Paglambo Project: Promoting financial inclusion for Muslim communities

By JAIME ARISTOTLE B. ALIP, PhD
July 11, 2022

President Ferdinand Marcos, Jr. has declared July 9 a regular holiday in observance of Eid al-Adha (Feast of Sacrifice), one of the two greatest Islam holidays. Eid al-Adha marks the end of hajj, a key pillar of Islam that able-bodied Muslims must undertake at least once in their lives. This observance of an important holiday for our Muslim brothers and sisters is good for inclusive development. Islam is practiced by roughly five percent of Filipinos from a variety of ethnolinguistic groups, over half of whom live in Mindanao.

Beyond the observance of holidays, however, is a serious need for the government to address the poverty situation in Muslim communities. The three poorest provinces in the country are predominantly Muslim. Based on the 2018 Family Income and Expenditure Survey (FIES) of the Philippine Statistics Authority (PSA), the poorest regions are ARMM, Region 9, Region 8, CARAGA, and Region 12. Four of these regions are in Mindanao, but the most impoverished is the Bangsamoro Autonomous Region, which has a poverty incidence of 61.3 percent. This means that three out of every five persons in the region are poor. The situation is even worse in the provinces of Lanao del Sur, Sulu, and Basilan, where nearly two out of every three people are poor.

Financially Excluded

According to the Bangko Sentral ng Pilipinas (BSP), about 7 in 10 adult Filipinos are financially excluded and do not have accounts, or access to much-needed financial services. Financial exclusion affects millions of Filipinos in the lower income class, the youth, the unemployed, and the less educated. Financial exclusion is also prevalent among senior citizens, migrant workers and their families, persons with disabilities, indigenous peoples, forcibly displaced persons, and others who are unable to get access to finance due to their religious beliefs.

There is a religious and cultural dimension to the issue of Muslim Filipinos’ lack of access to financial services which could help raise their productivity and standard of living. Sharīʿah (also spelled sharia) is the Islamic religious law that governs the day-to-day life of Muslims. The sharia prohibits interest charging, as this equates with usury (riba). It forbids speculative transactions involving risks (gharar), and avoids transactions on sinful things (haram), such as pork, alcohol and gambling. These tenets limit Muslims’ participation in the formal financial system.

A truly inclusive financial system necessitates sharia-compliant financial services for Muslims. This is problematic because there is only one Islamic bank in the country, the Al-Amanah Islamic Investment Bank. In the meantime, a few microfinance institutions (coops and NGOs in Mindanao) supported by Peace and Equity Foundation; the ASA Philippines Foundation; and the Center for Agriculture and Rural Development (CARD) are filling in the gap, making banking, credit, microinsurance, remittance, and other financial services available to Muslim communities.

The Paglambo Project

The Paglambo Project is a sharia-inspired microfinancing program that CARD started in 2018. It resulted from a series of dialogues and learning visits between two Ramon Magsaysay awardees: the Dompet Dhuafa, an Indonesian non-profit organization, which won the Magsaysay Award in 2016, and CARD MRI, which won the Magsaysay Award for Public Service in 2008. CARD developed the Paglambo Project based on the Dompet Dhuafa’s successful Islamic microfinance and banking scheme in Indonesia.

Starting with only two units composed of clients from 56 Muslim families in Marawi, Lanao del Sur and Shariff Aguak, Maguindanao, the Paglambo Project expanded quickly. Attesting to the urgent need for financing in the area, clients grew to more than 4,000 after only a year of operation. As of June 2022, the Paglambo Project has 54 units in Lanao del Sur, Maguindanao, Zamboanga City, Basilan and Tawi-Tawi. There are now more than 76,000 clients, with a capital build-up of more than 164 million pesos. Their average loan repayment rate is very high, at 99.35 percent. In 2021, its unit in Kapatagan, Maguindanao had a 100% repayment rate despite the COVID pandemic.

Sharia-Compliant

The success of the project lies in its sharia-compliant financial products and services. For instance, it has an education loan program based on Islam’s Murabahah. The Murabahah concept allows the borrower to obtain money from the lender to buy goods for his business. The parties agree on the mark-up on the goods, thus, the lender gets a fixed profit based on the agreement. This eliminates the interest system, which Islam prohibits. A Kafalah Islamic contract was added to the existing financing contract, since many Muslim families also needed funds for their children’s school expenses.

Apart from designing financial products suited to the needs of the community, all staff are trained to observe cultural sensitivity. Courtesy calls to Muslim elders were made to introduce the program, as well as coordination with village leaders and local organizations. Communication was key, as attested by the manager in Kapatagan, whose unit clients grew because she was able to explain that the financial products under Paglambo is halal or in accord with the Islamic faith.

The Paglambo Project shows that financial inclusion in Muslim areas is possible via Islamic microfinance. The government can assist community-based organizations that deliver sharia-compliant products by putting up needed infrastructure to make hard-to-reach areas accessible. Apart from providing more funds for financial services targeting the poor and vulnerable, it could also set aside Islamic financing to help micro, small and medium enterprises (MSMEs) offering halal products and services. Partnerships between public and private providers should be encouraged, to serve more Muslim communities.