Women empowerment in Africa: can we rely on Islamic finance?

Recently, the issue of women's empowerment has begun to take center stage in the development agenda of most African countries. This interest has gained even more credibility following the United Nations' 2015 Sustainable Development Goals, the fifth of which gives priority to gender equality. However, despite some notable progress, Africa is one of the regions where women are least represented in politics and in terms of participation in the formal labour market. This gender gap is also evident when it comes to access to finance, and we see that it has unfortunately widened over the years.

The gap in terms of access to accounts, whether a bank or mobile money, despite progress in terms of financial inclusion, has increased due to the progression of financial digitalization. Women on the continent often do not have the necessary skills to use this type of service or access to the necessary tools, particularly the internet. On the other hand, social norms can also lead to their self-exclusion in using financial services. A recent study shows that in Africa, despite their large numbers, women entrepreneurs tend not to apply for credit because they perceive themselves as not very creditworthy. Even though the African continent has the highest rate of women entrepreneurs in the world, they struggle to obtain finance.

Financing women empowerment in Africa: a need for an alternative mode of financing

The financial system plays a decisive role in the socio-economic and political transformation of vulnerable members of society, such as women. However, the financial sector in most African countries is characterized by the predominance of the traditional banking system. Exorbitant interest rates and poor risk-sharing between lender and borrower have turned this mode of financing into a business for wealthy members of the community, neglecting the most vulnerable, including women. On the other hand, financing projects are generally based on the borrower's ability to repay rather than the viability of the project. Repayment times are also often very short, and women are forced to repay the loan with what they have borrowed.

Research has shown that while conventional financing can improve job creation and people's incomes, it can also lead to financial vulnerability and a debt trap for the most vulnerable. Equally, beneficiaries of microcredits in Africa do not very often have the skills and inventiveness necessary to invest their loans over the long term and very quickly find themselves unable to repay their loans[1].

All of this highlights the need for an alternative financing model, or a paradigm change in the current models to reflect women's specific financial needs.  

Islamic finance:  a possible panacea to the financing discrimination against women in Africa?

Recently, Islamic financing has gradually gained a foothold in the financial systems of most African countries. The social and economic dimensions of this form of Islamic financing may make it a way of solving the continent's financing problems[2]. It is based on the well-being of society as a whole by providing financial services that meet the needs of the needy or those who are deemed "unbankable" by the dominant conventional system. African countries are gradually adopting Islamic financing. For example, in terms of Islamic bonds (Sukuk), the continent accounted for just over $500 million in 2019[3] [8], accounting for just about 0.5% of the global Sukuk assets value but in 2021, this value rose to over US$155bn (1.55% of the global Sukuk assets value);

Islamic finance can enhance women empowerment in the following ways:

• It is based on the principle of profit and loss sharing and strictly forbids the application of interest on loans, which is considered one of the main obstacles to access to credit in developing countries. This mode of financing can give women better access to formal credit, as the rates will be lower than those of traditional financial services.

• It also uses the principle of partnership which means that it does not only facilitate access to formal credit for women but equally plays the role of risk diversification, portfolio management, joint venturing, etc. which is vital especially for small-scale entrepreneurs a majority of whom are women. This can be done through a wide range of products such as the Mudarabah[4] (partial partnership) and the Musharakah[5] (joint venture), tailored particularly towards helping in the provision of startup capital to small businesses.

The principles of Islamic finance can therefore improve women's access to finance on the African continent and make them more financially independent. This will enable women to have a greater say in decision-making, both at the household level and in society as a whole.

Avenues to improve access to Islamic finance services for women empowerment in Africa

It is thus incumbent on policymakers to adopt the right strategies to boost the Islamic finance sector which is still in its embryonic stage in Africa, while equally ensuring that women can fully access these services. One of the biggest challenges in enhancing the adoption of this mode of finance has to do with the ability of policymakers to change the misconception that this mode of finance is particularly reserved for Muslims and an attempt to Islamize the non-Muslim population. To remove this “Islamic” tag, appropriate awareness programs capable of changing mindsets to build positive attitudes are crucial. In Cameroon for example, where Islamic finance is now part and parcel of the country’s financial inclusion strategy, the authorities have put in place some measures in this direction, one of which is changing the name from Islamic finance to participative finance so that at first view, people should not have the impression that it is particularly attached to Muslims.

Once this has been done, there is equally the need to build trust towards Islamic banks, especially by making sure it is indeed governed by the four main principles of the prohibition of interest, uncertainty, gambling, and harmful activities. In building this trust, there is the need to make sure that all Islamic finance institutions are governed by qualified Sharia boards. All these measures to develop the Islamic finance sector should be supported by the right legal framework which clearly defines the roles and the responsibilities of all actors involved.

Finally, more innovative Islamic financial products such as Salam[6], Mudarabah, and Musharakah, which are particularly well suited to meeting women's financing needs, need to be made available on the continent. These measures should equally be backed by some accompanying measures such as abolishing social norms that limit women’s ability to take part in decision-making.

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About the authors

Armand Mboutchouang Kountchou is a Senior Lecturer and Head of the Research Office at the Faculty of Economics and Management at the University of Dschang in Cameroon. Attached to the Department of Public Economics, he teaches Microeconomics, Applied Econometrics, and Economics of Education, and is involved in supervising Master's and Doctoral students. Armand graduated in 2018 with a PhD in Economics from the Collaborative PhD Programme of the African Economic Research Consortium (AERC). He has research experience in development economics as a consultant or leader/member of projects financed by recognized institutions such as AERC, Agence Universitaire de la Francophonie (AUF), Partnership for Economic Policy (PEP), Global Development Network (GDN) and others. He has also published several scientific papers in peer-reviewed journals.

Ali Haruna is a final year PhD student at the Faculty of Economics and Management of the University of Dschang in Cameroon. His Ph.D. thesis is titled “Islamic Finance in Cameroon: Adoption and Effects on Entrepreneurship”. He has experience in financial inclusion, with a particular interest in Islamic finance with over five publications already in reputable journals which include: Borsa Istanbul Review, Review of Development Economics, the Journal of Islamic Accounting and Business Research, the Journal of Islamic Finance, and the Journal of Islamic marketing. He also has a strong background in survey analyses and other related microeconomics areas. He is equally an assistant editor of the Journal of Islamic Economic Laws and the International Journal of Islamic Economics

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