ISLAMIC SOCIAL FINANCE IN WEST AFRICA: OPPORTUNITIES AND CHALLENGES

Abstract

The main objective of this study is to explore the potential contribution of Islamic Social Finance (which includes Zakat, Waqf and other instruments of solidarity) to the fight against poverty and inequalities in French-speaking countries of the West Africa. To this end, we used three methods of investigation: a documentary analysis, individual interviews and focus groups. Our sample consists of four countries in French-speaking Africa. These are: Mauritania, Niger, Senegal and Togo.Our estimates of the potential of Zakat suggest that if it were effectively managed, extreme poverty would have been drastically reduced or even eradicated in these countries from the first year. This corroborates the results of previous work on the issue. However, to take advantage of this potential, it is important to: i) establish a regulatory framework for the management of Zakat with a fairly incentive tax system, raise awareness among Muslim populations of the obligation to pay Zakat and on the importance of its effective distribution.The practice of Waqf in the countries considered is rather dominated by religious Waqf (eg mosque); Waqf for socio-economic purposes, such as health centers, orphanages, boreholes, etc., are not yet widespread enough. Past and present experiences show the capacity of Waqf to strengthen the supply of these basic services. Aware of these challenges, the States of Mauritania, Senegal and, recently, Niger, have put in place a legal framework for the harmonious development of the Waqf. We have suggested, among other things, the adaptation of the practice of Waqf to the context of the countries in question, by promoting microwaqfing through which small amounts are collected from populations (in the form of alms) to either create Waqf funds or create basic social infrastructures such as health centers, orphanages, etc.Finally, we studied the potential of Islamic microfinance to contribute to achieving financial inclusion and to support SMEs more efficienty.

Full text

ISLAMIC SOCIAL FINANCE IN WEST AFRICA:
OPPORTUNITIES AND CHALLENGES
Authors:
 Dr Abdou DIAW, Manager of CESAG Islamic
finance programs and CEO of ACOFFIS
 Maïmouna VAHVOU, PhD candidate
 Abdoulaye MBOW, Deputy CEO of ACOFFIS
 Abdoulaye LAM, CEO of GIFT

Islamic social finance in West Africa: Opportunities and challenges
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1. INTRODUCTION
The majority of the Organization of Islamic Cooperation (OIC) countries are characterized by
a high level of poverty. In 2013, the number of people living below the US $ 1.9 poverty line
was estimated to 375 million out of a population of just over 1.5 billion. The poverty rate of
member countries ranges from 0% to 62% (SESRIC, 2016).
Various OIC organs have put in place programs to overcome poverty, which is an obstacle to
the socio-economic development of member countries. As an illustration, one of the main
objectives of the Islamic Development Bank (IDB) is the reduction of poverty in its member
countries in accordance with the general principles of Shariah. Since its inception, IDB's various
achievements have been noted in the areas of education, health, rural and agricultural
development, drinking water supply and sanitation, women's integration into the community,
development policies, etc. (IDB, 2007). IDB's interventions in the area of poverty alleviation
are distinguished from those of other multilateral development institutions through the use of
instruments specific to the Islamic economy such as Waqf and other modes of Islamic
financing. These instruments, have shown throughout history their effectiveness in Muslim
societies. Indeed, it is established in the literature that Islamic social finance, which includes
Zakat, Waqf and Islamic (cooperative) microfinance, has the potential to eradicate poverty in
the member countries if it is efficiently used in a conducive environment (Shiraz, 2014, IRTI,
2014, IRTI, 2015, IRTI, 2017).
The West African member countries of IDB are classified as low-income countries and middle-
and lower-income countries according to the World Bank classification. The incidence of
poverty is very high. These countries, which have a large proportion of Muslim population, do
not take full advantage of the opportunities offered by the instruments of Islamic Social Finance
in designing and implementing their strategies to fight poverty. In fact, apart from the support
that multilateral development institutions like the IDB bring to these countries in their strategies
to fight against poverty, there is a huge potential to mobilize local resources for a better use.
However, this supposes a massive adherence of the populations and their trust to the State
policies and the mode of management of these resources.
The main objective of this study is to explore the potential contribution of Islamic Social
Finance to the fight against poverty and inequality in Francophone countries of West Africa.
More specifically :

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- to discuss the current state of poverty and inequalities in the countries covered by this study,
all of which are French-speaking countries in West Africa;
- to review the state of Islamic Social Finance in the countries covered by the study;
- to explore the opportunities offered by Islamic Social Finance and the challenges for its
development;
- make recommendations to decision-makers to benefit from the opportunities of Islamic Social
Finance.
To this end, we used three methods of investigation: a documentary analysis, individual
interviews and focus-groups.
Given the constraints, we have chosen to carry out the study on four countries in French-
speaking Africa: Mauritania, Niger, Senegal and Togo.
The profiles of these countries are fairly representative of other countries in this region.
The profile of Mauritania is interesting in the sense that it is a country straddling the Maghreb
and sub-Saharan Africa. The Islamic character of the State suggests that the practice of Zakat
and Waqf is more mature compared to other countries.
Niger is one of the poorest countries in the world (see data below) with a predominantly Muslim
population. It is therefore important to better understand this situation of poverty in order to be
able to propose adapted solutions drawn from the Islamic economic thought and which will be
applicable to similar in this field.
Senegal has benefited from several IDB programs in the field of microfinance and Waqf. This
study would make it possible to discuss some of the impact of these programs and their level
of articulation with the Senegalese government's poverty reduction strategies as well as their
effectiveness.
The importance of Togo for this study lies in the fact that it is the only country, in the sample,
where Muslims are a demographic minority. The results concerning it, could constitute a useful
insight for investigations in other countries with a Muslim minority.
This study aims to make a doubly significant contribution. Indeed, i) despite the importance of
the Muslim population in this region of the world, few studies have been devoted to Islamic
finance; ii) a very limited amount of scientific work has been done on Islamic Social Finance
in French.

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2. State of poverty in the countries covered by the study
To draw up an assessment of the current state of poverty in the four countries covered by this
study, we considered the following socio-economic variables over the period 2000-2015: the
incidence of poverty, inequality measurement indicators, access to education, access to primary
health care, food insecurity and malnutrition, access to drinking water and access to electricity.
Overall, the incidence of poverty remains relatively high in all four countries. Thus, except
Mauritania, the performance of other countries with respect to the MDG 1, on halving poverty,
has not been achieved. Moreover, for all the four countries covered by the study, inequalities
remain strong, but are on a downward trend except for Togo, where all the indicators point to
their accentuation. The lowest Gini index is 32.4% for Mauritania (2014), which also holds the
lowest percentage for the share of wealth held by the highest 20% of the population (40% of
wealth).
Table 1: The situation of poverty in the countries covered by the study
Year
The incidence of
poverty
(Threshold: $
1.90 per day
(2011 PPP))
GINI
Index (in
%)
Income share
held by the
lowest 20%
(in%)
Income share
held by the
highest 20%
(in%)
Mauritania
2000
19,6
39
6,2
45,7
2014
5,9
32,4
7,6
40
Niger
2005
74,9
44,4
5,8
51
2014
45,7
34
7,9
42,2
Senegal
2001
49,3
41,2
6,6
48,4
2011
38
40,3
6,1
46,9
Togo
2006
21,1
42,2
6,1
49,1
2011
23,2
46
4,8
51,6
SSA
2002
25
NA
NA
NA
2011
17,4
NA
NA
NA
World
2002
25,3
NA
NA
NA
2011
13,5
NA
NA
NA
Source: Authors calculations, based on World Bank data
For access to education, we used as an indicator, the gross enrollment ratio (GER) at the
primary, secondary and tertiary levels. Although the results are generally satisfactory,
especially at the primary level, it should be noted that the performance achieved by these
countries is below the world average.

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Table 2: Access to Education
Year
Gross
enrollment
ratio (primary
level)
Gross
enrollment ratio
(secondary level)
Gross
enrollment ratio
(higher
education)
Mauritania
2000
82,7
18
3,4 (2001)
2015
102,5
30,6
5,6
Niger
2000
32,9
6,9
1 (2003)
2015
72,5
20,7
1,7 (2012)
Senegal
2000
68
16
3
2015
82
50
10
Togo
2000
112,9
32,1
NA
2015
121,8
54,4 (2011)
10,6
SSA
2000
81,6
26,3
4,4
2014
98,4
42,7
8,6
Worl
2000
98,5
60
19
2015
104
76,4
35,7
Source: Authors calculations, based on World Bank data
To measure access to primary health care, we considered as indicators: (i) the percentage of
births attended by skilled health staff, (ii) the number of physicians per 1,000 people and (iii)
the number of hospital beds per 1,000 people.
The performance of the countries is globally weak, with results well below the world average
and following a downward trend. Only Mauritania stands out especially for the first indicator
where it manages to achieve a result above the average of sub-Saharan Africa.

Islamic social finance in West Africa: Opportunities and challenges
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Table 3: Access to primary health care
Year
Births attended by
skilled health staff (%
of total)
Number of
physicians (per
1,000 people)
Hospital beds
(per 1,000
people)
Mauritania
2000
53,4 (2001)
0,11 (2004)
NA
65,1 (2011)
0,06 (2013)
0,4 (2006)
Niger
2000
15,7
0,03 (2002)
0,12 (1998)
2015
39,7
0,019 (2010)
NA
Senegal
2000
57,8
0,095 (1998)
0,4 (1998)
2015
53,2
0,095 (2010)
0,3 (2008)
Togo
2000
35,4
0,06 (2001)
0,9 (2005)
44,6 (2014)
0,05 (2010)
0,7 (2011)
SSA
2000
41,2
0,17
NA
2014
55,2 (2013)
0,2 (2011)
NA
World
2000
62,9
1,3
2,61 (2002)
2015
78,3 (2013)
1,5 (2011)
2,92 (2005)
Source: Authors calculations, based on World Bank data
The results for food insecurity are generally satisfactory. Indeed, all countries in the sample
scored better than the average for sub-Saharan Africa. Except Togo, all the other countries
performed better than the world average.
Table 4: Food insecurity and malnutrition
Pays
Year
Prevalence of undernourishment
(% of population)
Mauritania
2000
11,5
2015
5,6
Niger
2000
22,8
2015
9,5
Senegal
2000
29,4
2015
10
Togo
2000
29,2
2015
11,4
SSA
2000
28
2015
18,5
World
2000
15
2015
10,8
Source: Authors calculations, based on World Bank data

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In general, all the countries in the sample have significantly improved access to drinking water
and electricity at the national level, over the period 2000-2015, but the results still remain below
the average of sub-Saharan Africa (67.5% and 37%, respectively, in 2015), with the exception
of Senegal (78.5% and 61% respectively).
Table 5: Improved drinking water sources (% of population)
Year
At the national
level
In the urban
area
In the rural area
Mauritania
2000
42
45,3
38,9
2015
57,9
58,4
57,1
Niger
2000
43,7
78
37
2015
58,2
100
48,6
Senegal
2000
67,4
90,6
51,7
2015
78,5
92,9
67,3
Togo
2000
53,6
84,1
38,6
2015
63,1
91,4
44,2
SSA
2000
54,6
83,4
41,7
2015
67,5
86,7
55,8
World
2000
82,5
95,4
71,2
2015
91
96,5
84,6
Source: Authors calculations, based on World Bank data
Table 6: Access to electricity
Year
At the national
level
In the urban
area
In the rural area
Mauritania
2000
17,3
Pas de données
2,2
2014
38,8
76,9
2,3
Niger
2000
8
41,6
1,5
2014
14,3
53,5
5,4
Senegal
2000
36,8
77,1
9,6
2015
61
85
32
Togo
2000
17
35,9
7,7
2014
45,7
83,2
16,3
SSA
2000
26,5
63,2
10,4
2015
37,4
68,8
18
World
2000
77,6
95,4
63,2
2014
85,3
95,4
73,1
Source: Authors calculations, based on World Bank data

Islamic social finance in West Africa: Opportunities and challenges
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States have initiated several poverty reduction programs that have contributed to its reduction
as illustrated by the results obtained for the various socio-economic indicators mentioned
above, which guided this study. However, the analysis shows that poverty in these four
countries in West Africa remains relatively severe, as shown by the poor results they obtained
compared to the world average and even that of the countries of sub-Saharan Africa. For an
indicator such as access to health care, the situation worsens over time. This calls for a profound
change in the approaches to poverty reduction adopted so far.
Having demonstrated their effectiveness today as in the past, the instruments of Islamic Social
Finance could be of considerable contribution in this fight against poverty. Indeed, given the
positive sensitivity of the Muslims to the Islamic Social Finance, the use of the associated
instruments will have the advantage of encouraging them to do more and better and take charge
of the fight against poverty.
One of the peculiarities of the Islamic Social Finance instruments lies in the fact that they enable
a significant number of people to become key players in the fight against poverty by agreeing
to share their resources voluntarily with their relatives and neighbors. Their success, throughout
history, can be explained by their roots in the religious and traditional values of the concerned
people.
3. Zakat in the countries covered by the study
Our investigations revealed that none of the four countries in the study has a legal framework
for Zakat, despite its potential to have a significant impact on poverty, in the sense of
contributing to its reduction or even its eradication, as indicated by the results of our estimation.

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Table 7: Poverty gap
Country
Year
Poverty
gap (at:
$ 1,90 a
day (2011
PPP))
(in%)
Poverty
gap (at:
$ 3,10 a
day (2011
PPP))
(in%)
GDP (in
million $)
Population
(In million)
Resource
shortfall as
% of GDP
(at: $ 1,90 a
day (2011
PPP))
Resource
shortfall as %
of GDP (at:
$ 3,10 a day
(2011 PPP))
Mauritania
2014
1,4
6
14900
4
0,31
0,50
Niger
2014
13,7
32,6
17200
19,1
2,89
11,22
Senegal
2011
12,8
28,4
28700
13,3
1,13
4,08
Togo
2011
23,2
39,5
8200
6,7
3,60
10,01
Source: Authors calculations, based on World Bank data
Indeed, the results of this estimation show that if Zakat were collected and distributed
efficiently, extreme poverty would be eradicated for Mauritania and Senegal, from the first
year, even if the collection was made according to the smallest zakat base (Z1). For Niger and
Togo, Zakat collected using Z1 method would be insufficient to fill the missing resources, but
extreme poverty would have been significantly reduced. The lack of a legal framework for
Zakat in the three West Africa Economic and Monetary Union (WAEMU) countries (Niger,
Senegal, and Togo) could be explained by the secular nature of these States. On the other hand,
this is problematic in the case of Mauritania which declares itself an Islamic Republic.
Table 8: Estimation of Zakat
Country
Year
% of
Muslim
population
Resources
shortfall as
% of GDP
(at: $ 1,90 a
day (2011
PPP))
Resources
shortfall as
% of GDP
(at: $ 3,10 a
day (2011
PPP))
Potential
Zakat
collection
as % of
the GDP
(Based on
Z1)
Potential
Zakat
collection
as % of
the GDP
(Based on
Z2)
Potential
Zakat
collection
as % of
the GDP
(Based on
Z2)
Mauritania
2014
99%
0,31
0,50
1,79
3,82
4,31
Niger
2014
98%
2,89
11,22
1,77
3,78
4,27
Senegal
2011
96%
1,13
4,08
1,73
3,70
4,17
Togo
2011
25%
3,60
10,01
0,45
0,96
1,09
Source: Authors calculations, based on World Bank data

Islamic social finance in West Africa: Opportunities and challenges
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A logical consequence of this lack of a legal framework is that Zakat is managed individually
and informally in the countries covered by this study. However, we have noted the existence,
since 2009, of interesting initiatives in Senegal aiming at professionalizing the management of
Zakat with the creation of the Senegalese Fund for Zakat (FSZ), Hikmah Association and the
Humanitarian Association for social assistance. Also, the new Senegalese General Tax Code,
adopted in 2012, includes in its Article 55, Zakat paid to a body approved by the State in the
tax deductible expenses category. Despite these efforts, it is clear that the scope of these actions
remains limited compared to the existing potential.
At the FSZ the Nissab is calculated on the basis of the Dirham, bringing it down to 300,000 F
CFA (about 500 USD), the equivalent of the salary of a junior executive in Senegal. This
approach not only broadens Zakat's donor base, but also corrects some inconsistencies. Indeed,
with the weakness of the savings culture in developing countries, a large proportion of senior
executives with fairly substantial wages may not be able to save more than the Nissab,
calculated on the basis of gold, during one year. At the same time, the farmer whose annual
harvest value is lower than the monthly salary of this executive is obliged to pay Zakat!
Zakat offers interesting opportunities in the fight against poverty. Thus it allows:
- the drastic reduction of poverty through cash and in-kind distributions. In fact, for both
agricultural and livestock products, collection and distribution are in-kind. Thus, in the
rural area where poverty is more acute, the poor who receive a certain quantity of
agricultural products or livestock has a capital allowing him to leave the vicious circle
of poverty;
- the reduction of inequalities in that it systematically transfers the wealth from the rich
to the poorest.
Zakat's contribution to poverty alleviation programs is particularly expected in the first variable
related to the incidence of poverty and inequality. Indeed, Islamic Law rules governing Zakat
require the distribution of revenue from collection to the rights holders.
It therefore appears necessary for States to take initiatives to benefit from the opportunities
offered by Zakat, particularly in the context of the fight against poverty. These initiatives can
be at the legal, organizational and communicational levels.

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a) From the legal point of view, it is important to set up a regulatory framework for the
management of Zakat with a tax incentive system allowing the deduction of Zakat paid
to a recognized organization from the taxable income. The State of Senegal has already
taken a step in this direction.
b) The above measure presupposes the existence of bodies in charge of the management
of Zakat. Also, for the sake of efficiency, these organizations should come together in a
national body with professional management so that Zakat can have a visible and
measurable economic impact. The secular nature of the three countries in the sample
could be raised as an obstacle to the involvement of these States in the management of
community-specific religious affairs. However, the point is irrelevant as the State is not
invited to manage Zakat but just to put in place regulations and rules of governance to
support the communities concerned to better organize to effectively mobilize and
distribute Zakat. Nothing in this calls into question the guarantee by the constitution of
these States of the freedom of worship and association, as is the case for religious
schools, for example. An institution like the IDB could help States to put in place an
adequate legal framework.
c) From communicational point of view of, Muslim populations should be made more
aware of the obligation to pay Zakat and the importance of its efficient distribution.
d) From an operational point of view, it is essential that Zakat's distribution policy target,
as far as possible, the socio-economic empowerment of the beneficiaries rather than
simply meeting the current subsistence needs.
4. Waqf in the countries covered by the study
The results of our research show that in all the countries concerned by the study, the practice of
Waqf exists. However, this practice is dominated by religious and educational Waqf such as
mosques and Arabic-Islamic schools. Waqf for socio-economic purposes, such as health
centers, orphanages, boreholes, etc., are not yet widespread enough. In our sample, Mauritania
appears to be the pioneer country having introduced Waqf in its legal system, since the 1980s,
although to date there is still no specific Waqf law in this country. The National Awqaf
Establishment is the state institution responsible, among other things, for the management of
Waqf's assets.
Senegal has made significant progress in this area with the adoption of the Waqf Law of 2015
and the establishment of a Waqf High Authority (HAW). The law is quite modern in that it

Islamic social finance in West Africa: Opportunities and challenges
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takes into account the latest developments in Waqf theory and practice. Different types of Waqf
have been endorsed by the law (Waqf philanthropic, family Waqf, mixed Waqf with possibility
of public or private management) thus giving more options to potential donors. Similarly,
various types of property may be constituted Waqf, including cash, and Shariah compliant
financial securities. The organizational form of HAW allows for professional management of
public Waqf and supervision of private Waqf. This is likely to preserve Waqf assets and the
stipulations of the donors. This same HAW is subject to external administrative, financial and
religious control. Tax and customs exemptions could be granted to Waqf with a philanthropic
purpose.
Niger benefited from Senegalese experience, by setting up a legal framework for Waqf in 2019,
similar to that of Senegal.
It should be noted that the IDB has significantly supported the establishment of Waqf, in
Senegal and Niger, in the form of buildings, but also for the development of a legal framework
in these two countries. The case of the Waqf Law in Senegal is interesting, in the sense of
integrating a concept of Islamic law in a secular legal environment. The success of this
integration should be a case study for other francophone secular countries, with important
proportion of Muslim population.
The data analyzed above show a weakness of countries particularly in the areas of access to
primary health care and electricity. Waqf funds could be mobilized to support populations in
these areas. Past and present experiences show Waqf's ability to strengthen the supply of these
basic services.
It would be important to adapt the Waqf practice to the context of the countries in question. The
successes achieved by microfinance, in terms of outreach, and the opportunities offered by the
monetarized economy and digital finance, show that there is enormous potential for the
popularization of Waqf practice, especially in developing countries where the number of people
able to build a Waqf real estate is relatively limited. Thus, the cash Waqf opens the prospect of
doing what could be called microwaqfing through which small amounts are collected from the
people (in the form of alms) to either create Waqf funds or create basic social infrastructure
such as health centers, orphanages, etc.

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However, securing popular support for the concept of microwaqfing requires prerequisites such
as : effective communication and professional and transparent management of Waqf funds.
Effective communication would help people understand that a social Waqf is not necessarily
less meritorious than a Waqf with a strictly religious purpose (mosques, Koranic schools, etc.).
Similarly, by raising Waqf funds with alms, it will be possible to finance project initiated by
poor people with the aim of getting them out of the vicious circle of poverty rather than just
meeting their consumption needs on a regular basis.
Waqf is a voluntary transfer of funds from private persons to uses of public interest. For the
people to consent to make this 'sacrifice' it is necessary that they have sufficient guarantees of
the proper use of the funds through a professional and transparent management.
5. Islamic microfinance in the countries covered by the study
Islamic microfinance, which is the convergence point of two innovative concepts, microfinance
and Islamic finance, has emerged as an instrument with great potential in the fight against
poverty, particularly through its ability to achieve financial inclusion.
The analysis of the situation of Islamic microfinance in the countries of the sample revealed
some disparities. Mauritania is certainly the most advanced country with a dominance of
Islamic microfinance over the conventional one. This situation can be explained by the fact that
Mauritania declaring itself an Islamic republic, cannot prohibit the practice of Islamic
microfinance at the risk of falling into a contradiction. These Muslim populations having the
choice between the Islamic and conventional financial services, prefer the first ones for
religious reasons. The obstacle posed by the lack of a dedicated regulatory framework that takes
into account the specificities of Islamic finance has been overcome with the release in August
2018 of a new law regulating credit institutions in Mauritania. Title III of this Law is entirely
devoted to Islamic finance. Likewise, the modified statutes of the Central Bank, in 2018,
provide for the establishment of a Shariah Compliance Committee, which is the competent body
to decide on the conformity of banking and financial products and activities with the provisions
of Shariah. This marks a major change in the regulation of Islamic finance in Mauritania. Other
texts specifying the procedures for exercising institutions offering Islamic financial services are
expected.

Islamic social finance in West Africa: Opportunities and challenges
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For the other countries in the sample, all of which are members of West Africa Economic and
Monetary Union (WAEMU), an adapted regulatory framework is being put in place with the
release of the first Instruction governing the activities of Islamic finance by the common central
bank of WAEMU countries (BCEAO) from March 2018. The entry into force of these
amendments is expected to boost the Islamic microfinance sector in the WAEMU countries,
which is currently his early beginnings. Islamic microfinance experiences are either carried by
the private sector as is the case with PAMECAS and previously with MECIS in Senegal. Either
experience is a component of IDB-financed projects (Niger and Senegal). In Togo, MECIT
remains the most significant Islamic microfinance experience.
This underdevelopment of Islamic microfinance in these countries is understandable, in the
sense that the supply of Islamic financial products is very low in a context where national
policies aimed at promoting these products are almost non-existent.
We noted that Murabaha is, virtually, the financing instrument used in the various Islamic
microfinance experiences. If from the point of view of professionals converted to Islamic
microfinance, Murabaha is interesting in the sense that it has many similarities with the interest
based loan, this is not the case for many customers who expect conditions of much more flexible
funding and more frequent use of partnership instruments such as Mudaraba and Musharaka.
This is all the more plausible, as with the establishment of the Credit Information Bureau, by
the BCEAO, asymmetric information would be reduced.
Given the information drawn from the various interviews with Islamic microfinance actors in
these four countries, it appears that Islamic microfinance raises a lot of hope in the fight against
poverty. In particular, through its principles and instruments that promote risk-sharing, the
establishment of a connection between financing activities and productive activities, the
possibility of obtaining financing at lower cost from Islamic social finance institutions.
As part of the anti-poverty programs, the contribution of microfinance is expected particularly
in the improvement of financial inclusion through the supply of efficient financial products, in
terms of satisfaction of poor needs, at lower cost, and in accordance with Islamic ethics. Indeed,
in terms of costs, Islamic microfinance institutions could overcome the limitations of the
conventional ones through more flexible pricing (moderate profit margin for sales contracts or
greater use of equity instruments). With the free funds from the Waqf or Zakat, it will be
possible to offer products in the form of a package with a component intended for consumption

INCEIF-ISRA Inaugural Annual Conference on Islamic Economics and Finance, Kuala Lumpur, 2019
15
and another intended for investment. This type of arrangement combined with the principle of
matching financing with real economic activities is likely to drastically reduce the diversion of
funds while having a positive impact on the standard of living of the beneficiaries.
However, it must be admitted that in order to achieve these expected results, Islamic
microfinance institutions should provide adequate responses to some of the problems faced by
their conventional counterparts. In this sense, we make the following recommendations.
a) Firstly, in order to address the problem of the high cost of refinancing and the volatility of
deposits, it would be appropriate to set up a national support fund with the mission of
refinancing Islamic microfinance institutions at a lower rate. Cost. The resources of the Fund
could come from institution such as IDB, Zakat or Waqf funds.
b) As mentioned in the interview given by BCEAO team, there was a certain weakness, particularly
in risk assessment and recovery. With Islamic financial products, the problem is likely to be
more complex in that, apart from debt-based instruments, which have a certain resemblance to
conventional products, there are other products based on leasing or partnership that further
expose the financial institutions offering these products. Proper management of this issue
requires capacity building for employees of Islamic microfinance institutions. To this end, it
will be necessary to strengthen their skills in developing innovative products in order to more
adequately meet the financial needs of customers with a more diversified offer. Then do the
same for their technical capabilities in the area of risk assessment and risk management related
to Islamic financial products.
c) In the literature on Islamic finance, it is suggested that Zakat and Waqf be integrated into
microfinance institutions. In the context of the countries concerned by this study, such a scheme
has the merit of being able to finance the productive activities of customers who are in a situation
of extreme poverty while taking charge of their consumption or training needs. Thus, the part
of the financing package intended to support consumption or training needs could come from
free funds such as Zakat and Waqf.
d) The lack of awareness of financial products by target populations has been reported as one of
the problems encountered in the conventional microfinance sector. Given that Islamic financial
products are generally more varied and more complex, their adoption by the population requires
an additional effort of sensitization and financial education. For the success of such a campaign,
it is important to involve certain well-specified groups, such as Imams and economic journalists,
who could serve as relays. From this perspective, social networks such as the media could serve
as a platform to more effectively reach the intended target.

Islamic social finance in West Africa: Opportunities and challenges
16
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