The Responsible Finance Podcast provides access to the leaders behind innovative approaches to creating positive social impact in responsible finance. In their latest podcast, Justin Sykes, Managing Director of Innovest Advisory, speaks about an Islamic microfinance institution that links impact investors with high-impact Somali micro & small businesses - Kaah International Microfinance Service (KIMS). KIMS delivers Shariah-compliant microfinance across urban areas in Somalia and was recently awarded the Ethical Finance Innovation Challenge & Award (EFICA) by Thomson Reuters and Abu Dhabi Islamic Bank.
KIMS has grown rapidly from its first branch in Somaliland and now covers most of the country, with 11 branches in Somaliland, Puntland and South Central with a cumulative loan portfolio of $8 million that has supported 8,500 micro and small businesses since its launch in 2014. Customers each receive financing of between $1,000 and $10,000, with portfolio-at-risk rates under 2%. This is in line with international standards despite a challenging and changing security situation in the country.
The origins of KIMS are also unique, being launched as a social enterprise with support from Kaah Express, a money transfer business based in Dubai which helps the Somali diaspora to support family at home via remittances. Although the remittance business has developed a wide connection between Somalis and the financial sector, the degree of financial inclusion was shallow since few sources of Shariah-compliant financing were available to micro and small businesses before KIMS launched.
Prior to KIMS’ launch, it conducted a survey of small and micro businesses and found that fewer than 5% had regular access to formal enterprise financing. The unmet need for finance is at least 250,000 and perhaps upwards of 1 million micro and small businesses, which would represent hundreds of millions of dollars in assets, if the financing was available. Until today, KIMS has been financed through donor financing, cash and in-kind support from Kaah and some zero percent loans from philanthropic sources, but it has an ambitious plan to raise $25 million from Islamic social investors and others who are willing to provide financing to KIMS on Shari'ah compliant terms (equity or profit-and-loss sharing) to support continued growth.
Listen to the full interview with Justin Sykes to find out how KIMS has been built to date and how shifting from donor funding to commercial sources can help to expand its social impact.
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