Islamic banking and finance is now touching the $3 trillion mark globally and has crossed Rs7tr in asset size in Pakistan by December 2023. Women entrepreneurs, who are playing a significant role in the economic development of many countries, can largely benefit from Islamic finance, which offers financing and investment opportunities that are Shariah-compliant.

Pakistan, like many other countries, has seen a rise in the number of women entrepreneurs in recent years. However, women entrepreneurs in Pakistan face a range of challenges, including limited access to finance, observing cultural values and family requirements, and a lack of knowledge about business management and banking.

Islamic finance offers a unique opportunity for women entrepreneurs in Pakistan, as it provides a more ethical and equitable form of financing that aligns with Islamic principles.

Women-led startups and enterprises in Pakistan can significantly influence the country’s economic development. However, one of the main challenges faced by these businesses is limited access to finance.

According to the World Bank, only seven per cent of women in Pakistan have access to formal financial services. This limited access to finance is a significant barrier for women entrepreneurs, who need capital to start and grow their businesses.

One of the reasons behind this lack of access to finance is an unwillingness to engage in intertest-based financing offered by conventional banks. These faith-sensitive customers opt not to borrow on interest or, in some cases, avoid opening bank accounts in a conventional bank due to interest.

The government of Pakistan has recognised the importance of women entrepreneurs and Islamic finance in the country’s economic development. In 2018, the State Bank of Pakistan (SBP) launched a gender finance policy to increase women’s access to finance.

The policy aims to increase the percentage of female customers to 25pc by 2020 and 30pc by 2025. This policy is a step in the right direction and demonstrates the government’s commitment to supporting women entrepreneurs in Pakistan.

Islamic finance can be crucial in addressing the financing needs of women entrepreneurs in Pakistan. One of the unique features of Islamic finance is its emphasis on social justice and ethical conduct.

This emphasis makes Islamic finance a suitable option for women entrepreneurs looking for financing opportunities that align with their values and principles.

For example, Islamic finance prohibits the payment and receipt of interest (riba), which is considered exploitative and unjust. This prohibition creates an opportunity for women entrepreneurs to access financing that is based on real trade (buying & selling), profit-sharing (Musharakah) or leasing (rental) arrangements, which are directly linked to real business or utility derived from real assets and considered equitable and beneficial for both parties.

To support and provide financing for women entrepreneurs, who may not have access to traditional forms of financing due to lack of collateral, some Islamic banks, with the support of the government and the SBP, are now also offering small ticket collateral-free financing under the youth financing scheme.

Additionally, the State Bank has introduced a Shariah-compliant Islamic Refinance and Guarantee scheme specifically for women entrepreneurs, Islamic Refinance Scheme for Working Capital Financing of Small Enterprises and Low-End Medium Enterprises (IWCF), 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.

Islamic financial institutions in Pakistan are also providing a range of products to meet the diverse financing requirements of their customers, including short-term, long-term, and trade financing.

Women entrepreneurs also have the opportunity to utilise these facilities to address their business and financing needs.

In Pakistan, Islamic bank recognises the importance of women’s financial inclusion, and to cater to their specific needs and preferences, these banks offer a range of products and services designed exclusively for women.

These products may include savings and investment accounts, personal and home financing, and Islamic credit cards, among others. By providing these specialised products and services, Islamic banks like Meezan Bank, Dubai Islamic Bank, Faysal Bank and others are contributing to women’s economic development and helping them achieve financial access for their business needs.

Another important area to encourage women entrepreneurs to avail Islamic financial services is holding regular seminars, workshops and training sessions specially designed to their needs. These sessions will help them to develop their skills and knowledge about finance and business.

These programmes can be particularly beneficial for women entrepreneurs who may lack formal education or training in business management and those who are averse to investing or borrowing on interest. Thus, Islamic finance is the exclusive means for ensuring financial inclusion and ethical financing for many women entrepreneurs and startups in the country.

Creating financial literacy, building an understanding of Islamic financial products and capacity building in terms of bookkeeping and documentation are some of the main challenges faced by women-led startups, entrepreneurs, and professionals in Pakistan.

Industry, regulators and academia need to collaborate more often to overcome these challenges. A workable action plan and strategy need to be developed, keeping in view the religious preferences and desires of the target market to make this initiative a success.

Ahmed Ali Siddiqui is the Director of the Centre for Excellence in Islamic Finance, IBA.

Samia Tahir Jawad is a research associate.

Published in Dawn, The Business and Finance Weekly, May 1st, 2023

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