V. COSTA H. MAKHLOUF P. MAZAUD 1 Women s Empowerment through Islamic Microfinance in Egypt Valentina COSTA Hala MAKHLOUF Perrine MAZAUD 4 February 2010 MESCI 2009-2010 Global Development Goals & International Cooperation Sara MARAZZI-PLATT
V. COSTA H. MAKHLOUF P. MAZAUD 2 Thesis Statement As evidenced in Egypt, Islamic Microfinance empowers the social and economic role of women in the society and, at the same time, helps to eradicate gender discrimination and women s poverty thus contributing to the attainment of the first and third MDGs. Women s Empowerment through Islamic Microfinance in Egypt This Argumentative Research Paper aims to present the Islamic microfinance, focussing on the positive impact on Egyptian women. In order to meet this objective the paper has been divided on two parts. The first part explains women s empowerment in Egypt in informal areas focusing on social and economic aspects. Recent data from World Bank (2007) demonstrated that gender discrimination still persists in Egypt but during 2000-2005 positive progresses has been made in economic participation, access to education, access to health care, women s legal rights. We consider important to go through each of these topics in order to understand, first of all, the reasons of women s empowerment in the Egyptian society and then, the evaluation of impacts of Islamic microfinance. The second part explains the theoretical base of the Islamic microfinance, going through religious and ethical principles and financial contracts related to these principles, such as mudaraba, musharaka and murabaha. From these theoretical aspects, we evidence the main reasons of the feminization of microfinance in lower class in Egypt, as women are considered the poorest of the poor. However, women are also more concerned and responsible towards their family, allocating to them savings and earnings, and are considered as more efficient, sustainable and cooperative. To illustrate these statements, we present the case of Alashanek Ya Balady for Sustainable Development (AYB-SD) in Egypt, one of the Egyptian most prominent youth based organizations. This NGO works in developing poor areas and in empowering the poor using participatory approaches. AYB focuses on women in most of its programs and one of these ones
V. COSTA H. MAKHLOUF P. MAZAUD 3 is the Loans Program. The program provides only people who attended its Training and Life Coaching Programs with micro-credit. The NGO offers another kind of loans called Conditional Cash Transfers - CCT for high performance clients to overcome other life needs and problems like education cost, health expenses... It also has a special fund for projects that encompass disaster like death, robbery... Our argument aims to give some key ideas to demonstrate why microfinance is the answer for women social, economic empowerment in general. Egypt is one of the first countries of the Middle East and North Africa (MENA) region where the women s empowerment is mainly integrated into the social life and government choices. Indeed, Egypt has been the first MENA country to sign the UN Convention on the Elimination of All Forms of Discrimination against Women (CEDAW) in September 1981 1. Moreover, women has constitutional rights to decide on their marriage contract, to get a divorce by a court, and since 2004 can pass their nationality to their children when they are married to foreigners. These improvements have a direct impact on the percent of married women ages 15 19. In fact, it decreased from 22% in 1976 to 10% in 2003 2. The Egyptian women health have also improved, especially concerning the maternal mortality. The rate decreased from 174 maternal deaths per 100,000 live births in 1992 93 to 84 maternal deaths per 100,000 live births in 2000. This radical reduction has been achieved thanks to the implementation of the safe motherhood strategy, put in place in order to enhance medically assisted delivery and maternal health care 3. On the education field, the situation became better considerably. The percentage of female literacy over 15 years old almost double from 1990 to 2004 to reach 59,4% as shown in Figure 1 4, and the ratio of young Literate Female to Male was 93,7% in 2004. 1 MENA Gender Overview, The World Bank, Washington, 2007, p.20 2 Ibidem, p.12 3 Ibidem, p.14 4 Ibidem, p.8
V. COSTA H. MAKHLOUF P. MAZAUD 4 Figure 1. Female Literacy Rate (% of females ages 15+), 1990 and 2004 Even if female literacy has increased over the last year, unemployment and gender Figure 2. Female Labor Force Participation in Country Groups within MENA, 2005 (% of female population ages 15 64) discrimination still persist in Egypt. In fact, as indicated in the World Bank Dataset, in 2007 only 25,7% of women ages 15-64 is included in the female labor force participation of the country. The Figure 2 5 compares this data in the different MENA countries. Egypt has still progresses to do. The low rate of participation of women in labor force and the high unemployment rate can be counteracted encouraging women s entrepreneurship and self-employment activities. 5 Ibidem, p.4
V. COSTA H. MAKHLOUF P. MAZAUD 5 Then, stimulating the access to credit for women, as microfinance programs do, can be a solution to enhance women s empowerment. The consequences in stimulating female labor force, in addition to the women s Figure 3. Egypt Percentage of female- and male-headed households in poverty (1999/2000) empowerment, concerns directly poor families. In Egypt, women who heads poor households are generally widows, around 80%, and provide mainly to the income of the household. The Figure 4 6 illustrates the origin of the income in Female- and Male-headed households. It s clearly shown that female labor force has to be increased. Figure 4. Sources of Income for Female- and Male-Headed Households in MENA Countries, Various Years On 2008, the NGO Planet Finance organised a national survey to study the impact of microfinance in Egypt. The report focused on the impact evaluation, the perception of the 6 Ibidem, p.17
V. COSTA H. MAKHLOUF P. MAZAUD 6 impact, and the empowerment of microfinance clients. It focused in addition on the characteristics of the female microfinance clients, and highlighted an improvement in the quality and quantity of food eaten by the households, on education, on the client s autonomy, on the respect from the spouse 7 During the focus group discussions, women unanimously stated that the loan had had a positive effect in terms of their image in their communities; they are also more self-confident and their children appreciate what they do. Their projects have allowed them to have a better life in general. ( National Impact Survey 86) The report demonstrates that Islamic microfinance is having an important rule in the positive progresses mentioned above about economic participation, access to education, access to health care, women s legal rights. For this reason, it is necessary to understand how Islamic microfinance works and which are its basic characteristics. In Islamic Microfinance the economic activities are based on religious principles which come from Koran and Sunna. In fact, Islam is not only a religion but it is a practice of life because it states several rules which pretend to guide human s attitude in many fields (from economic to religious ones) in order to support mutual cooperation and solidarity. With regard to economy, every action is considered ethic by Islam if it respects two basic principles: Allah is the Creator of the universe and the possessor of all beings, and the honest labour is an ethical and religious obligation for the community benefit. The Islamic economy affirms that all goods are lent to humans for a certain time and the only right way to make money is to work for improving the social welfare. Selfishness and avarice are banded because they can destroy the Islamic society. Considering those believes, the actions are classified in five levels of legality: fard (compulsory) as zakat; mustakabb (recommended); mubah o halal (permitted); makruh (detestable); e haram (strictly forbidden) as interest rate (ribà) and uncertain loan (gharar). Although all classes have legally the same relevance, the theoretical structure of the Islamic economic mainly refers to the actions considered fard or haram, as they lead to the strongest God s punishment in case of deviation from the religious recommendations. The religious 7 National Impact Survey of Microfinance in Egypt, Egypt, 2008, p.85-86
V. COSTA H. MAKHLOUF P. MAZAUD 7 constraints produced some ethical principles which regulate the economic behaviour of goods Muslims, include of course micro-entrepreneurs. Allah imposed the ritual alms (zakat), which is one of the five pillars of Islam. It literally means to purify, to develop, and to cause the growth 8. Alms are for poor, needy, who works to administer them, those whose hearts have been (recently) reconciled to Truth, those in bondage and in debt, and in the cause of Allah. It is ordained by Allah (Qur'an, IX, 60) Practically, zakat is the prescribed share of one s wealth distributed among categories in order to split the welfare and thus to achieve the Islamic aims of mutual cooperation, solidarity and economic empowerment for alleviating poverty 9. At the same time, according to the goals of the Islamic economy, Allah prohibited the interest rate (ribà) and the aleatory contract (gharar). Both contracts are ways to make profits by speculating on goods which are God s proprieties and they incentive to increase individual benefits instead of social welfare. Ribà is an excess in repayment decided only by the borrower and it had not been included in the contract or fixed before by both the borrower and the lender 10. Those who practice usury will not stand or if yes will become mad by the Evil s touch. That is because they say: "Trade is like usury," but Allah had permitted trade and forbidden usury (Qur'an, II, 275). Gharar is a form of contract which does not forecast any certain final gains. It includes all types of hazard or peril leading but it can be accepted in some forms of contracts according to the Koran interpretations. You weigh with right balance, do not robe and do not commit violence, accepting the corrupt system (Koran, XXVI, 182-183). The religious constraints and the ethical principles have their own application through financial contracts used by Islamic Microfinance, and are classified in two groups : Profit/Loss Sharing and Non Profit/Loss Sharing. 8 Introduction to Islamic Microfinance, Mohammed Obaidullah, IBF NET: THE ISLAMIC BUSINESS AND FINANCE NETWORK, India, 2008, p. 38 9 Ibidem, 38-43 10 Ibidem, 32-34
V. COSTA H. MAKHLOUF P. MAZAUD 8 The first group is composed of Profit/Loss Sharing contracts, which respect almost literally the Islamic values of cooperation and solidarity accepting the sharing of profits. The most diffused contracts: mudaraba, musharaka and qard hasan. The mudaraba contract (qard trust or finance contract) which is used to finance shortterm projects or trade, is a contract where the bank or other financial company, finance the project of an entrepreneur and is involved with a percentage of contract any profits or losses. The musharaka contract (or equity participation contract) is similar to the mudaraba contract but is more focusing on agriculture development. In fact, it is usually used to finance long-term investments. The qard hasan contract is considered as the best one. It literally means beautiful loan. This is a loan granted by the lender without expectation of any return, except of the principal. The second group gathered the Non Profit/Loss Sharing contracts, that are more diffused, even if they are a little bit distance from the original values of solidarity and cooperation that Islam wants to develop. In fact, they aim to make profits using techniques similar as the conventional ones. They are gathering two kinds of contracts : murabaha and ijara. In the murabaha contract (or cost plus mark-up), the bank acts as an intermediate agent that quasi-simultaneously buys and sells the good asked by the client. The bank sells simply the good at a higher price, agreed by both parties. The ijara contract (or lease, lease purchase) is instead a variant of Islamic debt consisting of a lease under which the bank (especially purpose vehicle or SPV) acquires goods for the customer (originator) and later him rent a specific period upon payment of pre-determined rate 11. The best-practices of Islamic microfinance must respect the Islamic ethics in order to achieve mutual cooperation, solidarity and economic empowerment for alleviating poverty. These targets are obtained through services for poor people in order to fight poverty with low interest rates. Microfinance programs should be integrated into the national finance system, and need private and governmental capital. Unfortunately, these programs are not always the right answer for development problems 12. 11 Ibidem, p. 49-62; Islamic Microfinance: a missing component in Islamic Banking, ABDUL RAHMAN, Abdul Rahim, 2007, Kyoto Bulletin of Islamic Area Studies, p.46-49 12 Obaidullah, 2008, p. 20-22
V. COSTA H. MAKHLOUF P. MAZAUD 9 Microfinance and Islamic microfinance have thus much in common. Both focus on developmental and social goals and, for this reason, both advocate risk sharing and involve participation by poor. However, there are some differences between them 13. First of all, the microfinance institutions are not usually appropriate for the chronically poor because, more than financial services necessary for starting a micro-enterprise, these individuals must use loans for providing to their basic needs, such as food, house, clothes, etc. Obviously, it will not permit them to repay the borrower and they will get into debt becoming poorer. While in a Islamic system, the major priority is given the needs to the chronically poor and Islam provides with many voluntary forms of charity, such as zakat 14. Secondly, the interest rate in conventional microfinance is higher than banking rates because returns on investment are very high with respect to the low amount of the loans, and the administrative charges and monitoring costs are more expensive and riskier than a traditional financing portfolio. On the contrary, in Islamic microfinance the interest rate - low or high is prohibited by Koran and the profit is made through sharing system 15. Finally, the women-only approach typical of conventional microfinance is not always follows by Islamic microfinance institutions. In fact, some of them shift their focus from women empowerment to family empowerment which the Koran promotes by exhorting men and women to play their respective rule in ensuring the economic and social well-being of the family 16. Men shall have a share of that which they have earned, and women a share of which they have earned. (Koran, VI, 32) In this way they overcome the problem of meddling with social codes of male-dominated Muslim societies 17. But it does not happen in every cultural contests, for instance, in Egypt Islamic microfinance provides to women s empowerment. In fact in Egypt, 47% of the micro-entrepreneurs are women, who usually have the following characteristics: middle age (40 years old), married, no formal education and trader with a monthly profit of 400 EGP (equivalent to $73). 13 ABDUL RAHMAN 2007, p.44 14 Ibidem, 1-2; 13-15; p. 22; 43-48; 15 Obaidullah, 2008, p.23 16 Ibidem, p. 31
V. COSTA H. MAKHLOUF P. MAZAUD 10 Usually, women are not as wealthier as men microfinance clients and they are largely confined to the home environment. In fact, women operate 88% of the home-based business and only 28% of the non home-based business 18. Despite those conditions, around 45% of women versus 35% of men have noticed a positive change in their life, from education to economic possibilities, since the start of participation in a microfinance program. And concerning autonomy at the personal level, 86% of women versus 69% of men perceive a positive impact 19. It shows how the sense of empowerment reached by microentrepreneurs is stronger for women than men. Furthermore, many women had positive effect in terms of their image in their communities, it increase their self-confidence also because their children appreciate what they do. The projects allowed them to have a better life in general. In this sense, the NGO Alashanek Ya Balady for Sustainable Development (AYB-SD) can be choosen as example. It has been founded by the Egyptian young female social entrepreneur Raghda EL-EBRASHI. EL-EBRASHI, as a philanthropy activist since she was 12 years old, started with microfinance for the poor females in one of Cairo s non-formal areas. And she has been doing that for so many years as an individual effort before founding the NGO in 2005. The NGO works on grass-root level for many different crosscutting sectors. They are focussing on sustainable development in these communities and not only on quick remedies to society problems, willing to change the perception and therefore the rules of the game for good, not to change a temporary reality. The organization won so many awards like Youth ActionNet Global Fellows, USA and The Social Entrepreneurship Award, Malaysia and more recently the King Abdul Allah II for Youth Innovation and Development Award to support their microfinance programs including the amount of $50,000. The organization is working with the marginalized communities to empower them economically. The organization is working in order to empower economically the marginalized communities. AYB s beneficiaries reached more than 5.000 person since the establishment of the NGO. As AYB-SD is believing in embracing all members of the society, it also cares about the inclusiveness of their activities. It works through three main programs to support the 17 Ibidem, p. 24-25. 18 National Microcredit Survey 2008, p. 87 19 Ibidem, p. 88
V. COSTA H. MAKHLOUF P. MAZAUD 11 sustainability of their activities. The first is the training and life coaching program which includes career guidance (literacy skills, soft and customised skills) and vocational skills (crafts). The second program is the employment program divided in two parts : the employment office (which provides jobs to the graduates of life coaching programs and works as an employment agency) and the loans programs (which provides micro-credit or small loans to its beneficiaries). The third and last program is called the culture, health, and environmental programs, and includes the awareness sessions and preventive actions. The NGO could not offer these programs without some sustainable sources of funds. In this optic, AYB-SD launched three main social ventures programs to sustain its activities: Revive Consulting, Zaytoona and Tafanin. The Revive Consulting provides soft skills to university students, institutional development courses for NGOs and consultancy and capacity building for SMEs. The Zaytoona social venture is the brand name for the products of the vocational centre which provides high quality handmade crafts targeting high and upper middle class of Cairo as customers. The Tafanin promotes social responsibility through art and culture, and Corporate Social Responsibility campaigns that solve community problems, while creating marketing opportunities for companies. Tafanin also creates social businesses that create social impact in low-income populations. The profit from all these ventures helps to finance the activities of AYB-SD. The micro-credit program of AYB-SD gives loans to the graduates of Life Coaching programs, as they would have already got the basic skills in life as reading, communications skills, etc. They would have been trained as well for small business management techniques and sales. The micro-credit programs varies between $50 and $400 and the small business loans between $500 and $2500. The Loan Programs services vary throughout the different levels of the project. The preproject phase includes training on project management, financial management and marketing. Then there is a frequent support for the beneficiary during the project phase like helping solving operational problems, financial and marketing advice and monitoring venture performance. For micro-credit beneficiaries, AYB-SD offers Conditional Cash Transfer, which is a quarterly micro-grant given to beneficiaries who have high venture performance but face some
V. COSTA H. MAKHLOUF P. MAZAUD 12 financial problems. These micro-grants are given to beneficiaries to support costs of marriage of beneficiaries sons and daughters, health operations, or education. The beneficiaries of the micro-credit projects are mainly students and marginalized women of these informal slum areas to establish their own projects, but men can also take loans. AYB-SD believes that traditional interest is not an ethical practice, and they innovated the service fees. These fees can be called Islamic, as they are ethical. However, they may not be affiliated to Islam per say. The difference between interest and service fees is in the fact that fees are directly paid by the beneficiary as a cost of getting the service. The interest is also paid regardless of the profitability or the circumstances of the person. For example, if a person takes a loan and after few months he lost his money because of some crisis in the market, still, the person has to pay the interest and the loan as well. The same goes for the death of the person, in most cases, if the person dies, his family inherits the debt. Let alone personal crisis that decreases the ability of the person (especially the poor) from paying the loan as the death of the husband/wife, health problems/operations, lose of a job, etc. Accordingly, the service fees are paid against services, and not as absolute interest. It is worth saying that they give services that are at least 20 times the cost of the service fees that the beneficiaries pay. What they aim at that we take service fees that cover the loans program core costs and that is all. Through this model, they have 100% repayment rate, and they are selfsustainable at the same time. Most importantly, the system is seen ethical from the perspective of the community and we have high demand on our loans. To conclude, the situation of women in Egypt has improved over the last years, in terms of economic participation, education, health care and legal rights. These improvements have been successful thanks to both governmental and local actions, for instance through the development of Islamic microfinance as a tool. However, due to the newly approach in applying Islamic Finance, still deeper understandings and applications have to be done in order to eradicate poverty and to empower the social and economic role of women in the society, as specified in the first and third MDG s.
V. COSTA H. MAKHLOUF P. MAZAUD 13 Annotated Bibliography Primary National Impact Survey of Microfinance in Egypt, May 2008, Planet Finance, admin.planetfinancegroup.org/upload/medias/fr/mf_impact_report_egypt_2008.pdf The National Survey presents an overview of the situation of micro-finance in Egypt and its impacts, showing that micro-finance is sustainable and effective, and that this sector is completing its mission in terms of poverty alleviation, economic development and empowerment. The survey shows specific positive impacts of microfinance on women microentrepreneurs on empowerment, autonomy, quality of life (food, health, children s education, respect received from their spouse), even if their activities are mainly confined to their home environment. OBAIDULLAH, Mohammed Introduction to Islamic MicroFinance, 2008, International Institute of Islamic Business and Finance, supported by Islamic Relief WorldWide - http://www.imad.in/mf-obaidullah.pdf This book gives us an overview of the micro-finance in general, its models, products and rules to eradicate poverty. Then it goes into the Islamic model of micro-finance. It explains the methodology and the rational of Islamic micro-finance and it demonstrates its benefits on the society. The book also explains Islamic-finance as both a charity model and a for profit model. It considers Only-for women approach in micro-finance. Secondary LIVANI, Talajeh Middle East & North Africa Gender Overview 2007, the International bank for Reconstruction and Development/ the World Bank, www.siteresources.worldbank.org/intmena/../mena_gender_overview_2007.pdf The document analyses the status of women in Middle East and North Africa (MENA), using data from Regional Gender Report 2007 by the World Bank. We uses it as secondary source because it helps to better understand the women s empowerment in all MENA area and in
V. COSTA H. MAKHLOUF P. MAZAUD 14 particular in Egypt. It is not very long but absolutely well done, concise and complete. There are a lot of data on economic participation, access to education, access to health care, women s legal rights and public participation and representation. ABDUL RAHMAN, Abdul Rahim Islamic Microfinance: A Missing Component in Islamic Banking, 2007, Kyoto Bulletin of Islamic Area Studies, 1-2 (2007), pp. 38-53 - http://www.asafas.kyoto-u.ac.jp/kias/contents/pdf/kb1_2/06abd_rahim.pdf The paper explains rules and importance of Islamic micro-finance in Muslim communities. Conventional micro-finance, based on interest rate, is not acceptable in religion due to the unfairness, inequity and exploitation of the poor. The paper shows the extra-benefits of Islamic micro-finance to the society, compared to the conventional micro-finance. It also goes through the concept of Islamic banking in general and how the micro-finance services lack most of major Islamic banks. It s also important to consider how prohibition of interest rate in Islam is aimed to protect the poor ; then big Islamic banks should target the poor as clients, achieving in that way the Goals of Islamic Laws. Egypt Human Development Report 2008, Institute of National Planning, under the cooperation of the UNDP http://www.undp.org.eg/portals/0/2008%20egypt%20human%20development%20repo rt%20complete.pdf The EHDR highlights critical national human development issues, in order to support policy makers in their decisions. The 2008 Report focuses on the role of civil society organizations that promotes and implements public investment programs articulated in the 2005 EHDR, as a vision for a new social contract and a specific plan of action respecting the quest to achieve the eight Millennium Development Goals.