Tell us a little bit about your company/project?
Bank of Khartoum’s (BOK) microfinance unit was established in 2009 in collaboration with one of our shareholders, the Islamic Development Bank. Our mission is to support poverty alleviation and ease the suffering of Sudan’s poorest and marginalised people by empowering them to start their own micro businesses. The unit targets women and disabled men in poverty pockets across Sudan and provides them financing as well as the emotional and technical support they need for success. This includes training, technical capacity advisory and mentoring support. These are expected to expand their abilities to provide for themselves and their families, create hope, opportunity and build their confidence to maintain a sustainable livelihood that will have an eventual spin-off effect for the community as a whole.
BOK’s Microfinance has had very positive results and has become a well-known leader in the field of Islamic microfinance. Our business model is being adapted by many international and regional organisations that offer microfinance.
Currently, the microfinance department is managed under the umbrella of the Retail Group but BOK’s Microfinance will soon become an independent identity under the brand name IRADA. Regulatory approval from the Central Bank of Sudan has already been secured and Bank of Khartoum will have 80% shareholding and Islamic Development Bank is contributing the remaining 20%.
Our mission is to support poverty alleviation and ease the suffering of Sudan’s poorest and marginalised people by empowering them to start their own micro businesses.”
Our strategy has 5 main elements:
- Assist the targeted communities to select the right business opportunities.
- Finance accessibility for the poor to business assets and infrastructure, operational requirements, capacity building, technical, management and marketing support.
- Financing considerations are 50% commercial and 50% social.
- Innovation in using and selecting Islamic Modules, as they guarantee achieving the first 3 elements.
- Finally, and the most important element: targeted groups are considered the bank’s partner in business, and are not just regular customers to us.
Based on the above, 3 business modules were developed with the local communities:
- Mudarabah with 125 families for greenhouses offseason crops production.
- Salam in irrigated fields with 150 families and 10 communities.
- And the third, which won the EFICA award, is the Diminishing Musharakah and Murabahah finance business with Wad Balal community village for cattle fattening production.
Wad Balal Village is located 225km south of the capital Khartoum. The village consists of two main bodies: one is rural company established by community leaders with limited resources, and the cooperative association includes all village families.
A technical, financial and comprehensive social study was conducted and concluded to an integrated financing solution. The study recommended diminishing mushraka for the rural company to establish the facility of fattening cattle. Murabahah was recommended for the families cooperative association to procure the cattle, then leasing between the families’ association and musharakah facility management against a percentage of the cattle selling and sub-products revenues, which is the main source of revenue under musharakah. Residual revenues will go to the families, part of which will be for murabahah repayment and some for saving which will be accumulated over five years to assist the families to have the required capital in hand for the cattle business when the bank exits the project. The last part of revenue will be families’ net income during the financing period.
Under diminishing musharakah the shares owned by the bank will be redeemed toward the rural company. The profit from these obtained shares will be directed to the community as follows: 40% to finance more families in the community, 40% to develop community social services and 20% will serve as incentive for the rural company to achieve the two tasks.
EFICA is about ethics in financial services. How do you make an impact on society?
Our Islamic microfinance module provides the economic opportunity for targeted segments to be financially capable and leverage into a higher segment in a short period through applying best international practices. The Islamic microfinance business at the Bank of Khartoum focuses on agriculture and livestock and related businesses, as these are the key sectors in Sudan where more than 70% of the workforce are employed. Like all our work across Sudan the Wad Balal module is based on empowering beneficiaries, accompanying them from pre-production through production and up to the marketing phase and other investments. The Wad Balal module is an opportunity for more than a hundred families in the village to be the owner of assets worth $1.6 million in only 5 years, with annual income for each family of $5,300 during the financing period and $8,400 post-financing.
Families are supported in their household consumption during production awaiting revenue by granting them monthly payment calculated as part of financing. Post-production, through financing families obtain a small slaughterhouse unit to add value to the product. This links them to the private sector both local and foreign, such as the Egyptian company Makarim with a monthly demand of 3,000 heads of cattle.
When we look closer at the features of the Wad Balal module, redemption of finance is only linked to the revenue of the business, whether by diminishing musharakah for buying the bank’s share or murabahah installment. The objective is to leverage the economic status of the families and not take what they already have. There is continuity to the production outlook and all financial returns are based on production profit sharing. Even the leasing relationship between the fattening facility and the families association is a percentage from revenue and not a fixed amount.
The Rural Company of Wad Balal is committed to distribute profit from the shares bought from the bank, to finance more families and develop the services and infrastructure of the community, while having 20% of the new profit as a management incentive. Finally, financing should be for the right business opportunities that are needed by the community. The considerations are both commercial and social.
What do you think is the future of companies and projects like yours?
Current indicators show that financial services that empower targeted groups via Islamic microfinance will increasingly play a more prominent role for development institutions and organisations, microfinance institutions and Islamic commercial institutions. We find that some international and regional institutions, such as the Islamic Development.
Bank, have started to look more deeply into microfinance and how it can be a comprehensive development solution to eradicate poverty and achieve development for local communities that will have a positive knock-on effect on the country as a whole.
The business module is applicable to all targeted communities worldwide. The approach is based on a deep and comprehensive understanding of individual beneficiary as well community needs. We have learnt that these needs are the same in all poor communities with differences in size and proportion in line with the unique economic conditions of each country. Our business strategy also has the potential to offer solutions for diversified economic sectors as the Islamic modules guarantee solutions for all stakeholders -- the beneficiaries, their business and sustainability for the financial institution. In some cases doing business with the targeted groups could earn ROA up to 50%.
The success of our work and that of other similar Islamic microfinance institutions encourage new investments and financing from donor institutions and incentivise existing ones to restructure by empowering the targeted groups, streamlining structures with lower cost and fewer procedures to implement and follow up.
What do you intend to do with the publicity and money you have gained from the EFICA Award?
We will continue to focus on introducing more innovative projects to help communities and we strongly believe in giving back. The award money will be returned with honour to the community through multi-purpose facilities to serve community residents in education, health, technology, and social activities.
How can others follow in your footsteps? What are the key ingredients that have made you successful?
In a short span of time, BOK’s Microfinance has established itself as one of the top Islamic institutions and we are known as a centre of excellence in providing training on Islamic modes of microfinancing. Islamic finance is spreading fast globally and is also adapted by non-Muslim countries.
We would like to invite all concerned institutions interested in microfinance to come and see our projects in their ‘natural’ environments and learn from our experience. We are more than happy to help institutions around the world establish similar projects.
The success we have achieved so far is due to various factors:
- The business strategy of the Bank of Khartoum is based on the knowledge that the concept (of Islamic microfinance) is the solution. This eliminates most of the weaknesses and challenges that usually confront any commercial bank when starting to offer microfinance.
- Our staff is highly skilled in applying Islamic modules and merging them with the principles of empowering and working productively with poor communities.
- We value and work closely with international partners. Since our establishment we have been working with the Islamic Development Bank and its consultancy firm the International Business and Finance Group (Da’am) which has helped to study and set up business outlines.
- The targeted communities have substantial share in our success. They have been so welcoming of our ideas and methods and have stood together and with us in solidarity. They are always ready to work to overcome challenges with us. It is worth repeating that we have enjoyed this sense of solidarity between all the stockholders from the bank and private sector partners down to the local targeted communities.
- Another important element which makes us successful is that while helping the poor, we take Islamic microfinance as a serious business and every project that we do, we take it as our own project. That is why we provide end-to-end solutions, not just financing. We make sure that we provide technical support and guidance throughout the project and supervise and even find buyers to sell the goods produced in the projects.