Islamic Microfinance Performance: A Comparative Case Study in Bahrain (Family bank and Ebdaa Bank)

Submitted by deseditor on Sat, 05/25/2019 - 15:41
Language
English
English
Degree
M.Sc
Select type of work
Thesis
CIS Program Old
Islamic Finance
CIS publications
No
CIS Thesis
Yes
Student Name
Alalawi, Ahmed
Year of Graduation
2018
QF Thematic Areas
Social Progress - Social Inclusion
CIS Program
Master of Science in Islamic Finance
Abstract
Despite the tremendous financial development in almost all sectors, targeting nearly all members of the society, a big chunk of those who need finance and financial services are still left out, which are poor people and Micro-enterprises. As a solution Microfinance was introduced and flourished to become a very desirable field, especially in rural areas. Examples of the most successful Microfinance providers are Grameen and Village bank. The mainstream Islamic Banking is yet considered relatively new, its yet still developing, which results in a delay in adopting and innovating concepts such as Microfinance. In the Middle East and GCC region, the examples of Microfinance are the least, among the rest of the world.Although Bahrain is the smallest country in the GCC region, it has the first two Microfinance Banks, Family Bank (Islamic) and Ebdaa Bank (Conventional). This makes it a good topic to be studied and analysed overall, regarding products and services, controls and strategies and financial performance. To conclude if the experience of Microfinance and particularly Islamic Microfinance is successful in Bahrain or not and whether it could be taken as a role model for other GCC and Middle Eastern countries or not.This study aims to focus on the performance of the two Microfinance in Bahrain, and specifically, Islamic Microfinance, assess how much of Microfinance theories have both banks integrated through the practice, analyse and study the main issues and challenges that each bank face, and attempt to provide solutions in the recommendation section. The findings provide that, both Family Bank (Islamic) and Ebdaa Bank (conventional), have incorporated reasonable amount of Microfinance theory in their practice, and maintained the main essence of it, through social, moral and economic development. Regarding comparison, although Family Bank is bigger in share capital, Ebdaa bank managed to utilise its resources better. Ebdaa managed to overcome Family bank in controls and procedures, such as the use of technology in credit screening, the mandatory request of security, better geographical spread and faster credit granting process. Also, Ebdaa also performed better financially, an example in reaching breakeven and profitability, Income to financing ratio, operating cost to income ratio, ROA and ROE. Both banks have almost similar issues and challenges, such as limited license granted by the central bank, misconception about Microfinance, high default rate, small market and population, and limited capital.All this said an important point must be mentioned, the mainstream Islamic banking is relatively new, and still developing, which makes Islamic Microfinance an even newer field, with few successful examples around the world. This gives Family Bank some credit, being the first Islamic Microfinance in the middle east, where there are no real examples to be learned from, or to be benchmarked too. So although its performance was not up to the excepted, I think that it should be given more time and support, to overcome its challenges and proof that it is a good example that could benefit from.In conclusion, the study provides some solutions and recommendation to overcome the issues and challenges, and answers the hypothesis question, is Family Bank (Islamic) a good role model for Islamic Microfinance in Bahrain and GCC, or not?
Despite the tremendous financial development in almost all sectors, targeting nearly all members of the society, a big chunk of those who need finance and financial services are still left out, which are poor people and Micro-enterprises. As a solution Microfinance was introduced and flourished to become a very desirable field, especially in rural areas. Examples of the most successful Microfinance providers are Grameen and Village bank. The mainstream Islamic Banking is yet considered relatively new, its yet still developing, which results in a delay in adopting and innovating concepts such as Microfinance. In the Middle East and GCC region, the examples of Microfinance are the least, among the rest of the world.Although Bahrain is the smallest country in the GCC region, it has the first two Microfinance Banks, Family Bank (Islamic) and Ebdaa Bank (Conventional). This makes it a good topic to be studied and analysed overall, regarding products and services, controls and strategies and financial performance. To conclude if the experience of Microfinance and particularly Islamic Microfinance is successful in Bahrain or not and whether it could be taken as a role model for other GCC and Middle Eastern countries or not.This study aims to focus on the performance of the two Microfinance in Bahrain, and specifically, Islamic Microfinance, assess how much of Microfinance theories have both banks integrated through the practice, analyse and study the main issues and challenges that each bank face, and attempt to provide solutions in the recommendation section. The findings provide that, both Family Bank (Islamic) and Ebdaa Bank (conventional), have incorporated reasonable amount of Microfinance theory in their practice, and maintained the main essence of it, through social, moral and economic development. Regarding comparison, although Family Bank is bigger in share capital, Ebdaa bank managed to utilise its resources better. Ebdaa managed to overcome Family bank in controls and procedures, such as the use of technology in credit screening, the mandatory request of security, better geographical spread and faster credit granting process. Also, Ebdaa also performed better financially, an example in reaching breakeven and profitability, Income to financing ratio, operating cost to income ratio, ROA and ROE. Both banks have almost similar issues and challenges, such as limited license granted by the central bank, misconception about Microfinance, high default rate, small market and population, and limited capital.All this said an important point must be mentioned, the mainstream Islamic banking is relatively new, and still developing, which makes Islamic Microfinance an even newer field, with few successful examples around the world. This gives Family Bank some credit, being the first Islamic Microfinance in the middle east, where there are no real examples to be learned from, or to be benchmarked too. So although its performance was not up to the excepted, I think that it should be given more time and support, to overcome its challenges and proof that it is a good example that could benefit from.In conclusion, the study provides some solutions and recommendation to overcome the issues and challenges, and answers the hypothesis question, is Family Bank (Islamic) a good role model for Islamic Microfinance in Bahrain and GCC, or not?
CIS Research Foci