Transcript The prudential rules to respects by crowdfunding platforms

ROUNDTABLE DISCUSSION ON ADVISORY AND SUPERVISORY FRAMEWORK ON ISLAMIC MICROFINANCE
CROWDFUNDING :
HOW AFRICAN DIASPORA CAN IMPACT THE DEVELOPMENT OF
ISLAMIC MICROFINANCE
M. DOSSA,
KHARTOUM March, 18-19 2014
DOSSA MAXIME
Islamic Finance Consultant : DM Consulting, ACI
Executive Master in Islamic Finance, Paris Dauphine University
M. DOSSA,
KHARTOUM March, 18-19 2014
Table of content
1. The state of the art:
WAEMU
The micro finance framework
The challenges and why an alternative model
2
Crowdfunding platforms as a solution
Reducing the funding costs
Suitable framework
Model of a crowdfunding platform
3
African diaspora for the development of Islamic microfinance
M. DOSSA,
March, 18-19 2014
2/14
WAEMU(1/1) :THE STATE OF THE ART - WAEMU

The West African Economic and Monetary Union
 95 millions peoples
 The population in this area is mainly muslims with 60% muslims on an average
and more than 90 % in some of the countries…
 A strategy to build a regional integration in economics and unique currency, CFA
M. DOSSA,
March, 18-19 2014
3/14
WAEMU (1/2) / THE STATE OF THE ART : LEGAL ISSUE
 The lack of an effective Islamic microfinance framework in WAEMU
Article 56 of the Banking Law in WAEMU
“Central bank can decide particular rules in favor of companies with special
status, namely companies which don’t use interest rate and apply the
principle of sharing of profits and losses.”
This is the only one reference on non-conventional activities whithout
interest.
In consideration on this article of the financial system law, Islamic banking or
financial activities are possible in WAEMU area but needs to be strenghten
Source: Portion of Article 56 of the Banking Law in WAEMU
M. DOSSA,
March, 18-19 2014
4/14
WAEMU (1/2) / LE STATE OF THE ART: LEGAL ISSUE

Legal framework in microfinance ( Loi sur les SFD ) and islamic finance
 Collection of deposits
Are considered as deposits, funds, other than participations and compulsory
contributions collected by the decentralized financial system from its members or
clients with the right to use it with the obligation to give back the money when needed
by the clients in regard of the contract.
 Lending operations
A loan operation is any action undertaken by which a decentralized financial system
gives funds for value to a member or a client with obligation for him to pay the
money back at maturity.
 Gurantees (by signature)
This refers to any legal act by which a decentralized financial system takes some
guarantees on behalf of a member or a client.
 Article 56 de la loi bancaire dans l’espace UEMOA
M. DOSSA,
March, 18-19 2014

4/14
WAEMU(1/3) / STATE OF THE ART: CHALLENGES

Challenges to overcome in WAEMU
 Weak banking rates
 Transactions and refunding costs are still high
 Legal framework has to be build
 Lack of human capital
M. DOSSA,
March, 18-19 2014
5/14
WAEMU (1/3) WHY AN ALTERNATIVE MODEL OF FUNDING IMFI
A lack of funds and non interest based funds
in WAEMU the MFI are fund by: 75% financing by conventional banks and only 25% from
specialized funds and international organizations.
All are interest based funding mechanisms
 A lack of deposits from customers
The CGAP Cross-Border Funding Survey, 2010 shows that the loan granted by MFI comes
mainly from deposits of their clients.
But these deposits are very low and limited. So MFI have to face banks high interest rates.
There is always a gap between the demand (entrepreneur) side and the supply side (financial
institutions) and this fact create difficulties especially to small enterprises and more for micro
entrepreneurs.
Cost of funding per type of lender
Type of lender
Public lenders
Financial institutions
Funds
Private
Mixte
M. DOSSA,
Ass
8%
9%
10%
3%
8%
Central
3%
7%
8%
4%
5%
East
9%
8%
10%
3%
8%
South
8%
13%
11%
1%
9%
West
5%
10%
10%
5%
9%
March, 18-19 2014
6/14
CROWDFUNDING (2/1) AN ALTERNATIVE SOLUTION
 The cost of fund is low by using IT processes
According to Babyloan, crowdfunding platforms represent in 2012 only 0.15% of the
overall micro credit which is worldwide standing at USD 65 billions. But as a new
market, the platforms increase this niche market by 400% in 2012.
The development of new technology for communication and services create new
opportunities for micro finance sectors.
 Possibility to target muslims funders with crowdfunding mechanisms
The whole public is going to become a major player in financing micro projects by
using the crowdfunding mechanism in the word in general and particularly for
developing countries projects.
One of the main target group to focus on as lender is the diaspora of the countries
who participate in the development of their country.
By using crowdfunding principles on Islamic way, the ethical principle meets a low
cost of funding to contribute to reduce poverty.
M. DOSSA,
March, 18-19 2014
7/14
CROWDFUNDING (2/2) PROVISION OF LEGAL FRAMEWORK
Crowdfunding operators may provide




Micro investment services
Providing micro financial titles
Banking operations
Payments services
 The types of Islamic crowdfunding platforms for funding micro finance activities
We may consider the following 3 categories of crowdfunding platforms
 Those collecting Zakat
This will be granted for a micro project selected on the platform
 Those collecting Quard Hassan
This will be reserved for investors who want to support a project without any need of return in
the project
 Those facilitating loss and profit sharing : Mudharaba, Musharaka..
These types of investors are risk takers.
March, 18-19 2014
8/14
CROWDFUNDING (2/2) SOME TRACKS FOR LEGAL FRAMEWORK
 The protection and security of the investors
The legal framework has to take account the protection and security of the investors and consider
also that some or most of the investors and donators and country diaspora members can grant a
huge amount of money.
 The crowdfunding operators as facilitators
They should not be considered as banks, or investment companies because most of time they just
create link between donators: investors and financial operators.
 The prudential rules to respects by crowdfunding platforms
The minimum capital requirement to operators
A maximum amount of investment or donation per person
A maximum amount leveraged by the platform
The size of projects funded in regard of micro finance sector
A specific status has to be developed for crowdfunding activities
Collection of money, keep and transfer funds for the purpose of micro enterprises
They should not use the money for their one activity by any means.
Provision of minimum reporting and statistics to the financial authority
Some of financial prudential rules (money laundering, protection of investors, etc.)
M. DOSSA,
9/14
CROWDFUNDING ( 2/3) : A MODEL FOR ISLAMIC MICRO FINANCE
POTENTIAL INVESTOR
Representation
and
infrastructures
fees
Y% N = P
Wakala 1
Moudaraba 1
PLATEFORME
Moudaraba 2
Wakala 2
RECIPIENTS
Representation
infrastructure
Disposal of fund fees
X% M = N
IMFI
M. DOSSA,
March, 18-19 2014
10/14
CROWDFUNDING ( 2/3) : A MODEL FOR ISLAMIC MICRO FINANCE
The projects are published in the platform after selection by the IMFI
The platform operator deploys the community management strategies to attract investors but
also contact it’s potential investors so that they can invest in the projects.
The investor supports a part of infrastructures and the platform fees
The IMFI also support a part of the platform fees
The micro enterprise profit is shared between the micro entrepreneur, the IMFI and the investor
through differents mudaraba and/or musharaka contrats
Differents types of contracts
Wakala contract: The platforms way of earning money
Between the investor and the platform
Between the platform and the IMFI
Mudharaba contracts
Between the Investor and the IMFI
Between the IMFI and the Recipients/ microentrepreneur
M. DOSSA,
March, 18-19 2014
11/14
AFRICAN DIASPORA ( 3/1) Why to focus on them ?
 Their purchase power in developped countries
According to Word Bank report « Migration and Remittances 2011 » money sent by migrants in developing countries is
estimated to USD 325 billion, including USD 56,9 billion sent in Africa and Middle East.
Remittances received in WAEMU countries
M. DOSSA,
March, 18-19 2014
12/14
AFRICAN DIASPORA ( 3/1) Why to focus on them ?
• The leverage from their resident countries
Muslims even non-Muslims who can be sensitive of the projects and contracts suggested by the
model.
A market study has to be realized and community management principles can lead to identify this
segment of investors.
A success of crowdfunding comes when the investors have a kind of emotional link with the
recipient.
With marketing, this link can be created between the recipients and those of investors who are
sensitive to the local development, to the ethical approach, to Muslim communities, to local council
inter cooperation…
Most of the African diaspora are involved in migrants associations, have social development link with
their resident countries and locals councils.
In France for example, the government grant fund to these migrants associations so that they impact
their countries.
This example can be generalized to attract other funds in rich muslims countries for the development
of Islamic micro fiance in Africa.
M. DOSSA,
March, 18-19 2014
13/14
THE TRIPTYCH State – Diaspora – IDB



Collect Zakat for social projects
Invest the diaspora funds on an ethical basis
Enhance the participation of african diaspora in the development of islamic micro
finance in Africa with the support of IDB
Diaspora
Investors
PLATEFORM
Countries of diaspora
Investments facilities
Business opportunities
Selection of projects
Monitoring
M. DOSSA,
IDB
Financial assistance
Institutional assistance
Training
Partenership
Regulatory framework
March, 18-19 2014
14/14
THANK YOU
[email protected]
March, 18-19 2014