When you’ve beaten hundreds of other businesses to win a coveted award, you can be reasonably certain that you’ve done something right. Now that Kaah International Microfinance Services (KIMS) has walked away with the top prize at the 2017 Ethical Finance Innovation Challenge and Awards (EFICA) held in November, it has a strong reason to feel good about the work it has done.
The annual event, which is co-organised by Thomson Reuters and Abu Dhabi Islamic Bank, offers a cash prize of $100,000 for the top innovative solution that promotes ethical practice in the financial services industry. Somalia-based KIMS beat the remaining two finalists, British asset management firm Arabesque and Malaysia’s Employees Provident Fund, after winning over the audience with its final public pitch.
My Salaam caught up with Mustafa Ali, the Dubai-based chairman of KIMS’ board of directors, to find out more about this company.
Tell us a little more about the company?
KIMS was conceived as a spin-off social enterprise by its parent company, Kaah Express. We recognised the vast unmet demand for financial services in Somalia and the role that sustainable microfinance can play in contributing to job creation, economic development, and peace and security.
KIMS launched operations in March 2014 with the support of a number of anchor donors, including Silatech, AECF and UK Aid, and has since grown to become the market leader in the provision of microfinance services in Somalia.
We are Somalia’s only dedicated, privately-owned, microfinance company operating via 11 branches throughout Somalia. [Since its launch,] KIMS has provided nearly 8,000 micro and small businesses with close to $8 million in financing.
What are the main challenges that small businesses face in Somalia at present?
The primary constraint they face is lack of access to capital. We commissioned a market study in 2013 which showed that less than 5 per cent of Somali micro- and small-businesses had access to formal financial services, which represents an underserved market of hundreds of thousands of businesses and hundreds of millions of dollars in financing needs. Other challenges include access to business development services, HR solutions and market access.
How does KIMS operate? What’s the business model?
KIMS provides Shariah-compliant financing to micro- and small-businesses on the basis of the Islamic financial principle of murabahah. Once a client receives approval for financing, KIMS purchases the asset of a third-party wholesaler and resells it to the client with an agreed mark-up. This mark-up minus the administrative costs of servicing the client is the profit for KIMS.
You’ve won $100,000. What is that amount going to do for KIMS?
We will use these funds to provide financial literacy, business-skills training and financing to 100 refugee returnees to enable them to start or grow their small-businesses. We expect that these businesses will create or sustain up to 150 jobs as they grow and enable business owners to support over 500 family members.
Are you hoping to expand the project beyond Somalia?
Whilst there remains significant unmet market demand in Somalia, yes, we have regional ambitions. The total Somali ethnic population across East Africa is estimated at 25 million, and the broader population of low-income Muslims in East Africa is more than 50 million people. These population groups remain fundamentally underserved by existing financial services providers, and there is an excellent opportunity for KIMS to become a major regional player.
And finally, what’s next for the company?
After three-and-a-half years of operations we have proved our business model and demonstrated the positive social impact we are having on society in terms of poverty alleviation and job creation. KIMS broke even in late 2016 and now represents an attractive investment for socially minded investors.
[We now] have the objective of serving a total of 80,000 clients with $100 million in financing by the end of 2021. In order to finance this projected growth, KIMS is actively seeking investors who are aligned with the social mission of KIMS and are willing to join its journey to achieve impact on a much larger scale.