Financial Inclusion through Islamic Microfinance for Economic Growth

“An Exclusive Interview with Roshaneh Zafar- Founder and Managing Director, Kashf  Foundation “

Brief description of you and your organization.

I am an economist by training and studied finance and economics at the Wharton Business School – University of Pennsylvania at the undergraduate level. Then I went on to pursue a Masters in International and Development Economics at Yale. I worked for 4 years at the World Bank in Islamabad looking at the social impact of World Bank projects through a gender lens. It was during my time at the World Bank that my observations about the dynamics of a low-income household in Pakistan against the odds of power, control and access to resources found new meaning for me; and especially in context to the role of women and their inability to influence choices and lack of financial resources to invest in a better future for their children. Kashf is registered as a Non-Banking Micro Finance Company which is regulated by the Securities and Exchange Commission of Pakistan. Kashf was set up in 1996 as the first specialized microfinance institution of Pakistan and began operations as a Grameen replicator. Since then Kashf has successfully carved out a distinct and unique niche for itself in the microfinance sector at home and abroad by offering a suite of innovative and transformative products and services to low-income households especially women. Kashf offers appraisal backed individual lending to its clients along with other non-financial services to have a transformative impact at the household level.

What challenges your organization has tackled to reach today’s position?

Kashf Foundation has been an exciting journey so far, which was only possible by defeating the opposing challenges. Establishing trust between Kashf Foundation and women was our biggest challenge as women in such communities are not used to being directly approached or recognized as economic agents. Changing mindset of women and making them realize their economic worth continues to be an ongoing challenge for us. Just providing loans to women through microfinance can be meaningless unless the women are also taught, trained and mentored in how to productively and efficiently use these loans. So, at Kashf, the capacity-building of women is intrinsically linked to their financial inclusion. However, we still choose to invest in women-led enterprises, because there’s a ripple effect to this. You change one woman, and she’s going to change ten more.  Since over 20 years of our establishment, we have invested in helping over 1.5 million women establish businesses and our results show that on a year on year basis, over 60% of women have reported increase in their gross profits, and over 30% are able to save on a regular basis. The story of Kashf Foundation is an ongoing one, which aims to reach out far and wide and bring about a real change in the lives of Pakistani women.

How does your organization play a definite role in contributing to the promotion of Islamic microfinance?

Kashf initiated its first Islamic Micro-Finance product in the June of 2013. To date, Kashf has disbursed
57,751 LOANS DISBURSED, worth a total of AMOUNTING TO PKR 2.17 BILLION. We realized the importance of creating a product that catered to the market of Islamic Microfinance, and it has been popular among our clients in the KPK region, where it is currently operational. People are more likely to trust a product that falls in line with their beliefs and perceptions.

What is your perspective about the potential and status of Islamic microfinance industry today? And its future?

We have been in the microfinance industry for well over two decades, and have eventually branched out to cover various areas in all the provinces. As always, we undertook extensive market research to understand the requirements of the clients from various demographics, and KPK revealed the need to offer an Islamic Microfinance product. It is however, a transitionally difficult product to offer, and we believe the expansion would occur only if the client demands it on a larger scale.

How COVID-19 hit the micro and SME business and how Islamic microfinance can help COVID-19 affected small businesses to flourish in the future.

The COVID-19 has greatly affected businesses; established ones or just off the ground. Most micro enterprises require capitalization and access to finance would be key for them. Shariah compliant products that target micro entrepreneurs and are specially designed for low income clients e.g. Murabaha, ijara, even micro equity (musharaka) can be offered along with micro insurance or takaful products, The most important aspect is to make these affordable and accessible to the low income segment.

What are the overall changes to Islamic Finance Industry?

Overall changes are hard to quantify. The general acceptance rate has only gone up over the years, as we discussed previously. More and more banks and various other MFI’s and financial institutions are reverting towards this method. However, this is again, all based on supply and demand. We need to offer a suite of products which cater to lower income groups, instead of simply focusing on making macro level changes. The need of the hour is to improve upon and develop more products suited to helping people who are toeing the poverty line.

What directives you think can lead Islamic microfinance industry towards success?

The  directives that we need in the current situation simple; to design products in a manner that can benefit our economy and are focused on catering to our lower income segments. Any industry, be it MF, needs to be beneficial for its customers in order to flourish.

How Islamic microfinance can contribute towards the economic growth and stability of the country? 

When people who had previously been unwilling to draw loans have the option of a product that meets their needs, we will automatically see more and more peoples setting up their own ventures, and improving upon the work that they are already doing, because now they have the capital. This will automatically lead to a boom in the economy, an increase in per capita income, more employment opportunities etc.

Tell us about your Islamic Microfinance Product and share any of its success story

Kashf Marhabah is a customized product designed offered in Khyber Pakhtunkhwa province where Kashf’s market research showed a significant demand for microfinance but a higher degree of unease in accessing conventional microfinance products. To address the regional credit needs in KPK Kashf runs this Shariah Complaint program which has been approved by a Shariah advisor.

A success story – A lady from KPK was interested in photography. She set up her own business after purchasing a camera from the loan acquired from KF. She often credits Kashf in helping her achieve her dream, especially in a region where female photographers are a novel and unconventional idea still.