SOLUTIONS LAB: Islamic Finance as a Tool for Financial Inclusion: Micro-, Small-, and Medium Enterprise Development
DATE: February 26, 2015
TIME: 10:00 am
On February 26, 2015, the World Bank’s Middle East and North Africa (MENA) Corporate Financial Reporting (CFR) Technical Practice, with the support of the MENA Micro, Small and Medium Enterprise (MSME) Facility, warmly welcomed over seventy participants from around the region to the Solutions Lab virtual conference event on “Islamic Finance as a Tool for Financial Inclusion for Micro-, Small-, and Medium Enterprise (MSME) Development.”
Participants joined in from Egypt, Jordan, Lebanon, Morocco, the West Bank and Gaza and Tunisia. They represented a variety of institutions including Central Banks, Islamic Banks, Sharia Boards, Audit Firms, Professional Accountancy Organizations, and Universities.
Solutions Lab events form part of the Connecting Voices Middle East and North Africa (CV MENA) initiative, a regional knowledge platform which aims to strengthen governance throughout MENA countries. Solutions Lab events connect participants from across the MENA region through the World Bank Global Development and Learning Network (GDLN) and videoconferencing technology to share experiences and lessons learned on key issues of governance – including corporate financial reporting — facing the region.
This particular event was positioned at the crossroads of accounting and auditing, Islamic Finance, and MSME business development. The focus was on the strong opportunity which the development of Islamic Finance offers for economic growth, poverty reduction and shared prosperity in many developing and emerging economies. Despite these potential benefits, however, Islamic Finance in emerging economies faces several challenges, including a weak and still-evolving regulatory and supervisory environment, non-standardized corporate governance practices and a need for skilled and experienced Islamic Finance professionals. A common theme which draws these three challenges together is that of accountancy. As such, the Solutions Lab event addressed the accountancy-related aspects of these challenges by focusing on the need for:
· Robust and internationally accepted national legal and regulatory frameworks which embody high quality accountancy standards and advance modern oversight and regulation;
· Enhanced standardization in the area of corporate governance practices including increased transparency and accountability in the areas of financial management, internal audit, and reporting; and
· Education, training and certification in accountancy, finance, and Sharia Law in order to ensure well-skilled, capable and competent professionals.
Several highly respected subject matter experts were invited to share their knowledge and experiences regarding the use of Islamic Finance by MSMEs in the MENA region. They addressed the role and importance of accounting and auditing in this context. The following offers a brief insight into the topics and issues covered by their presentations:
· Formal presentations were opened by Mr. Zamir Iqbal, Lead Financial Sector Specialist at the World Bank Global Islamic Finance Development Center, on the topic of “The World Bank’s Global Islamic Finance Development Center as a Means to Enhance Financial inclusion for MSMEs.” The Global Islamic Finance Development Center was launched by World Bank President Jim Yong Kim in October 2013 and is based in Istanbul, Turkey.
· Mr. Musa Abdelaziz Shihadeh, Vice-Chairman and Chief Executive Officer of the Jordan Islamic Bank, followed with a presentation on the subject of “Accounting and Auditing Challenges Faced by MSMEs in the Context of Islamic Financing.” Using the case study of the Jordan Islamic Bank (JIB), Mr. Shihadeh outlined the Islamic perspective on financial inclusion which lies predominantly in risk-sharing for MSMEs. He added that JIB’s accounting standards are in line with the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) Sharia standards on Islamic finance mechanisms and investments.
· Mr. Mohammed Abu Dalo, Credit and Islamic Finance Specialist at Reef Finance Company, discussed the “Value of Accountancy-Related Corporate Governance and Human Capacity Building in Furthering Islamic Finance.” He focused specifically on the Palestinian experience with Islamic Finance through a two-tiered approach: The conceptual framework for Financial Reporting by Islamic Financial Institutions; and main challenges that hinder the development of Islamic Finance including the absence of an economic environment to apply Islamic finance in compliance with Sharia requirements; limited variety of Islamic Financial instruments; and a reluctance to lend to the MSME sector due to high risk and lack of collateral.
· Ms. Doa Wadi, Executive Director of the Business Women Forum Palestine spoke on the subject of “Financial Inclusion and Islamic Banking for Women’s MSMEs in MENA, A Reflection on Accounting Structures.” Ms. Wadi cited the weak internal controls and financial management structures in women-led MSMEs as significant challenges to access to Islamic Finance in the MENA region.
The impact and relevance of this event cannot be understated. This event was the first MSME-focused interactive regional event convened by the World Bank for MENA representatives to address key issues facing accountancy within the framework of Islamic Finance to MSMEs. This initiative helped to support the development of the MSME community by providing a combination of country-focused discussion and good practice to raise awareness and address key issues of accountancy and Islamic Finance. These included discussions to improve the enabling environment for MSMEs through the support of accounting measures for easier access to finance.
In seeking to maintain the momentum on the subject, next steps will include a Ma’arefah Community of Practice online event which will focus on the accountancy implications of Basel III for Islamic Finance Institutions. Such online events are now a part of the Ma’arefah Community of Practice platform which was established to exchange knowledge and resources on procurement, financial management and public sector topics.
If you would like to participate in this upcoming Maarefah event, register online at http://www.maarefah.net/user/register, and an invitation letter will follow. We look forward to your membership and upcoming participation in all future events and activities