Rushdi Siddiqui asks a question he has asked before (and which I have written about before) about whether Islamic finance is missing a focus on microfinance and making institutions whose focuses include social responsibility (a focus on environmental, social and governance, or ESG, metrics, in addition to profits). When I talk to people about Islamic finance, one of the areas that sparks the most enthusiasm is Islamic microfinance, and using Islamic finance as a way to broaden financial inclusion.
Yet, there is too little attention paid to these issues by Islamic financial institutions, where the focus is more on creating new alternatives to conventional products like allowing brokerages to offer 'Islamic margin accounts'. There is a demand for these products, I'm sure, and they help Islamic financial institutions compete with conventional brokerages for business, but is that the best use of resources for broadening Islamic finance?
Why not help new initiatives to reach the broad majority of Muslims who are not thinking "well, can an Islamic brokerage allow me to make leveraged bets on stocks?" but are instead thinking "I want to use microfinance to start a business, but I don't want to be involved with an interest-based microfinance institution".
There are new Islamic microfinance institutions starting up, including one, the Zayd Chit Fund in Bangalore, India (a form of rotating savings and credit association, or ROSCA), which launched last weekend, in a market that has huge potential for Islamic finance, but where political constraints have limited the ability of large Islamic financial institutions to enter. What better way to enter the market than to go support (financially and with technical knowledge) the development of Islamic microfinance institutions, including Shari'ah-compliant chit funds. It provides a way to enter a large, untapped market, and a way to show that the Islamic bank is focused on more than just the next quarterly earnings report.
The Islamic finance industry is vast and rich with resources and talent (although, as many have noted, not as successful in finding jobs for the recent graduates). It is also by its nature supposed to be concerned with providing ethically-based financial services that do not just preserve wealth for those who have it, but also in providing opportunities for people who, with an opportunity, can create wealth, and jobs. In addition to providing banking products for higher-income people and those with significant wealth, it should also support financial institutions that provide for people with lower incomes or with no access to Islamic finance. Not just because it makes nice PR material, but because it will help attract and retain talented employees, and will create a market of people familiar with Islamic finance who will then look to Islamic banks for services into the future.