Khaled M Al-Aboodi, CEO of the ICD, has taken the ICD on the strategic and proactive path of fostering private sector investments. He acknowledges that a core part of the mission of the ICD is to support Islamic financial institutions and products and to extend financing to small and medium-sized enterprises (SMEs) within member countries.
As such it is the ICD belief that efforts to enhance the activities of the private sector are better utilized by engaging in a variety of programs which, in all cases, apply the rich variety of Islamic modes of finance.
The SME program
SMEs are considered to be one of the principal driving forces in economic development. SMEs stimulate private ownership and entrepreneurial skills. They are flexible and can adapt quickly to changing market demand and supply situations. They help generate employment, diversify economic activity and make a significant contribution to exports and trade.
Research estimates that 99% of the world’s businesses are SMEs, producing 50% of the world’s GDP and employing 85% of the global working population. SMEs are considered the backbone of all economies and are a key source of economic growth, employment and innovation in ICD member countries. SMEs constitute the dominant form of business organization, accounting for over 95% and up to 99% of enterprises depending on the member country. They are responsible for between 60-70% of net job creation in OIC countries. Hence, the SME segment lies at the heart of any economy and the largest part of the business community falls within this segment.
SMEs are mostly owner-operated and/or family-owned, with little or no formal financial support for further growth or expansion. As with other businesses, the SME sector has financing requirements. However, whilst this sector has the highest potential in terms of growth, it has been relatively under-served by banks in terms of meeting these financial requirements, mainly due to an extensive credit evaluation approach focusing on strict documentary and collateral requirements.
The ICD, the SME sector and Islamic finance
Preoccupied by the different issues and challenges faced by SMEs in its member countries, ICD has initiated the SME Program providing a comprehensive range of Shariah compliant financial products and services with a customized approach for each member country.
The opportunity for the ICD to play a major role in the development of the SME sector in member countries has been grasped. ICD has put its mission statement into practice for the SME sector by engaging in innovative strategies and alliances that will serve to strengthen the sector, thereby enhancing the impact of socio-economic development in member countries.
Some reasons why the ICD is supporting member countries’ SME sector include but are not limited to:
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Play a leading role in creating entrepreneurship awareness by partnering with local organizations to better inject educated youth to the SME sector;
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Use Islamic financing techniques to bridge the gap to finance for the SME sector;
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Help the development of an SME research database and be the pioneer in the dissemination of information to would-be entrepreneurs;
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Pool monies together for a venture capital fund that targets the SME sector;
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Create technology parks and encourage innovation through SME sector absorption.
As in many other countries, banks see SMEs as a high risk and high return market, where several constraints in the areas of financial infrastructure and the informality of small enterprises contribute greatly to the risks in SME lending.
The ICD SME Program
The overall goal of the ICD SME Program is to help create an entrepreneurial ecosystem that enables enterprise creation and economic growth and improves production efficiency in member countries’ economies through sustainable and dynamic SME development. The main objective is to promote the conditions necessary for the growth and development of the SME sector, including the following core issues:
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Foster enterprise development, job creation and broad-based economic recovery;
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Strong, sustainable institutions providing financial assistance with improved market access;
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A favorable policy and regulatory environment;
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Upgrade and improve the competitiveness of value chains in which SME’s participate;
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Facilitate institutional strengthening and policy reform for broad-based economic growth;
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Access to new technologies and education and training programs;
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Building entrepreneurial skills and extending networks with support institutions.
Through this program the ICD works with member country governments to promote SMEs through carefully focused measures, aimed at making markets work efficiently and at providing incentives for the private sector to assume an active role in SME finance.
Summary
Once considered to be remnants of traditional sectors, SMEs and their development have now become the focus of initiatives aimed at creating growth and employment in countries throughout the world.
No longer does the SME sector of any given nation need to be constrained to national boundaries or fall to language or culture barriers, but rather, an SME can compete on the global stage by contributing to the overall GDP of its home nation.
Meanwhile, this means that there is an increase in competition, which invariably should lead a wise state to develop its SME standards and competitiveness. This is how the ICD can engage the SME sectors of member countries and help to assist in their development.
And all this is being achieved by applying the techniques of Islamic finance.