion

This report presents an analysis of recent advancements in Sharia-compliant financial inclusion as well as challenges inhibiting its further expansion. One challenge to the ability of microfinance institutions (MFIs) to provide sustainable products that comply with Sharia, Islamic law, is the prohibition against charging interest. The authors note that “finding sustainable Islamic models could be the key to providing financial access to millions of Muslim poor who strive to avoid financial products that do not comply with Sharia.” With approximately 255 financial service providers around the world offering Sharia-compliant microfinance products, the overall supply is “still quite small relative to the conventional microfinance sector.” The authors highlight that 92 percent of these institutions are concentrated in two regions, East Asia and the Pacific and the Middle East and North Africa. While a majority of these providers are rural banks, commercial banks serve approximately 60 percent of Islamic microfinance clients. The report concludes that, despite its gaining momentum, Islamic finance “is still dominated by a handful of service providers in a handful of countries” with limited product diversification. Because “customers using Sharia-compliant products represent less than 1 percent of total microfinance outreach,” there is a need to develop more product diversity and experiment with profit-and-loss sharing models that may better meet customer needs.

“Private Sector Development Solutions – Jobs;” published by the International Finance Corporation (IFC); January 2013; 52 pages; available at http://www1.ifc.org/wps/wcm/connect/6cb30b804e22c3ab9234ba7a9dd66321/TOS_jobs_Jan2013.pdf?MOD=AJPERES

In this report, the International Finance Corporation (IFC) argues that “good jobs with sound working conditions, benefits and opportunities for advancement provide a clear pathway out of poverty.” The authors argue that the reform of laws and regulations affecting private enterprises in developing countries is “one of the best ways governments and their international partners can spark wide-spread job creation.” Reforms that simplify business registration and taxation policy can bring “significant employment effects” and “especially benefit small firms,” which often have “little voice in policy debates.” Because 26 percent of firms in low-income regions blame limited access to power as their largest growth constraint, the authors also state that infrastructure improvements are necessary to help businesses become globally competitive. And because 60 percent of the developing world’s current jobs are in micro-, small and medium-sized enterprises, the authors highlight the need for enhanced access to finance to allow for more investment and growth. The report concludes that ongoing consultation between governments and the private sector to ensure “high environmental and social standards in the workplace” and to “better align the skills taught with the ones needed” in labor markets, is critical in addressing the world’s job challenge.

By Sam Allmendinger, Research Associate

Sources and Additional Resources:

“State of Social Performance in Nepal,”
http://www.themix.org/publications/mix-microfinance-world/2013/03/Nepal-development-2013

“Trends in Sharia-Compliant Financial Inclusion,”
http://www.cgap.org/publications/trends-sharia-compliant-financial-inclusion

“Private Sector Development Solutions – Jobs,”
http://www1.ifc.org/wps/wcm/connect/6cb30b804e22c3ab9234ba7a9dd66321/TOS_jobs_Jan2013.pdf?MOD=AJPERES

MicroCapital Universe Profile: IFC (International Finance Corporation)
https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=International+Finance+Corporation+%28IFC%29

MicroCapital Universe Profile: CGAP (Consultative Group to Assist the Poor)
https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=CGAP+%28Consultative+Group+to+Assist+the+Poor%29

MicroCapital. March 29, 2013, “MICROFINANCE PUBLICATION ROUND-UP: Curbing Debt Stress, Social Performance in Mexico, UN Human Development Report: The Rise of the South,” https://www.microcapital.org/microfinance-publication-round-up-curbing-debt-stress-social-performance-in-mexico-un-human-development-report-the-rise-of-the-south/

MicroCapital. March 8, 2013, “MICROFINANCE PUBLICATION ROUND-UP: The Role of Business in Society; Life Microinsurance in Mexico; Social Performance Report for India,” https://www.microcapital.org/microfinance-publication-round-up-the-role-of-business-in-society-life-microinsurance-in-mexico-social-performance-report-for-india/

MicroCapital. March 15, 2013, “MICROFINANCE PUBLICATION ROUND-UP: Microfinance Handbook; Evolution of Microfinance; Impact of Private Sector Investment on Job Creation,” https://www.microcapital.org/microfinance-publication-round-up-microfinance-handbook-evolution-of-microfinance-impact-of-private-sector-investment-on-job-creation/

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