Whole Planet Foundation is excited to announce our new partnership with KIMS Microfinance in Somalia! Our three-year, $300,000 project with KIMS will support an estimated 1,000 microentrepreneurs through the group business loan product. This project is Whole Planet Foundation’s first with outreach in Somalia beyond the Somaliland region.
Financial services in Somalia follow Islamic financing principles, in compliance with Sharia law. The underlying principles are that wealth and investment should have a wider social benefit beyond pure profit. The use of money just for making money – for example by charging interest on a cash loan – is not allowed. Instead, investments can come in the form of an asset contribution to a business. In addition, risks should be shared among investors and business partners. Finally, profiting from certain activities that are considered harmful to society are not allowed.
In microfinance, Sharia-compliant loans usually follow two structures. The first is a free qard hassan loan, which bears no interest or profit, and is usually intended as a charitable endeavor. The second is a murabaha loan, also referred to as cost-plus financing. The seller and buyer agree to the cost and markup of an asset. The markup takes place of interest, which is illegal in Islamic law. As such, murabaha is not an interest-bearing loan but is an acceptable form of credit sale under Islamic law. As with a rent-to-own arrangement, the purchaser does not become the true owner until the loan is fully paid.
KIMS is a Sharia-compliant microfinance social enterprise. They offer individual and group murabaha loans. KIMS launched the group loan in late 2019, and by the end of 2020 had expanded this product to 949 borrowers in 7 branches. Compared to the individual loan, the group loan is more accessible for female micro-enterprise clients. No form of external collateral or guarantor is required.
KIMS shared these photos and story of one of their client groups, Siti Group from Kismayo, including the one at the top of this post.
KIMS shared this information with our team: “Siti Group from Kismayo consists of three members, one young man from the marginalized communities of Somali Bantus and 2 women from IDP’S camps. The group was created in August 2020.”
“Siti Group is accessing KIMS investments for the second time. They completed a loan of $300 dollars per group member and now they are still servicing a loan of $500 each.”
Over the last 10 months Siti Group has saved a decent amount of their income for future expansion of their retail shops while still repaying their loans.
KIMS Microfinance hopes to eventually bring their approach to Islamic financing to microentrepreneurs throughout the Horn of Africa, especially in countries like Ethiopia and Kenya where such sharia-compliant financial services are not commonly available. At Whole Planet Foundation, we believe that contextually appropriate services are key to financial inclusion.
If you are interested in learning more about Sharia-compliant microfinance, please visit the resources below: