“When we resettled here after the war, I needed to obtain financing to start a small business…to help my family,” Regina, a 46 year old small-scale entrepreneur, who resides in near the beautiful coastal town of Muttur, tells me. Regina is part of a new surge of beneficiaries of Islamic Microfinance in Sri Lanka. She adds that “I needed to obtain financing to repair and rebuild my home…I also wanted become part of the community.” Regina’s warm disposition is further amplified as she talks to me about her three children. She was able to care for them and create a home-based business simply by being a recipient of Islamic Microfinance. After the war, Regina and her family returned to their land in the outskirts of Muttur to find that employment prospects were bleak. Like many other women in the area, Regina became a business woman by deciding to engage in small enterprise, such as raising goats and making festival cakes in the Muttur area.
Muttur: a changing landscape
Muttur is nestled deep in the District of Trincomalee, a town on the eastern coast of Sri Lanka. The town endured the devastating Asian tsunami of December 2004, the brutality of civil war, and devastating flood conditions in 2015. Despite its size, it has attracted much media attention for its violent past, such as the “Muttur Massacre” of 2006 when 17 NGO workers from Action Contre la Faim (ACF) were allegedly assassinated by the Sri Lankan military.
Muttur is also home to Rizana Nafeek, the Sri Lankan domestic worker, who was tragically convicted of killing a baby in her care in 2005 when she was 17 years old. After eight years on death row, Rizana was sentenced to death by the Saudi Government in 2013. Rizana’s family still resides in Muttur, and in fact Rizana’s mother came to speak to me during my interviews with women entrepreneurs, who were recipients of Islamic Microfinance.
Rizana’s mother explained that even though there is change around her, such as a new home built for her by the Sri Lankan military as a result of Rizana’s death, she cannot yet let go of the sadness and injustice surrounding her daughter’s death. She, however, is encouraged by her friends in the community, who are trying to revitalize the community by creating a small scale economy using Islamic Microfinance.
Despite its history of violence, Muttur, is now a place where financial innovation has become part of its post-war reconstruction strategy. A small, bustling, Muslim-majority town of 65,000 people, Muttur has experienced migration, resettlement, continued militarization and local reconstruction, thereby rapidly changing the traditional modes of economic development. Prior to 2010, this small town was only accessible by sea, but the newly constructed Kinnya Bridge, reputed to be the longest bridge in Sri Lanka, serves as a commercial connection point linking Muttur to the port city of Trincomalee.
By adopting a policy of financial inclusion, which encourages access to credit and financial services to formerly underserved areas, the Central Bank of Sri Lanka has encouraged micro-level financial schemes, such as Islamic Microfinance, as seen in Muttur. The regulatory framework has allowed for these fiscally innovative methods, thereby facilitating knowledge production and small-scale economic reconstruction in many communities. Many rural communities are only now slowly benefiting from post-war reconstruction development and investment. Interestingly, Islamic finance has emerged as part of post-war development financing in Sri Lanka.
It is against this backdrop that public and private financial organizations, and non-governmental organizations have moved in to redevelop Muttur’s vibrant community. Muslim Aid, a UK-based NGO, has implemented numerous projects in the area, ranging from emergency relief, infrastructure projects, and microfinance through its local field office. As part of its mission, Muslim Aid introduced Islamic microfinance as a novel strategy to combat poverty and create livelihood schemes, increase community engagement and speed along post-war reconstruction. Two microfinance tools it promotes are Salam and Murabaha, which are providing inclusive financing options for many residents in Muttur
Innovation in the form of Islamic microfinance
Both Sharia-compliant products, Salam and Murabaha, have been instrumental in changing financial arrangements in Muttur as well as along the Eastern part of Sri Lanka. Unlike traditional microcredit transactions, the consumer-centric focus allows the beneficiary to actively participate in the process. Imran Nafeer, a consultant with Muslim Aid Micro Credit, states that “Islamic Microfinance has changed lives and the way people think and act.” He is optimistic about the innovative financial products and the continued impact on post-war reconstruction and financial inclusion initiatives. “We always look at the living style and financial needs of low income families to design the products,” he says. “We were able to fulfill their requirements in a way that risk and returns are shared with them.” The risks and returns are expressed in contractual agreements, whereby the “loan” amount includes lower transaction costs.
Salam is a contractual device that allows the beneficiary to get a sense of the value of the product before they start their entrepreneurial endeavor. This type of ‘forward’ or ‘advance financing’ (also known known as a deferred delivery system) is usually employed in agricultural and farming related production. Imran Nafeer confirms that there are around 200 farmers that have successfully entered into Salam transactions with Muslim Aid in Muttur.
Salam, as a financing tool, is more efficient because it removes the need for farmers to obtain high-interest loans in order to secure liquidity at the outset of the production. Muhabiza, a paddy farmer and a local resident of Muttur, received multiple loans from Muslim Aid throughout the paddy harvest cycle. These loans also include flood insurance. In the event of a flood, the loan will be written off. Through Salam, Muhabiza is able to earn a livelihood, which allows Muhabiza to take care of his entire family, as well as contribute in the revitalization of his community.
The other financial product, Murabaha, which is promoted to small-scale entrepreneurs, is akin to a lease-to-own arrangement, in which the beneficiary leases the asset from Muslim Aid until the value of the asset is paid off. Currently, there are approximately 1300 clients that use Murabaha based financing in the Muttur region.
Larifa is a 38-year-old mother of four who uses Murabaha. She explains that it was difficult for her and her husband to obtain a traditional bank loan, since two co-signors were required and most interest-bearing loans are un-Islamic. Larifa decided to participate in Muslim Aid’s microcredit program after attending a community meeting with local Muslim Aid employees, mosque and other community leaders. Larifa received 4 fishing nets, valued at RS 25,000.00 ($175.00 USD) for her husband’s fishing business. This has enhanced her family business by enabling them to earn RS 1,000.00 ($7.00 USD) per day. Comparatively, a loaf of bread is about RS 75.00 ($0.50 USD) or 12 eggs are about RS 200 ($1.50 USD).
Each week, a loan officer visits Larifa to collect the weekly repayment amount of RS 250 ($1.75USD) and to see how their business is operating. Larifa appears to prefer this arrangement, as she does not have to travel into town or make alternative arrangements when repayment is due. In Muttur, the loan officers for Muslim Aid are deeply connected to the community and are often either related, or family friends, thereby the transactional relationship is rooted in familiarity.
Rafika tells me a similar story. Her husband owns a barbershop, and because she was able to obtain mirrors and tools valued at RS 30,000.00 ($200.00 USD) for her family business, they now earn about RS 700.00-RS 1,000.00 ($5.00-7.00 USD) per day. These Islamic financial products are offered to both men and women, but in Muttur, a large number of recipients of Murabaha appear to be women due to a number of factors, such as gender roles in the types of home based businesses available and skill-level requirements for food or handicraft production
Small-scale economic sustainability
Simply put, Muttur is a small reflection of how a medley of innovative economic initiatives, such as Islamic Microfinance, can contribute to community development and participation. In the larger cities of Sri Lanka, an economic revival is observable as modern structures and luxury hotels are emerging and sophisticated commercial centers have erupted to meet the growing tourist and expatriate needs as part of the government’s post-war reconstruction strategy. However, the seismic changes that are occurring at the micro-level, as part of financial arrangements like the ones in Muttur, contribute greatly to post-war reconstruction efforts in rural areas by allowing communities to self-create and individuals to rebuild their lives.
Regina and the other women in the community are hopeful about the future and are determined that their economic choices are sustainable.
A part of this research was conducted with the assistance of Harvard Law School IGLP (Institute for Global Law and Policy) Doha – Santander Grants Programs.