By Arrackal Alexander, Bahrain News Agency

Manama, Sept. 4 (BNA) — The history of institutional micro-financing in Bahrain begins with the establishment of the Family Bank, which ensured that marginal entrepreneurs – those with cottage businesses – were given the impetus to aspire higher and raise their prestige to that of the small and medium entrepreneurs, said the Minister for Social Development, Dr Fatima Al Beloushi.

In an interview given to Bahrain News Agency as part of the Social Business Week, which opens on September 16 at the Bait Al Tijjar, the minister said, this event is a precursor to the regional summit that Bahrain will host in 2013.

“An awareness campaign for the region was discussed at Vienna, to bring more people into social businesses. This event will train people for the regional summit and bring about a consciousness about social business. Young university students, NGOs, business people and many others will see the idea of social business and to be exposed to the global scenario,” she added. The weeklong event is expected to encourage development of social businesses in Bahrain. By the time of the regional summit more and more people social business will have nurtured in the country and aware will have grown, resulting in Bahrain becoming a hub for social business, said Dr Fatima.

In the area of micro-finance Bahrain has its footprint with the introduction of Islamic micro-financing, making it a pioneer in the region, she said. “Family Bank is the first Islamic micro-finance institution perhaps in the whole region. It tailored to the needs of the local people. Prior to this there was only conventional micro financing, but with the Family Bank, many people benefitted from the tools of Islamic micro-financing, because it offered collateral free loans which helps and encourages entrepreneurs with the seed funds for small and micro businesses.”

Certain families in the Kingdom till date survive with informal work such as production of food, pickles, and sweets to name a few, she said. Those interviewed from these groups stated that given minimal resources, they could substantially increase their income and potential to do business. Over 50 types of activities, some traditional and some modern, have been documented.

The minister said that many countries got interested with the Bahrain model. “We have people from international organisations coming to our bank to gain experience from what we have done and achieved. By providing Islamic microfinance – which goes in line with Islamic principles – the social business is fostered. It aims at empowering people and lifting them up to higher levels,” she added.

Turning to the impact micro-financing had on the cottage industry of Bahrain, the minister said, microfinance grew out of experiments in Latin America and South Asia, with Bangladesh giving the best known start in 1976, following the 1974 famine in that country. For some, microfinance is a movement whose object is “a world in which as many unfortunate and deprived households as possible have permanent access to an appropriate range of high quality financial services, including not just credit but also savings, insurance, and fund transfers.” For others, it is a way to promote economic development, employment and growth through the support of micro-entrepreneurs and small businesses.

Bahrain’s abundance of fresh water, good fishing, and the lucrative pearl trade made it a valuable stopping point in the Gulf. Prior to the discovery of oil, Bahrainis earned their livelihood from three main sources; pearl fishing, agriculture and trade. The first two were labour intensive. Trade, however, provided the major source of revenue to the state. Many other smaller enterprises — the most notable of these based on historic records being weaving and embroidery, pottery, copper work and metalsmithing, fishing, boat building, leather works, minor agro-processing and providing goods such as herbal medicines and cosmetics – existed with less potential for employment;. “Bahrain evolved into a country with high income, but there are also people who are considered poor or with lesser income compared with the others. The government brings in its share of social securities for them, but then it is important to spread the same among larger numbers as they grow. The country has many socially inclusive programmes,” the minister said.

The Family Bank covered this niche area of social protection for the weaker sections of people – with the idea of promoting entrepreneurship with collateral free loans. “The entrepreneurs work with the ministry that trains and develops and markets their products. Many cottage businesses have benefitted with the collateral free loans – where the government brings in a major share of the funding. This year for example many people have been able to begin businesses, which they would not be able to (because of the family bank). This year alone 750 loans have been given. And many have thus been able to increase their income. This is the goal of the government – economic empowerment,” said Dr Fatima.

Looking at the nexus between Islamic banking and microfinance, Dr Fatima said that many elements of microfinance could be considered consistent with the broader goals of Islamic banking.

Islamic finance plays an important role in furthering socio-economic development of the poor and small (micro) entrepreneurs without charging interest [Riba]. Furthermore, Islamic financing schemes have moral and ethical attributes that can effectively motivate micro entrepreneurs to thrive.

As an alternative to riba’, the profit and loss sharing arrangements are held as an ideal mode of financing in Islamic finance. It is expected that this profit and loss sharing will be able to significantly remove the inequitable distribution of income and wealth and is likely to control inflation to some extent, she said.

The profit and loss sharing may lead to a more efficient and optimal allocation of resources as compared to the interest-based system. Since the depositors are likely to get higher returns leading to richness, it is hoped that progress towards

self-reliance will be made through an improved rate of savings. Thus will ensure justice between the parties involved as the return to the bank on finance is dependent on the operational results of the entrepreneur.

“We have seen a gradual increase in the livelihood of the productive families and the small business owners who have been aware and utilize the facilities of the Islamic micro finance. It is our aim to reach out and create more awareness among the people of Bahrain,” she said.

The examples that attracted the minister in micro-finance, she said, one example we found in Europe was the training using the senses and not the sight. The business here is conducting training but the beneficiaries are the blind. They are getting an uplift. The lack of sight is not affecting the training process, since they can use the other senses.

Again in South America, a boutique designed and promoted its own clothes and accessories, but those who are working in the tailoring and developing of these fashion items are women from poorer backgrounds. These products are brought to highly rated malls. The proceeds go back to the women.

In Bangladesh, a company manufactured mosquito nets. It was part of the social business network. The net is expected to protect children from mosquito bites, while the mosquitoes that come to the nets die because of the smell from some of the medicines used in the manufacture of the product. The money from the net goes back to the people and loss of infant lives due to mosquito bites is drastically reduced.

Asked about the uplift of micro entrepreneurs so micro-finance can benefit more, the minister said, “the Bahrain Development Bank is a natural corollary to the Family Bank. At the Family Bank the loan amount is BD7,000. An entrepreneur who takes this loan uses it as seed money and grows the business. To further expand and grow beyond the cottage industry, the same person approaches the BDB, again with our reference. We nourish their micro business and then help them to move on to the SME status.”

Turning to the weeklong event and the participation of these successful micro-entrepreneurs, Dr Fatima said that trainers and other officials from Germany, Bahraini entrepreneurs and many others connected to Microfinance will be present at the workshop and the week long events.

Giving numerical strength to the micro-financing in the Kingdom, the minister said that the Family Bank had financed 614 Grameen projects in 2011 — these included 345 trade projects, 66 food processing projects, 52 miscellaneous projects, 31 fishing projects, 23 micro manufacturing projects and 18 salons. Under Microenterprise finance the bank was able to finance 125 projects with trading projects taking up the bulk of 57. There were four foodprocessing and three agricultural projects. The Grameen program benefitted 33 per cent beneficiaries in the Central governorates. Northern with 32 per cent, Muharraq with 26 per cent, Capital with eight per cent and the southern with one percent where the other beneficiaries. In the Microenterprise finance area, Northern with 29 per cent, Central with 25 per cent, Muharraq with 22 per cent, Capital with 21 per cent and Southern with three percent benefitted, according to Family Bank statistics.