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The realm of Islamic banking and finance, which globally has surpassed the US$4 trillion mark and has exceeded Rs 8.5 trillion in assets in Pakistan as of December 2023, operates on principles rooted in Islamic commercial law. Renowned for its ethical framework and adherence to Islamic principles, Islamic finance has garnered substantial attention in recent times. Particularly for women entrepreneurs, who contribute significantly to economic advancement, Islamic finance presents an avenue rich with Shariah-compliant financing and investment prospects.

Pakistan, akin to many other nations, has witnessed a surge in women entrepreneurs in recent years. Yet, these entrepreneurs encounter various hurdles, including restricted access to finance, adherence to cultural norms and familial obligations, and a dearth of business management and banking knowledge. Islamic finance emerged as a distinctive solution for women entrepreneurs in Pakistan, offering a more ethical and fair means of financing aligned with Islamic principles. This article explores the role of women entrepreneurs in Pakistan and the potential advantages they can glean from Islamic finance.

Women-led startups and enterprises hold promise for driving economic progress in Pakistan. Nonetheless, a key obstacle confronting these ventures is the limited access to finance. According to the World Bank, a mere 7% of women in Pakistan avail themselves of formal financial services. This financial constraint poses a significant barrier for women entrepreneurs, who require capital for business initiation and expansion. Notably, reluctance to engage in interest-based financing offered by conventional banks deters some faith-sensitive customers from borrowing or even opening accounts.

Gender finance policy

Recognising the pivotal role of women entrepreneurs and Islamic finance in economic growth, the Pakistani government initiated a gender finance policy in 2018, led by the State Bank of Pakistan. This policy aims to elevate the proportion of female customers to 25% by 2020 and to 30% by 2025, signifying governmental commitment to bolstering women entrepreneurs.

Islamic finance holds the key to addressing the financing needs of women entrepreneurs in Pakistan. Distinguished by its emphasis on social justice and ethical conduct, Islamic finance provides an apt option for women entrepreneurs seeking financing avenues aligned with their values. By prohibiting interest (riba), deemed exploitative and unjust, Islamic finance opens doors for financing based on genuine trade, profit-sharing (Musharakah), or leasing arrangements, fostering equity and mutual benefit.

In a bid to support women entrepreneurs lacking traditional collateral, some Islamic banks, bolstered by government and SBP support, now offer collateral-free financing under youth financing schemes. Additionally, the State Bank of Pakistan has introduced a Shariah-compliant Islamic Refinance and Guarantee scheme specifically for women entrepreneurs, an Islamic Refinance Scheme for Working Capital Financing of Small Enterprises and Low-End Medium Enterprises (IWCF), an Islamic Refinance Facility for Modernisation of SMEs and Islamic SME Asaan Finance (I-SAAF) Scheme to support entrepreneurship in Pakistan. These schemes provide financing opportunities for women entrepreneurs across the country to meet the credit needs of their businesses.

Array of products

Islamic financial institutions in Pakistan offer an array of products catering to diverse financing needs, encompassing short-term, long-term, and trade financing. These products, tailored to women entrepreneurs, include various solutions such as Murabaha for raw material procurement and Diminishing Musharakah for acquiring fixed assets.

Women entrepreneurs also have the opportunity to utilise these facilities to address their business and financing needs. Here are examples of the general products offered;

Summary of Islamic Financing Solutions for Women Entrepreneurs
Short Term Financing Needs Islamic Banking solutions
Raw Material requirement Murabaha (A cost plus profit sale, where Islamic bank sells the required raw-material on credit or cash basis to the customer)
Overheads / Utilities /Salaries etc Istisna (An order to manufacture finish product – where Islamic bank order the customer to make a product and pay the price in advance)
Finished Goods & Inventory financing Tijarah (A sale transaction where the finish good inventory or stock are purchased by Islamic bank on cash payment and then sold in the market)
Import Financing Letter of Credit and Musawamah (Import financing based on Sale of imported goods by Islamic bank to the customer)
Long-Term Financing Needs Islamic Banking solutions
Acquisition of fixed assets, plant & machinery or house Diminishing Musharkah (An asset is jointly bought by Islamic bank under a joint co-ownership contract and rent is paid by the customer for use of the asset)
Buying a car / delivery van / scooter Ijarah (rental contract where bank as owner of the asset rent out the asset against an agreed rental payments)

Recognising the imperative of women’s financial inclusion, Islamic banks in Pakistan provide specialised products and services designed exclusively for women, ranging from savings and investment accounts to personal and home financing options. Moreover, conducting seminars, workshops, and training sessions geared toward women entrepreneurs enhances their financial literacy and business acumen, crucial for navigating the world of finance effectively.

Awareness plan

In a recent development, the Centre for Excellence at IBA Karachi spearheaded specialised workshops and webinars aimed at capacity building for women entrepreneurs and professionals, with industry support. These initiatives serve to raise awareness about Islamic finance and available financing options, further empowering women in business.

Challenges persist, including fostering financial literacy and understanding Islamic financial products. Collaboration among industry, regulators, and academia is paramount to surmounting these hurdles. By formulating actionable plans attuned to religious preferences and market demands, stakeholders can ensure the success of initiatives aimed at promoting ethical financing and financial inclusion for women entrepreneurs in Pakistan.

The author is a Director, IBA Centre for Excellence in Islamic Finance (