The Effectiveness of Regulatory and Supervision Framework of Islamic Microfinance in Sudan

1. The microfinance Roundtable on the regulatory and Supervision onIslamic Microfinance: IRTI & SUST, 18-19/2014 The Effectiveness of Regulatory and Supervision Framework of Islamic Microfinance in Sudan Dr. AbdelrahmanElzahiSaaid Senior Economist, IRTI/IDB

2. Introduction • Islamic microfinance is one of the essential unconventional branch of lending that uses by Islamic finacial institutions to mitigate the negative impact of the extreme poverty. • Since finacing micro-borrowers and extremely poor projects are highly risk, the need for efficient and effective regulatory and supervision of microfinance frame work is very important. • This research investigated Sudnese Islamic microfiance regulatory and supervisory framewark. • The results of this research gives stromg policy implications for both government of Sudan to carry on some improvement in their experience of supervsion and the users of Islamic microfiance

3. Introduction • Recently Sudanese economic has weakened. • The country economic growth was totally depending on exporting crude oil • The country used to depend on mainly on agricultures and livestock before the oil. • The game is over. Sudan loosed 75% of its oil revenue due to the secession of the South in 2010. • In addition to that the internal and regional conflicts, heightened political tensions, are continuing to effect the economic growth which eventually leads to the high unemployment and disadvantages among most of the citizens.

4. Introduction • Sudan dominated the political instability from the independence in 1956. Since then the country exposure to three military cops. • All the civil governments that attempt to rule the used to be the largest country in Africa were overthrown in an overnight by the military even before implementing their agendas. • Other factor contributed to the unemployment and poverty is longest civil wars and the internal conflicts across the regions.

5. Introduction • The Sudan has a histrory of high inflations and strcutre economic disorder particularly during the 1980th and the 1990th. • The country also among the poor and low income and highly indebted countries. • Sudan economics growth was started to improve shortly after had started exporting the crude oil in 1999.

6. The Positive Role of Sudan Government • Sudan government who aware of the dilemma • Has taken immediate policy priorities including micro-financing business model • The country has complete transform the all the conomics into Islamic system • Islamic microfinance is one of the essential unconventional branches of lending • that use by Islamic financial institutions to mitigate the negative impact of the extreme poverty and unemployment • Sudan is the pioneer country that adopts Islamic mirofinance among other Muslims countires.

7. Islamic Microfinance in Sudan: Opportunities and Challenges: • The Government of Sudan aware of the challenges of the chronic poverty • Since 1989the government has attempted many initiatives to reduceit • Islamic financial infrastructure has witnessed tremendous growth and improvement since 1989. • Economic Islamized • Islamic Banks increased • made enabling environment for Islamic microfinance and its supportive intuitions such as Waqf and Zakah to play their vital roles in helping the poor in Sudan

8. The new copital injected from the foreign banks, might improve banking technology in Sudan &Enhence skills and improving banks outreach • More than three microfinance institutions • Central Bank of Sudan and the Ministry of Finance and National Economy were jointly established a National Agency for Insurance and Finance of Export • Zakah collections and Waqf system was revived to play their designed role effectively

9. The establishment of the Islamic financial institutions • followed adaptation of the Shariah law all over the country in September 1984 • availability of the natural resourcessuch as agriculture land and livestock in the areas of disadvantages people • availability of the natural resourcessuch as agriculture land and livestock in the areas of disadvantages people

10. Challenges • Despite of the favorable Islamic financial system development in Sudan, Islamic microfinance is not risk-free • Given the high rate of the poverty and the recent separation of the rich South part of Sudan, Sudanese economic has encountered sever instability • high demand for Shari’ah fund due to the uprising civil wars that lead to more disadvantages on the countryside areas

11. limited donors fund, • inability of the government to provide sustainable micro-financing • The nature of Sudanese Islamic microfinance model is involving more players, need to co-ordinate between them-selves. • an argent need for establishing effective and electronic networking • Sudan is an extended country with wide and undeveloped country side areas • weakness of the Sudanese basic infrastructures

12. Another big challenges facing Islamic microfinance is the high tax. • capacity building need of the beneficiaries • The previous section shows that the Sudanese government exerted more efforts to build reseanable Islamic financial infrastures through complete Islamization of the economic

13. Regulatory and Supervision Framework of Islamic Microfinance in Sudan: • The government was aware of the regulatory and supervision challenges that might face the implementation of Islamic microfinace. • the Central Banks of Sudan was empowered to play the role of the regulatory and supervision for the microfiance in addition to the orginal madated job. • CBOS role has become not only limited to the designing of the monetary policies, and prudential regulation and supervision and promoting the economic growth through these policies, but also encouraged to play vital role in developing a comprehensive financial system that include Islamic microfinance business model.

14. The CBOS policies and strageic to implemnt Microfiance with fully supported by the donoors. The CBOS and the World banks were established what was called Sudan Multi Donor Fund (MTDTF) • The CBOS effectively took this opportunity to expand the base of the banking services, prepare policies, control and supervision and regulations for the development of inclusive financial system that cater for micro-finance producer • The Banking Supervision Department of the CBOS together with a Sudanese consultancy firm, were a pointed to lead

15. Banking Supervision Department established Micro Finance Unit to cater for promoting microfinance through banks and non-banks institutions. • The Micro Finance Unit also reuqired to play the role of facilitator between Islamic microfiance providers and government and non-government technical resources • . Moreover, the Central Bank dirct the the Sudanese banks to allocate 12% • Despite of the supportive environment from the Government and its financial institutions, polictical will as well as the multilatral institionsonly moderate success were achieved

16. The World Bank report No. IS10549 on April, 2013, the Sudanese microfince project made moderate satisfactory progress towards achieivng the proposed objectives • The amin development indicators used by the world bank to measure the project were the direct number of benficiaries, porfolio at risk and the number of operating microfiance providers • The number of benficiaries outreach during the period from 2007 to 2013 were 490,000 devidedbetween the comercial banks (302000) and the microfiance providers (189,000).

17. The assessed the does not refer to the areas of disadvanges people • Poverty in Sudan is deeply found in the rural and paricularlt in the conflict fragile areas. • To achiece more accurate results weather the model of any Microfinace has achieved its objective or not, one might to test the aspects of outreach

18. The aspects of outreach • This is a test encompasses both poverty to microfiance and self-sustainablity approach to assess the social benefits of microfinace based on the aspects of the outreach • poverty approach that measure how well the needs of the targeting poors are fullfil in the short-term • self-sustainability approach which targeting less-poor people (low-income worker) in helping them in achieving long-run economic sustainablity.

19. Conclusion • The sudanese islamic microfiance model focus on reducing poverty of the people on the rural and marginalized areas as well as urban working poor (both) • The sustainabilty approach consists of: • Worth outreach to clients, • Cost outreach to clients, and • Breadth of outreach, • Length of outreach and • The scope of outreach • While poverty aproach to microfiance measures the depth of outreach which is added vaue given to the clients in relation to the goals of their society. • The depth outreach microfiance will check the community ppriority to develop and solve certain problem

20. Thank you