Al Amal, Winner of the Islamic Microfinance Challenge 2010
Al Amal provides various financial services and products (Islamic financing, savings, solidarity insurance, etc.) and is among a handful of microfinance institutions in the Arab World providing Islamic financial services. The bank continually works to improve competitiveness in the market by providing new products that meet the needs of the target segment and reach as many people as possible to realize the goals of the bank.
The winning project of the Islamic Microfinance Challenge 2010 was its Islamic leasing (Ijarah) product, based on the demand from certain professionals—such as tailors, carpenters, and blacksmiths— wishing to buy income generating assets. These applications had previously been rejected because the bank did not offer such financing.
There is more than one Islamic bank in Yemen providing a leasing product. However, this product remains very limited for reasons such as risks surrounding this type of credit, relatively low use in the market, the absence of adequate legal frameworks, and the lack of qualified staff capable of operating this product properly.
Another factor is the limited number of institutions providing such a product, and those that do offer it don’t provide a full range of services. A third factor is that Al-Amal would like to support this segment as part of their social responsibility.
Considering those factors, the bank finances economic projects through a leasing model, whereby the bank buys equipment, such as machinery, transportation vehicles, and tools needed by professionals (tailors, carpenters, blacksmiths) and leases them out to clients with a predetermined lease and monthly payments. To observe Islamic law, the contract stipulates that ownership and maintenance of the asset remain with the bank, provided that the lease that the lease contract is followed by a sale, at which point the commodity is transferred to the lessee.
Leasing is not a new product to Islamic financial services, but it is new to Islamic microfinance. Al-Amal Bank fund this product through Al-Amal Investment Funds, another Islamic product that marked a qualitative leap in Islamic microfinance. Al-Amal Investment Funds enables the private sector to cover the financing needs of microfinance programs. By virtue of this new approach, businesses and corporations no longer need to donate, but instead they can save with microfinance institutions that provide a voluntary savings service. The bank will reserve one of these investment vehicles to finance the leasing product, enabling the product to become self-sufficient in a short time while maintaining its Islamic structure.