People on the Move: Islamic Finance for Pastoralists in the Horn of Africa

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Date Published: 
Sep 2015
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Building resilience in underserved populations with Islamic finance

Pastoralists in Ethiopia are among the most vulnerable populations to shocks and stresses in the world. The majority of Ethiopia’s 1.5 million pastoralists suffer from recurring and often overlapping shocks from droughts, fluctuations in food and input prices, and livestock disease. Financial services play a key role in mitigating shocks, while strengthening pastoralists’ household- and community-level resilience. However, Ethiopia is one of the world’s most financially excluded countries: less than 18% of the population has an account with a financial institution, 14% save in an account, and a mere 7.4 % borrowed from a financial institution last year.

What about insurance, leasing, and mobile money products you ask? They reach less than one percent. These numbers are even lower for pastoralists who are physically mobile for months at a time, lack traditional collateral and formal identification, and traditionally prefer Islamic-compliant financial products rather than conventional interest-bearing products.

Globally, Islamic finance is a huge industry and growing rapidly; reaching $2.5 trillion in global assets this year concentrated in the Gulf and South East Asia. Yet most of the millions of pastoralists in Ethiopia and throughout the Horn of Africa have not benefited from this growth, often due to their mobile nature and the limited infrastructure available to serve them in the areas where they live. Islamic finance is in its infancy in Ethiopia and in the Horn. This poses new challenges that financial service providers must address in order to meet the financing needs of pastoralists and those that prefer Islamic finance in Ethiopia – a potential unmet market demand of 19 million.

Through our work with Takaful Insurance of Africa and pastoralists in the Horn, Mercy Corps has found a number of topics that pastoralist, Islamic finance, and insurance experts are considering as Islamic finance continues to expand:

  1. Islamic finance is asset-based and fully collateralized, while also founded on strong ethical precepts. Is it less risky than conventional finance and more attractive to bankers?

  2. Many financial institutions in the Horn provide profit-sharing products while simultaneously providing conventional financial products. Do customers prefer one product over the other when given the choice?

  3. Over 80% of savings clients in the Al Rayan Bank, previously called the Islamic Bank of Britain, are non-Muslims, attracted by the concept of ethical financial products. Will this trend in customer preference be reflected in the Horn?

  4. Are subsidies resulting in increased uptake of Islamic compliant insurance products or are they distorting markets?

Join us at the 2015 SEEP Annual Conference to learn how Mercy Corps and Takaful Insurance of Africa are changing the financial ecosystem for pastoralists across the Horn in the interactive workshop ‘People on the Move: Islamic Finance for Pastoralists in Africa.’ During this session we’ll explore answers to the questions above, and the specific tools used, such as new credit evaluation techniques, to build resilience of pastoralists through a range of Islamic financial services and delivery channels, highlighting examples from Ethiopia, Kenya, and Somalia!

Want to hear even more about Mercy Corps' latest work with new technologies to help pastoralists access financial services? Join us Wednesday morning September 30th to learn about BelCash Technology Solutions PLC - a Mercy Corps partner and Ethiopia’s first mobile and agent banking technology platform to launch agent-based mobile money services in Ethiopia’s Somali region. These are the first interest-free mobile financial products available in Ethiopia. With local MFI partners, BelCash aims to reach over 300,000 Ethiopians within two years. Belcash’s CEO will describe the partnership and challenges he has faced in rolling out an agent network targeting pastoralist clients at the 2015 SEEP Opening Plenary: Private Sector Partnerships: Creating Sustained Impact.

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- Article contributed by Thea Anderson. Thea is Director for Financial Inclusion at Mercy Corps, an international development and humanitarian organization working in 42 countries. She leads the agency strategy and implementation of market-driven financial services with a focus on private-sector partnerships and non-traditional applications. She has extensive experience overseas including 8 years in Iraq, Afghanistan, and Lebanon. Learn more about Mercy Corps' approach to financial inclusion here.


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The Microfinance Gateway is proud to have been an outreach partner for the 2015 SEEP Network Annual Conference which had dual themes of Inclusion and Resilience.

Read the full set of Highlight Articles from our partnership:

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Countries: 
Eritrea, Ethiopia, Kenya, Somalia