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Availability of access to consumer credit can enhance economic welfare by allowing smoother consumption paths over time. The expansion of credit markets alongside all other markets has been associated with economic progress. Generally, households' access to credit is more limited in Africa and in Ethiopia the situation is even worth due to low access to finance in general and socio-religious factors in particular. Mostly banks and governments focused on the importance of credit extended by banks and other market agents to firms and producers and households are typically viewed as suppliers of funds in the financial markets, and academic research and policy discussions most of the time focus on their saving and portfolio choices.
Just like saving, household borrowing is also sensible. To see this, it suffices to consider how dismal consumption patterns would be if individuals had to con¬sume their earnings, with no access to assets and liabilities.
Borrowing to finance a more necessary consumption, like to finance home purchases can be very important from the economic point of view, and commonly normal nowadays.
Currently, consumer credit markets expansion viewed also as an important financial inclusion and attract concern for politicians and policy makers in developing countries, as are financial stability and accessibility issues. In Ethiopia, The Existing banking institutions have not fully addressed the banking needs of the majority of the poor consumers. Financial inclusion has been an important issue for the GoE. Accordingly, the National Financial Inclusion Strategy was developed by analyzing the contribution of sustained, prudent, and responsible financial inclusion to financial and monetary stability, supports accelerated economic growth, greater prosperity and social development.
Islamic Consumer Financing Facilities
The attention on Islamic banking and finance has so far been concentrated on the comparability with conventional finance, products and services offered, regulatory framework, risk management characteristics, and Shariah compliance expansion and penetration issues.
It is not very much explored the unique features of Islamic finance for the larger good of the society particularly in the context of economic growth and poverty alleviation. Islamic finance is a useful tool for inclusive growth and improvement of the livelihood of the poor. Inclusive growth mean a broad based Economic growth in which the benefits are shared widely and particularly by the bottom quintile of the population.
Islamic finance is an integral part to achieve inclusive growth and poverty alleviation because it is normative in nature with the objective of the Shariah being to promote the wellbeing of all mankind and it tries to promote a balance between market, family, society and the state. In order to provide such contribution, the IFB must work effectively and efficiently. IBF has the capacity to address financial inclusion of the poor consumers because of its interest-free and innovative profit-loss sharing business concepts, like its Islamic Consumer Financing Facilities we will discuss later below. So far, the Ethiopian banks that provide IFB Services were inconsistent in the provision of wide range of and innovative products and services, and quality service delivery. There is a great challenge for IBF institutions to be able to operate effectively by delivery high service quality and complete and innovative products such as provision of consumer financing facilities.
Therefore, Islamic banking and financial institutions would need to overcome the challenges of delivery quality services, development of innovative products, development of clear market segmentation and implementing of effective promotions.
Hence, the following innovative consumer financing products can be taken as a lesson by the Ethiopian banks that provide IFB services to expand their products in order to satisfy their customers’ needs, attract more customers, in order to support the government’s effort in maintaining financial inclusions objectives, etc.
Just like any other businesses, the banking industry is also a business entity who caters to their very own consumer. Consumer in the banking industry refers to individual customers that the banks provide specific banking facilities and services to. There are mainly three types of consumers: the business consumers, corporate consumers, and retail consumers. Consumer financing has been contributed as the most stable income and consumer market is the last economic sector / segment that will be affected by economic downturn.
Shari'ah Contracts and Financing Products
Below, the figure shows the widely used Shari'ah contracts with their sub-products applicable in consumer financing products in most Islamic Banks/Banks that provide Interest Free Banking Services.
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The Islamic Consumer
Financing Products:
1. The Islamic Bank Credit Card Facility
2. The Islamic Bank Personal Loan Facility
3. The Islamic Bank Automobile Financing Facility
4. The Islamic House Financing Facility
1. The Islamic Bank Credit Card Facility
2. The Islamic Bank Personal Loan Facility
3. The Islamic Bank Automobile Financing Facility
4. The Islamic House Financing Facility
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- Murabahah Mode of Financing Practices in Major Ethiopian Banks
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- The Most Frequently Asked Questions (FAQs) about Islamic Banking and Finance
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