The Regulatory and Supervisory Frameworks of Microfinance from Islamic Perspective: The Case of Sudan

Abstract

Islamic microfinance is one of the essential unconventional branches of lending used by Islamic microfinance providers for financial and social inclusion to provide financial support for low-income people as well as the extremely poor. Through the in-bodied social inclusion tools, Islamic microfinance can best be used to mitigate the negative impact of extreme poverty. Since financing micro-borrowers and the extremely poor are high risks, the need for efficient and effective regulatory and supervision of microfinance framework is very important. This research investigated the Sudanese Islamic microfinance regulatory and supervisory framework. Despite the exerted efforts by the Sudanese government through providing a favorable climate for the establishment of Islamic financial intuitions and establishing a structured microfinance framework, the results showed that the Sudanese microfinance regulatory framework is not providing the best outreach. Despite the continuous increase of the ceiling portfolio by the regulatory authority until reached 12% from 4% since the first issued rules in 2006, the actual utilization is insignificant at the end of the year 2013. This might be due to several reasons such as bad basic infrastructures, ineffective follow up by the regulator of the microfinance providers, Islamic microfinance deliberately ignoring the rural areas clients because of the high risk, the framework lack of the building capacity tools for clients as well as for the microfinance providers’ staff. The results of this research give strong policy implications for both Islamic microfinance regulators and providers to carry on real revision and evaluation for the efficiency and effectiveness of the currently operating microfinance framework in Sudan. These results might be useful for Islamic microfinance regulators and providers in Muslim countries and interested providers in the West the benefit from the nullified factors that render the regulatory framework ineffective.