IFIL keen on extending SMEs to the grassroots

Small and medium-sized enterprises (SMEs) are playing a key role in generating employment opportunities through entrepreneurial moves.

The country's first Shariah-based financial institution, Islamic Finance and Investment Limited (IFIL), is keen on undertaking special initiatives to expand this SME sector.

This was revealed by IFIL's Managing Director and CEO AZM  Saleh (Abu Zafore Md Saleh) in an exclusive interview with The Business Standard. 

"We want to make common people living in villages aware of Islamic Sharia and give them good returns on their legitimate and safe investments," he said.

To this end, IFIL plans to increase loan disbursement in the SME sector up to 80%, which is at present about 40% of its total portfolio.

The Islamic finance institution has mulled over the initiative to open its next branch in the post-Covid-19 period.

The chief executive officer expected that the central bank may allow non-bank financial institutions (NBFIs) to open sub-branches like banks so they can gain a foothold among the grassroots with a low cost of fixed investment.

IFIL has launched a new loan product called "Istismar" that can provide collateral-free loans of up to Tk10 lakh to create small entrepreneurs.

With partial security, loans of Tk11 lakh to Tk30 lakh can be obtained.

"For women entrepreneurs we introduced "Linnisa," another collateral-free loan facility up to Tk25 lakh," said the visionary.

As part of a new scheme for women depositors, IFIL has Mudaraba "Muhsinat," and "Ash-Shifa" for school banking. A new deposit scheme is also on the cards for senior citizens.

"We plan for slow and stable growth, not too much profit, during this pandemic period," said the seasoned banker.

"The purpose of this plan is to make sure that we do not fall into a dark pit in the post-pandemic situation," he said. 

Mr Saleh hopes to advance the company's position to number one or two within the next few years.

During the January-September period this year, IFIL's capital adequacy ratio (CAR) was 14.91%.

At the same time, the company's assets rose by Tk103 crore while Earnings Per Share (EPS) by Tk.05 to Tk0.99.

The financial institute has an excess amount of deposits of about Tk150 crore during this crisis period.

Launched in 2001, IFIL was listed on the stock exchange in 2005. Its paid-up capital stands at Tk134 crore while its authorised capital is Tk250 crore. 

"Now it is important to establish inter-market relations between Sharia-based banks and NBFIs like call money markets to ease the crisis," Saleh added.

He also suggested separating products for NBFIs and banks.

"We need a level playing field," he said, adding that NBFIs are taking loans from banks and giving the loans to the banks' clients. This does not create a level-playing field.

Noting that it is necessary for NBFIs to issue bonds as a medium-term source, he said, IFIL has recently started raising funds by issuing Mudaraba Non-Convertible Sub-Ordinated Redeemable Bonds worth Tk300 crore as approved by BSEC and the Bangladesh Bank.

Regarding the higher default rate of NBFIs than banks, Saleh claimed that they are in a better position than banks in terms of CAR and Returns on Assets.

However, there is negative publicity due to some institutions' defaulted loans that exceed 80% – a bad reputation that engulfs others as well.

He said the government may provide capital to rescue NBFIs, which are in dire straits, as it does for banks.  

At present, the share of Islamic banking in the banking sector is about a quarter.

With this in mind, Md Saleh thinks a big market is awaiting Islamic finance in the days to come.

Partnerships reduce the risk of default in Shariah-based financial institutions.

As a result, there is no extra cost, and customers get more profit, AZM Saleh said, adding that Muslims as well as believers of other religions are also keen on making Shariah-based investments.

He said of 33 financial institutions, 23 are listed on the capital market. More than 8,000 employees in this sector are serving more than 2,50,000 customers.

However, there is a shortage of skilled manpower, observed the IFIL CEO.

Abu Zafore Md. Saleh has a long and illustrious banking career spanning more than 34 years. He started his career with Agrani Bank in 1986 as a probationary Officer through BRC-1984. He served Prime Bank, Dutch-Bangla Bank and ONE Bank; becoming a deputy managing director of NCC Bank.

Saleh is currently the vice-chairman of the Bangladesh Leasing and Finance Companies Association and vice-president of the Bangladesh Economic Association.