Islamic Banking and Local Development in Mali
Doctor DBA, Business Science Institute
(DBA Dissertation supervised by Prof. Geneviève Causse)
Mali is an underdeveloped country[i] and, despite the realisation of many large national projects, the economic and social situation in the country is not improving. This paper aims to demonstrate the importance of local development projects, without which the overall development of a society is compromised (Greffe, 2002). The latter author insists on the relevance of local actions for the achievement of macroeconomic objectives.
The objective of this paper is twofold: to define the principles of local development, and then, in the face of the difficulty of finding traditional financial resources to finance development projects, to study the relevance of Islamic microfinance.
Research Impact(s): main findings
Local development can be addressed using three principles. Firstly, local development is a global process and cannot be limited to the economic dimension. Secondly, and this is an important principle in a developing economy, micro-initiatives, the combined effort of an array of actors, contribute to overall development, hence the community approach to local development. Finally, the viability of local authorities depends on their ability to mobilise the human, financial and material resources necessary for their development.
The actors identified are at national, regional, and communal levels. Local development is a dynamic process that requires a participatory approach so that the population can meet its basic needs. The funding of development by the traditional financial system is inadequate (cost, repayment time, necessary guarantees, etc.). Islamic finance seems to be a solution but is not used and is not sufficiently well-known. Hence this paper's simulations of participatory contracts to finance agricultural and agro-industrial activities.
The positive results of these simulations lead to recommendations that are addressed to two stakeholders. On the one hand, to the managers of local authorities, so as to encourage them to set up at their level a framework that is conducive to the use of Islamic microfinance institutions, and to take into account the specificities of Islamic financial products. On the other hand, to the people in charge of the management of Islamic microfinance institutions so that they can better satisfy the local development actors, in particular through participatory financing contracts for the managers of small projects. Our research will therefore support actors at all levels (national, regional, and communal) to identify barriers to local development, including those due to financing arrangements. It demonstrates that there are financing arrangements that are adapted to economic and social development.
The concept of local development is first analysed in the abundant literature on the subject. In light of the various definitions, taking into account the geographical context, this research shows that local development should be community-based, i.e., involving the actors concerned, political leaders, but also business leaders and the population in general (Tremblay et al., 2003).
The approach chosen connects with the ideas of certain "development economics[ii]" theorists, whether they be economists, sociologists or anthropologists, who saw the “civilising mission” of development. Breaking with the traditional concept of development[iii], they now consider it as a commitment to adjust to the realities and aspirations of the society concerned (Perroux, 1981). It is therefore necessary to integrate the economic and social dimensions and to consider that local development results from a complex process between private and public actors.
The coordination of these actors calls for a governance model based on risk sharing between financing applicants and financial “partners”. This is what Islamic microfinance institutions propose through participatory contracts. Islamic finance thus appears as an alternative to traditional financing. The reminder of the principles of Islamic economic theory (solidarity, profit and loss sharing, ethics, etc.) demonstrates the correspondence between the participatory financing method and the characteristics of local development projects.
Our approach has been to use existing documentation and to consult with actors in the field at different levels. It is therefore both inductive and deductive.
Qualitative data were collected through interviews with 25 key figures involved in the development process. Quantitative data were collected through a survey of 220 people. These field studies made it possible to define what is meant by “local development” and to confirm the idea that local development is currently unsatisfactory, and that traditional bank financing is inadequate.
As the manager of an Islamic microfinance institution, a research intervention approach was used. Two successful simulations of agricultural and agro-industrial project financing were presented.
Further reading …
Causse G. (2012). “Islamic Finance: An Alternative Finance or an antidote to the crisis of capitalism?”, Chap. 9, in Recent Developments in Alternative Finance: Empirical Assessments and Economic Implications, Ed. Emerald, 173-196.
Greffe X. (2002). “Le développement local”, Edit. De l’Aube, 200 p.
Meliani H. et Aghrout A. (2011). “Développement de la microfinance islamique : perspectives”, in Finance islamique : regard (s) sur une finance alternative, Ed. Mazars Algérie, 449 p.
Perroux F. (1981). “Pour une philosophie du nouveau développement”, Ed. Aubier, 279 p.
Tremblay P-A. et Fontan J-M. (Sous la dir. de) (2003). “Le développement local : nouvelles perspectives”, Revue Interventions économiques, 110 p.
[i] Over 40% of the population lives below the poverty line. [ii] A movement that originated in 1979 at a meeting of experts from 17 countries in Quito. [iii] Development according to a universal economic model based on a growth objective measured by production indicators, essentially the GDP (Gross Domestic Product).