FROM THE MARGINS

Eid Mubarak to our Muslim brothers and sisters, who celebrated Eid'l Fitr last April 21! Eid'l Fitr marks the end of Ramadan, a month-long period of fasting, introspection and communal prayers for Muslims. Since 2002, Eid'l Fitr has been declared a regular holiday to honor the country's Islamic heritage.
Recognizing the significance of this Islamic tradition is important for inclusive development. But we can go one step farther by promoting culturally responsive financing, especially in view of the poverty situation in many Muslim communities.  The Bangsamoro Autonomous Region in Muslim Mindanao (BARMM) has the highest poverty incidence among regions.  Based on the 2021 Family Income and Expenditure Survey (FIES), about 37.4 percent of people in BARMM are poor, which translates to 1.71 million families living below the poverty threshold. The subsistence incidence among families in BARMM is at 8.8 percent.  This means almost nine out of every 100 families do not earn enough to meet their basic food needs.  Sulu registered the highest subsistence incidence (17.1 percent), followed by Basilan (16.3 percent). These are high percentages of food-poor families compared to the country’s overall subsistence incidence of 3.9 percent.

Access to finance

Poverty in BARMM is aggravated by financial exclusion. According to the Bangko Sentral ng Pilipinas (BSP), about seven in 10 adult Filipinos do not have accounts, including those unable to access to finance due to their religious beliefs. Muslim Filipinos do not borrow from banks since the Sharia prohibits interest charging, which is considered usury (riba).  The Sharia also forbids transactions on sinful things (haram), and speculative transactions involving risks (gharar). Unable to access funds for economic activities, many languish in poverty. The good news is that a number of microfinance institutions (MFIs) have risen to the challenge. They offer Sharia-compliant financial services, enabling Muslim families to grow microenterprises and be self-reliant.  These microfinance products are generally known by their Arabic names: Murabaha involves the resale of a commodity after the MFI adds a small profit margin (called ‘mark-up'), which is paid by the borrower who agrees to buy that commodity. In Mudarabah, the MFI serves as a financier that provides funds to entrepreneurial Muslim clients, who then use their skills to invest the money in attractive business ventures. The MFI and their clients would then share the profits from the mudarabah contract according to a pre-determined ratio. The Sharia also allows another microfinance product, Ijarah, which is leasing backed by an acceptable contract. How do these work? Imagine an MFI buying a tricycle on behalf of a Muslim client under a murabaha contract. The tricycle provides livelihood to the client, who can now offer transportation services to the community. He can already use the tricycle  ferry passengers even as he is paying installments to the MFI.  Similarly, a Muslim woman could borrow additional capital for her sari-sari store by sharing profits with the MFI under a mudarabah contract.  She could also lease farm equipment from the MFI using Ijarah.

Culturally responsive financing

Islamic microfinance, such as those offered by Peace and Equity Foundation (PEF), ASA Philippines and the Center for Agriculture and Rural Development (CARD), help fight poverty in Muslim communities. CARD’s Paglambo Project is a Sharia-inspired microfinancing program that resulted from a series of dialogues and learning visits between two Ramon Magsaysay awardees: the CARD Mutually Reinforcing Institutions (CARD MRI) and the Dompet Dhuafa, an Indonesian non-profit organization. CARD developed the Paglambo Project based on the Dompet Dhuafa’s successful Islamic microfinance and banking scheme in Indonesia.
Starting with only two units composed of members from 56 Muslim families in Marawi, Lanao del Sur and Shariff Aguak, Maguindanao in 2018, the Paglambo Project expanded quickly. Attesting to the urgent need for financing in Muslim communities, members grew to more than 4,000 after only a year of operation. To date, the Paglambo Project has 55 units covering 11 areas in BARMM and Region 9. It serves about 80,000 members in Basilan, Maguindanao, Sulu, Lanao del Sur, Tawi-tawi, Zamboanga City and Zamboanga del Sur.  Loan outstanding amounted to more than ₱396 million as of March 2023.  The members have raised more than ₱188 million capital build-up.
The repayment rate in areas where Paglambo operates continues to be very high, consistently at more than 99 percent since the program started.  In 2021, its unit in Kapatagan, Maguindanao had a 100 percent repayment rate despite the Covid pandemic.  This dispels notions that lending to Muslim borrowers is risky; it only proves that financial institutions need to develop culturally responsive products to serve Muslim communities.
BSP promotes financial inclusion, and in a meeting last month, Governor Felipe Medalla expressed support for Islamic financial services to help the poor in hard-to-reach rural areas in Mindanao which will go a long way toward alleviating the plight of our Muslim brothers and sisters.
I sincerely hope this strong support will expand financial inclusivity. As what Secretary Benjamin Diokno has said: “Our financial inclusion narrative would be incomplete without touching on Islamic banking and finance.” *(Dr. Jaime Aristotle B. Alip is a poverty eradication advocate. He is the founder of the Center for Agriculture and Rural Development Mutually-Reinforcing Institutions (CARD MRI), a group of 23 organizations that provide social development services to eight million economically-disadvantaged Filipinos and insure more than 27 million nationwide.)*