Eradicating Extreme Poverty and Promoting Financial Inclusion: The Roles of Islamic and Sustainable Finance Sim imon Bell ll th Ann he 4 th The nnual l Sym ymposiu ium on on Isla Islamic Fina nance Kua uala la Lum umpur Dec ecember 11, 1, 20 2018 18
A Gradual Convergence? • There has always been a sense of social responsibility within Islamic finance and in Islam. • Is there now a growing convergence between Conventional and Islamic Finance? • Increasingly, conventional finance – and western investors – do not wish to invest into “sin industries” (gambling, tobacco, alcohol). • Investors in conventional finance regimes are increasingly interested in investing into economic activities that do “Social Good” – where returns may be lower – but a social good is achieved. • Movements such as the #MeToo movement is shifting the way in which some money moves in western countries away from firms, for example, that are seen as negatively impacting women. • Financial flows are increasingly being impacted by social issues/concerns.
There is an important In this regard, relationship Malaysia does between extremely access to well as an finance and upper middle financial income services – and poverty country. reduction.
Emerging FINTECH Innovations can n sig significantly he help meet t th the go goals of of SD SDG 1 and can n be be de designed to to ha have Isl Islamic fea featu ture res 1. 1. Mobile Ban anking 2. 2. Dig igital Plat latforms 3. 3. Cro rowd Fun unding 4. 4. Psy sychometric Tes esting 5. 5. Big ig Data ata 6. 6. Soc ocial Dev evelopment Bon onds
MOBILE BANKING Dig Digita tal l Fin Finance/E /Ele lectro tronic c Pay Payments hav ave th the e powe wer r to to unlo lock fin inancial al res esourc rces to to in individuals and MSMEs currently “locked out of the system”. • Electronic payment and other services leave a “digital footprint” for MSMEs – wh who oth therw rwise suffe su fer r from iss issues ar around asy asymmetry ry of in info form rmati tion; • El Electr ectronic c pay ayments ts per ermit it the the enh enhanced use se of BIG G DA DATA to to fina inance MSM SMEs Es; • Electronic Electr c pay ayments ts per ermit it grea eate ter r fin inancia ial l in innovati tion – i. i.e. . M-Ko Kopa an and M-Sh Shwari ri;
DIG IGIT ITAL PLATFORMS Mob obil ile Mon oney – co combin ined d with Digit ital l Platf tforms – pro provid ides muc uch of of the he ba basis is of of the he fi finte tech rev revolu luti tion. Digi gital l Platf tforms pe permit it Cro rowd d Fun unde ders an and d Pee eer to o Pee eer Len endi ding (P2 (P2P) to o tak ake plac place (i (i.e. Kiva va fo for micro fi finance). Crowd fun fundi ding co coul uld eas easil ily be be de desig igned as as Isla Islamic fi finance (pa (parti ticula larly ly eq equi uity ty cro crowd fun fundin ing). Digi gital l Platf tforms fac facil ilita tate te the he man anip ipula lati tion on of of Big g Dat ata. Digi gital l Platf tforms can can he help mak ake so some Gen ender Fina nance an and d Gre reen Ene nergy gy so soluti tions poss ssib ible le.
DATA, , BIG DATA, , and PSYCHOMETRICS Man any ad adul ults ts in n em emergin ing eco econo nomie ies do do NOT ha have ve a a ba bank nk acco accoun unt. t. M Man any les ess ha have ve a a ba bank nk loa oan. Con onsequ quentl tly, Cre redit it In Informati tion on co cove verage is s low ow; Mean eanwhil ile soc socia ial l an and d othe other da data is s ex expa pand ndin ing ex expo ponenti tiall lly an and d is s be being use used to o ass assess the he rep repayment t cap capacit itie ies/w /wil illin ingn gness of of the he un un-bank nked to o de determin ine the heir ir elig eligib ibil ilit ity for for po poten enti tial l loa oans; Psy sycho hometr tric ic tes esti ting ng is s als also inc ncreasin ingl gly be being ng tes este ted on on the he un unba bank nked to o pre predic ict t the heir ir fi financia ial l be beha havio iors; FinTechs are are ex experim imenti ting with the e use se of f su such data ata as as a a pre redic icto tor of f rep repayment t be beha havio iors – an and d mak akin ing loa oans acco accordin ingly ly
GENDER FINANCE Women are disadvantaged in Credit Markets • They are 20 percent less likely than men to have a bank account; • 17 percent less likely to have borrowed formally; • Are more likely to be part of group lending schemes; • Loan sizes tend to be smaller. Tools such as – (a) Digital finance; (b) Psychometric testing; and (c) Big data: Permit women to be evaluated for credit in non-traditional ways – enhancing financial access. Digital platforms also permit women to transact from their homes and thus develop home based businesses – which is often important for Muslim women.
GREEN FINANCE • The two biggest constraints to SME development, employment and poverty reduction, are: (a) Access to Finance and (b) Access to Energy. • Innovations in energy (particularly solar) COMBINED with fintech innovations – if brought together – hold out a “game changing formula” for ground breaking development. • Models such as M-Kopa in Kenya (leased solar panels, M-Pesa pre-payment options, and the ability to “turn off” the grid for non - payment) are emerging and offer ground breaking possibilities for deprived communities – delivered on a sustainable basis.
There is a growing realization that young firms generate the most employment in all economies. Young firms are unlikely to receive bank lending – and they are unable to service debt. Early stage equity financing (Islamic) – in conjunction with big data, Start up Psychometric testing, etc – can help propel these start up firms through the Financing for Valley of Death and to potential rapid future growth. SMEs Again – this is can clearly be easily designed as an Islamic instrument.
Social Im Impact Bonds Soc Social Im Impact Bon Bonds (SI (SIBs) – are are out output base based fin financing. They pro provide priv private funding and fund and pri private exp expertise to to meet eet a a ti tigh ghtly spe pecified soc ocial obj objective (in (in a a PP PPP arrangement). arr The hey pro provide priv private inv investors pot potential retu returns on on thei their inv invest stments – if if ce certain soc ocial or or dev developmental ta targets are are reac reached. EAP 45% inclusion (30%*) Given thei Giv their emp emphasis on on ac achieving ce certain goa goals – and and sha haring in in upsi upside and and Top 20 (numbers of dow downside risk risks – thes these cou could be be desi designed as as Is Islamic fin financial prod products for for inv invest stors. excluded): China (16%*), Indonesia The he most st dev developed ca case se is is the the Pet Peterborough Pri Priso soners cas case whi which prov provided pri private (6%*), Myanmar (1%*), Philippines funding to fund to red reduce the the reco reconviction rate rate of of rele released pri priso soners in in Bri Britain. (2%*), Vietnam (2%*) 11
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