Microcredit supply under Islamic Banking in Khartoum State, Sudan

Abstract

This study analysed the perceived supply-demand gap and determinants of microcredit supply to micro and small enterprises under the Islamic finance system in Khartoum State of Sudan. Results indicate that low participation, reflecting critical constraints on demand, rather than a gap in supply of microcredit is the issue to be addressed. The study also shows a big bias in the provision of microcredit towards non-farm activities, representing an important challenge, particularly facing smallscale farmers in the rain-fed sector, who unlike farmers in the irrigation sector, have no access to alternative credit systems. Other biases in microcredit supply towards larger size, more skilled, higher asset endowed and higher income status micro and small enterprise fi rms, which seem to correlate with and refl ect better collateral and repayment abilities, are also revealed. The study identified a number of institutional and policy reform measures to balance such biases and improve access to and provision of microcredit to relatively smaller, less asset, income and skill endowed micro and small enterprises’ operators, particularly dry land farmers and those migrating from relatively remote geographic regions with lower social networks and connections in Khartoum State.

Key words: Islamic financing; micro and small enterprises; microcredit; Heckman selection
model; Sudan