Harnessing the Ramadan spark

What is the obligation of Muslims to Islamic finance? One answer is to lead it where bankers may not go! Sometimes the customers have connected the dots of insights and ideas that banks, Islamic and conventional, have missed.

Ramadan brings out the best of Muslims: charitable donations increase, thoughts of the less fortunate are commonplace, festive atmosphere and family reunions, put differently, kind heart and sense of sacrifice and giving.

Non-Muslim friends and colleagues compare the spirit of Ramadan to the spirit of giving and family associated with Christmas. 

Ramadan CSR

Islamic banks also show their best corporate social responsibility (CSR) during Ramadan, as their charitable donations increase, pitch Ramadan tents, defer payment of customer financing obligations for the month, launch of new Islamic products, and the like.

However, the emphasis seems to center on their bankable customers and potential customers, as their  announcements are press released, where there is an implicit marketing associated with their actions. 

Ramadan also presents an incredible opportunity for Islamic banks to do something for the non-bankable Muslims, and possibly beyond just the holy month.

Now, "what that something" is should be meaningful and foundation building for financial empowerment, but, the bottom line is, it requires funds.

For example, the customer deferment of monthly payment of, say, Islamic mortgage financing during Ramadan by the likes of enlightened institutions like Abu Dhabi Islamic Bank (ADIB) is a solid foundation to raise ideas.

Deferment

Institutions like ADIB should continue to offer the deferment, as it may be the necessary relief for certain over-burdened customers, but also (as an option) take deferment program one step further. 

The customer can opt to chose the "Ramadan defer contribution", meaning the customer still makes their monthly obligation payment. The bank then directs the full payment towards specially established and administered fund by the bank. The bank credits the customer account, but then channels the moneys into the SME fund. Thus, the customer forgoes the "relief" and the bank contributes payment.

Yes, this will affect the bank's bottom line as one financing payment is missed to the bank (by their thousands of) customers, but, as they are sitting on a mountain of liquidity, this will add to the institution's "good-will". 

The proposed SME fund is established and operated by SME experienced (Muslim) professionals who then dispense money to entrepreneurs with ideas benefitting their local community in selected least developed Muslim country or established Muslim minority country, like India or Sri Lanka with interest in Islamic finance.

In addition, establishment of such SME funds should be in countries where mobile networks and phones exist, as connectivity will be a key determinant to the traction of such operations.

SME Fund

The SME fund must set up operations in local country as on the field presence is they key to understanding local situation for vetting business opportunities. 

The announcement locally of such funds will bring energetic people looking for a "financial" break with mixture of ideas, from start-ups to expansion capital. The amount dispensed may be a maximum of, say, $500, as there are many lessons learned from Grameen bank on micro-financing.

As this money is from "donations", there should be no compulsion in "paying back", but this is also not charity, as submitted business "plans" are vetted. Obviously, there will Shariah issues that need to be addressed, as focus on funding Shariah compliant activities, and, as community based, it will have linkage to the local economy.

The mobile phones, given to those awarded the funds, would be used to as part of "mobile banking" for guidance and staying connected. These mobile phone owners may eventually become bankable customers.

The keys to success of such an initiative will include managing costs in setting such SME funds and hiring the right people.

Other areas include transparency of the process in funding ideas, workshops on setting up and expanding businesses, close monitoring of the funded business, etc. 

Ramadan Spark

The month of Ramadan should encourage us (Muslims) to push ourselves outside of our comfort zone of fasting, prayers, charitable donations, etc., as these are self cleansing and spiritually enriching.  Thinking about the Muslim "have-nots" is a basic level of "imaan" (belief), but we need to take more pro-active steps and lead our banks. 

The initial "contribution" for the fund is the Ramadan "spark."  If Islamic banks are deferring payments for their customers during Ramadan, it's a good beginning as we don't see such acts by conventional banks. But, we can do more, and turn this act of deferment payment into funding opportunity for the Muslim "have-nots". 

Let this Ramadan establish the foundation for enlightened Muslims to encourage Islamic banks to think beyond the deposit taking community. Muslim obligation to Islamic banks!

The writer is global head of Islamic Finance at Thomson Reuters. Views expressed are his own and do not reflect that of his organisation or of Gulf News.