The project’s aims were threefold: to increase the access to finance of micro and small enterprises, tosupport the institutionalisation of local microfinance institutions (MFIs), and to disseminate information andtraining on Islamic finance. All components of the project were a resounding success, and to date, over tenthousand people have benefited from IsDB’s assistance.

Microfinancemakes businessessuccessful inGuinea

ISDB SUCCESS STORY SER IES : NO.13 (MAY 2013)

Islamic Development Bank

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Guinea has long been ranked among the poorest countries in the world, making lifetough for the nation’s many micro-entrepreneurs, who until recently have been unableto access the capital needed to grow their businesses and improve the lives of theirfamilies. In 2001, guided by its national poverty reduction strategy, the Governmentinvited the Islamic Development Bank (IsDB) to help the country’s poor to helpthemselves through a microfinance project, drawing inspiration from a verse in theHoly Quran (Chapter 13, Verse 11):

“… Indeed, Allah will not change the condition of a people until they change what is in themselves …”.

The project was implemented through three MFIs thatacted as field executing agencies: Crédit Rural deGuinée, Programme Intégré pour le Développement del’Entreprise and l’Agence Autonome d’AssistanceIntégrée aux Entreprises. All of these financialinstitutions had experience in microfinance thatpredated IsDB’s intervention. They were led bycharismatic visionary leaders who fully identified withthe purpose of the project and were genuinelyinterested in helping people to improve their lives.Within the MFIs, competent management teamsbrought along their experience of microfinanceapproaches and an understanding of the local businessenvironment, and tailored their implementation of theproject accordingly. IsDB provided a line of financing tomake funds available to the MFIs, which then in turnprovided money to local business owners using aSharia compatible approach. The Central Bank ofGuinea acted as the coordinating and controllingagency. It developed a framework on microfinancecomplete with policies, rules and regulations. Inaddition, the Central Bank helped the three MFIs toselect eligible borrowers and monitored projectimplementation.

Safeguarding dignity through Islamic financeMaking Islamic finance the cornerstone of the projectwas a critical success factor. The population of Guinea

is predominantly Muslim, and many micro-entrepreneurs would not accept conventionalmicrofinance loans due to religious prohibitionssurrounding usury. Adherence to Islamic law andensuring fair play is at the core of Islamic banking.Because Islam forbids simply lending out money atinterest, transactions are based on risk-sharing ratherthan risk-transfer. Using Sharia compliant approachesto banking changes the relationship between MFI andclient. While borrowing along conventional Westernlines is not well perceived in Guinea, Islamic financerecasts microfinance as a dignified form of businesspartnership in which the financial institution has a stake in its client’s success and both grow their business in tandem.

The programme’s active engagement with local mediawas a critical success factor. The MFIs worked with localradio stations to spread the message that Islam andbanking were compatible concepts, and to explain thevalues and principles of Islamic finance. These radioprogrammes were a resounding success, andcontributed greatly to fostering acceptance of theproject by a population initially reluctant to engagewith the financial sector. In addition, they disseminatedknowledge about basic business managementprinciples, and alerted entrepreneurs to the availabilityof funds to grow their businesses with. This stimulatedan increase in loan applications by interestedentrepreneurs, enlarging the MFIs’ pools of potentialclients. The awareness campaign also had a broaderlong-term impact, as the radio programmes increasedthe general demand for financial intermediationamong Guineans, including those in rural areas.

Building capacity at all levelsGiving top priority to training stakeholders at all levels,from experts at the Central Bank to micro-

ISDB SUCCESS STORY SERIES: NO.13 (MAY 2013)

Producing traditional clothingA young Guinean lady saw an opportunity toprovide traditional clothing to the wealthy. Shestarted her own boutique by importing fabric andaccessories from France and Germany and tailor-made them for her local clientele. She started withher own resources and bought three sewingmachines. As demand grew, she turned to CréditRural de Guinée to provide financing amountingto GNF 30 million to purchase 10 additionalsewing machines and employ a few tailors. Todayher business has grown to GNF 90 million andshe employs 15 people.

entrepreneurs in the field, turned out to be a criticalsuccess factor. In order to build the capacity of thecountry’s financial system to offer Sharia compliantproducts and services, IsDB provided extensive trainingin Islamic finance and business management to morethan 100 staff members of the Central Bank and theparticipating MFIs. The MFIs later used IsDB’s trainingmaterials to develop a comprehensive trainingprogramme for local entrepreneurs, which prospectiveborrowers were required to complete before receiving a loan.

Training only marked the beginning of a closerelationship between the lenders and their clientsthroughout the credit cycle. MFI staff combined trainingand consulting approaches by proactively assistingindividual applicants in developing their original ideasinto full business proposals, covering all aspects ofoperations from financing to marketing and reporting.These comprehensive business plans not only served toturn good business ideas into bankable applications,but also improved the profitability of the resultingbusinesses, benefiting MFIs and clients alike. Thisintensive relationship management extended beyondthe signing of the financing contract and the disbursalof funds, as MFIs maintained close monitoring contactwhile keeping their doors wide open for clients seekingexpert advice on how to best leverage their funds togrow their businesses.

Thanks to the combination of Islamic finance,information dissemination and intensive training, theproject achieved outstanding rates of return. With theirmessage that Sharia compliant finance was available toambitious entrepreneurs, the radio programmes had

cast a wide net and generated a large number of loanapplications, enabling MFIs to choose only the bestamong a large pool of applicants. The subsequenttraining of these entrepreneurs by MFIs, coupled withcontinuous post-disbursal monitoring and support,resulted in extremely strong portfolio performance. Only3% of project loans slipped into default – compared toan average default rate for conventional financing of10% – resulting in an impressive repayment rate of 97%across the three participating MFIs.

Real impact on the economyThe project attained or exceeded all its original targetobjectives. The project originally set out to finance 600activities through its MFI partners, but in the end, morethan 650 activities were able to benefit from IsDB’sfunding. It had a tremendous positive impact on theparticipating micro-entrepreneurs, 62% of whom werefemale (against a target of 50%). Heath conditions andschool enrolment rates in beneficiary familiesimproved; given the average family size of ninepersons in Guinea, the project directly contributed toimproving the living conditions of almost 6,000 people.In a country with few opportunities for securing arespectable living, IsDB’s project gave buddingentrepreneurs a chance to make an honest living andeven provide employment to others in their

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Electrifying a communityYears ago, a young entrepreneur purchased agenerator for his welding business in UpperGuinea, where grid electricity is in short supply.During the hours when he was not welding, heprovided electricity to members of his localcommunity, who used it to power refrigerators toprevent their food from spoiling. Demand for thisservice was so high that one generator alone couldnot handle the job, so he approached one of theproject MFIs for finance. Drawing on IsDB’straining curriculum, the MFI helped him to develophis concept further. With the help of a line ofcredit, he now not only runs several generators,but also manages a safe storage facility for fridgesand supplies ice to the local market.

ISDB SUCCESS STORY SERIES: NO.13 (MAY 2013)

AcknowledgementsThis success story document is based primarily onthe Final Micro and Small Enterprises FinancingProject Guinea Report and the Final Post-EvaluationReport on Micro and Small Enterprises FinancingProject Guinea produced by the IsDB’s GroupOperations Evaluation Department. The story wassupplemented by additional material from a fieldvisit by Br Faisal Siddik of the Operations Policy andCompliance (OPC) Division of the Operations Policyand Services Department, IsDB.

The preparation of this success story was managedby Dr Intizar Hussain and Br Faisal Siddik of theOperations Policy and Compliance (OPC) Division ofthe Operations Policy and Services Department,IsDB. All direct and indirect contributions by IsDBcolleagues, in particular Br Abdelaziz Slaoui of theAgricultural and Rural Development Department, DrAbdoul Radiaye Bah, IsDB Field Representative inGuinea and Br Fakhreddin Khelifi of the GroupOperations Evaluation Department, and partners forthe successful implementation and evaluation of theproject, and for the preparation of this document aregratefully acknowledged.

Contact for any queryManager, Operations Policy and Compliance (OPC)Division Operations Policy and Services Department (OPSD)Islamic Development Bank Group13th Floor, Main BuildingPO Box 5925, Jeddah, 21432, Saudi Arabia

Email: ihussain@isdb.orgTel: (+966 2) 646 6907Fax: (+966 2) 646 6966www.isdb.org

Writing, design and layout by Scriptoria SustainableDevelopment Communicationswww.scriptoria.co.uk

Success factors

Islamic financeBuilding the project around an Islamic financemodel of banking heightened its acceptancewithin Guinea. Addressing ethical concernsabout usury in a substantive way ensured thatmicrofinance and Islam were seen ascomplimentary, not contradictory, by localstakeholders, and enabled entrepreneurs tofull-heartedly engage with the project.

Information disseminationMFIs’ work with local radio stations played akey role in spreading awareness of theavailability of credit that was both accessible tomicro-entrepreneurs and fully Shariacompliant. This increased the number of loanapplications to the MFIs. As a result, MFIs wereable to cherry pick the best businesses from alarge pool of applicants.

TrainingIsDB’s training in Islamic finance to the CentralBank and partner MFIs built the long-termcapacity of Guinea’s financial system to offerSharia compliant products and services to alargely Muslim population, laying thecornerstones for the future growth of afinancial sector responsive to the demands andpriorities of local entrepreneurs.

communities. This was of particular benefit to women,who might otherwise have resorted to undignified waysof earning money. In fact, some beneficiaries who hadpreviously been recipients of zakat, a traditional Islamicform of alms, improved their livelihoods so much thatthey morphed from welfare recipients to welfareproviders, providing zakat to their less fortunateneighbours. At the same time, IsDB’s projectstrengthened the nation’s agricultural, trade andindustrial sectors by facilitating the creation and growthof numerous financially sustainable and productivemicro and small enterprises that will continue to makevaluable contributions to Guinea’s economy for yearsto come.

Meanwhile, thanks to the 97% repayment rate achievedby the initial project, IsDB has been able to create arevolving fund that continues to operate with equalrates of success. The fund has already extendedfunding to more than 600 additional activities, bringingthe total number of clients to over 1,200. IsDB’ssystematic introduction of Islamic finance created astrong demonstration effect that was felt across the

donor community in Guinea. By the end of the project,upwards of 50% of financing facilities offered by otherdonor agencies were being channelled through similarIslamic modes of financing.

Based on the resounding success of the project and itswider positive socio-economic impact, all stakeholdersinvolved have expressed great interest in securingfurther financing. IsDB has already begun leveragingthe success of the Guinean project on a larger scale byreplicating it in other member countries.