Islamic Microfinance Gaining Momentum, Still Room for Growth

02 April 2013

Erin Scronce
Office: +1 202 473 3082
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Kai Bucher
Officer: +1 202 473 5995
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Islamic Microfinance Gaining Momentum, Still Room for Growth

Washington, D.C., 2 April 2013: An estimated 1.28 million clients use Sharia-compliant microfinance services, a four-fold increase since 2006, according to a CGAP report released today. Despite this growth, the sector remains limited in terms of number of service providers, product offerings and overall outreach.

The report, Trends in Sharia-Compliant Financial Inclusion, finds that the overall supply of Islamic microfinance products is still small relative to the conventional microfinance sector, but it is growing rapidly. Nearly a third of all institutions reported a launch of their Islamic microfinance operations in the last five years, and the number of providers offering these products has doubled since 2006. According to the report, 255 financial service providers offer Sharia-compliant microfinance products globally, with 92% concentrated in two regions - East Asia and the Pacific (164 providers) and the Middle East and North Africa (72 providers). The majority of institutions offering Sharia-compliant services are rural banks, but when measured by the number of clients served, commercial banks are the largest providers.

“With around 650 million Muslims living on less than $2 a day, Islamic finance models could be the key to providing financial access to millions of poor Muslims,” says Mayada El-Zoghbi, microfinance specialist at CGAP and co-author of the report. “Many traditional microfinance products conflict with the Sharia’s ban on interest-based transactions or are otherwise not in line with Islamic financial principles, making them inaccessible to observant Muslims.”

The report draws on results from a 2011 survey conducted by CGAP and the French development agency Agence Française de Dévelopment (AFD) and found that 82% of Islamic microfinance clients reside in just three countries: Bangladesh (445,000 clients), Sudan (426,000 clients) and Indonesia (181,000 clients), which is home to the largest outstanding portfolio ($347 million).

It remains challenging for providers of Islamic microfinance to create sustainable business models. Forty-three percent of institutions surveyed reported that they relied on donations to finance at least some portion of their business because the operating costs of Sharia-compliant products, particularly profit-and-loss sharing products, are so high.

“While Islamic microfinance is definitely gaining momentum, it is a sector still dominated by a handful of service providers in a handful of countries offering primarily two products,” notes Michael Tarazi, senior regulatory specialist and co-author of the report. “The key is to drive down costs so that clients don’t have to choose between their religion and their wallet.”

Read the report in its entirety at


About CGAP

The Consultative Group to Assist the Poor works toward a world in which everyone has access to the financial services they need to improve their lives.

CGAP develops innovative solutions for financial inclusion through practical research and active engagement with financial service providers, policy makers, and funders. Established in 1995 and housed at the World Bank, CGAP combines a pragmatic approach to market development with an evidence-based advocacy platform to advance poor people’s access to finance. Our global network of members includes over 35 development agencies, private foundations, and national governments that share a common vision of improving the lives of poor people with better access to finance.