Transcript Document 7437718

Islamic Microfinance – Innovations
& Opportunities in Underdeveloped
Countries
April 25, 2012
Alhuda-CIBE Trainings
Avari Towers, Karachi
PRESENTED BY
Mohsin Adhi
Director
Alfa Adhi Securities (Pvt) Ltd
Microfinance
• Key Features
– Lend to poor
– Do not take security
– Prefer saving over borrowing
– Small short term loan
– Cost converting interest rates
– Group appraisal and guarantee
– Prefer women customers over men
Microfinance
Riba (Haraam)
Need of Islamic Microfinance
• IN THE WORDS OF QURAN
• Who is he that will loan to Allah a beautiful
loan, which Allah will double unto his credit
and multiply many times? It is Allah that
giveth (you) Want or plenty, and to Him shall
be your return. (2:245)
• Allah has permitted trade and forbidden riba.
(2:275)
• Allah will deprive riba of all blessing, but will
give increase for deeds of charity: and Allah
does not love the ungrateful and unjust.
(2:276)
• O believers, fear Allah and forgo the interest
that is owing, if you really believe. (2:278)
• If you do not, beware of war on the part of
Allah and His Apostle. But if you repent, you
shall keep our principal. Oppress none and no
one will oppress you. (2:279)
• O Muslims, Do not devour riba, doubling and
redoubling it and fear (the punishment) of
Allah that you may be successful. (3:130)
• What you provide with the prospect of an
increase through the property of (other)
people, will have no increase with Allah; yet
what you give in alms and charity, seeking the
countenance of Allah, (will increase): it is
these who will get a recompense multiplied.
(30:39)
Islamic Microfinance
• Opportunities
– Muslim population
• 1.2 billion
• Stretching from Senegal to the Philippines
• Six regions (North Africa, Sub-Saharan Africa, the
Middle East, Central Asia, South Asia, and Southeast
Asia)
• Indonesia 129 million people are with incomes less
than merely $2per day
• Bangladesh and Pakistan account for 122 million each
followed by India at approximately 100 million Muslims
below poverty line.
• According to survey conducted by Consultative Group
to Assist the Poorest (CGAP) Islamic microfinance
accounts for about 0.5% of global microfinance despite
1.2 billion Muslim population.
Two Approach of Islamic Microfinance
• Welfare Based Approach
• Institutional / Commercial Approach
Welfare Based Approach
SOURCE: Introduction to Islamic Microfinance (Mohammad Obaidullah)
Institutional / Commercial Approach
SOURCE: Introduction to Islamic Microfinance (Mohammad Obaidullah)
Ammanah Ikhtiar Malaysia
Case Study
• Established in 1988
• 99% of customers are women
• In 1999, 8.5% of Malaysia population was
under poverty line. But in 2004 it dropped to
5.7%.
• In 1988, 283 members of AIM were surveyed,
70% with significant increase in monthly
household income from RM 142 to RM 220
per month.
• In 2005, AIM efficiency improved, as has been
able to achieve 186% growth in monthly
household income i.e. from RM 326 to RM
932.
Economic activities
• Production
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Construction/building materials (concrete blocks)
Food (bakery, snack (nuts), fast food, traditional food
Agriculture
Furniture
Jewellery
Handicrafts (batik)
Fishing /fishing equipment
Cattle breeding (goat, cow)
Ceramic (traditional ceramic vase)
Manufacturing
Traditional medicine
• Trading
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Cosmetics
Direct selling (dinnerware, mattresses, etc)
Jewellery (gold)
Electronics (oven)
Textiles and apparels
Grocery items
Newspapers
Stationeries
Scrap metal
Paint products
Cigarettes
Health products
Used cars
• Services
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Grass cutting
Plumbing
Laundry
Car/motorcycle workshop
Welding
Sewing/tailoring
Café/food stall (burger)/drink stall (sugar cane, soy bean, roselle)
Wedding accessories rental
Barber/hair cut service
Babysitting
Food catering
Children nursery
Recycling products
Cobbler
Selling pre-paid card
Four Models of Microfinance
• Grameen Bank Model
• Village Bank Model
• Credit Union Model
• Self Help Groups
Grameen Bank Model
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Bangladesh based model
Pioneer of Micro financing
Intensive fieldwork required
Group based borrowing
Each member guarantee each other loan
Graduated financing which serve as collateral
as a tool to mitigate default risk
Village Bank Model
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Latin America and Africa
Implementing agency
Village bank
Performance based competition amongst
Village bank encourages savings, loan
repayment and capital injections
• Jabal-al-Hoss Syria implemented this Model
Credit Union Model
• Mutuality
• Non-profit financial cooperative owned and
controlled by its members
• Membership based on common bond
• Mobilize savings and provide loan for productive
activities
• An apex body provide training and monitor their
financials
• Sri Lanka & Baitul Maal wat Tamweel, Indonesia
Self Help Groups
• Originated in India
• 10 to 15 members, homogenous in terms of
income
• Pool members savings and use it for lending
• External funds to supplement internal resources
• Supported by NGO’s
• Objective is to attain self sustainable institution
Activity
• Would you like to become entrepreneur?
• Would you like to invest in business generating
halal income?
• Think of person who you know has skills but lack
of funds.
• Would you like to support such person financially
and share profit with him / her?
How NGO’s are doing it?
Al Khidmat Video
Proposed Model
Islamic Microfinance Management
Company (IMMC)
• Listed
• Operate like Mutual Funds as its units can be
traded accordingly
• Attract investors who want to invest in small
business
• Collaboration with NGO’s
• Monitor financial performance
NGO’s Task List
• Identify low income bracket families
• Register them as members
• Train them
Advantages
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Halal income for investors
Poverty alleviation
Promote entrepreneurship
Facilitate home based industries
Facilitate savings of the new entrepreneurs
Objective is to attain self sustainable families
Why Islamic? Why not Conventional
Microfinance?
• Opportunities for hereafter
– Being Muslims Islamic Microfinance has more
chances of acceptability & adaptibility
– Other underdeveloped non-muslim nations can
replicate this mode of finance
– Help promote religion
References
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Allen & Overy LLP, Islamic Microfinance Report, 25 FEBRUARY 2009,
International Development Law Organization
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Kiran Siddiqi, Potential of Islamic Microfinance in Pakistan, 2008
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Mohammed Obaidullah, Introduction to Islamic Microfinance, IBF NET: The
Islamic Business and Finance Network, 2008.
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Norma Md Saad, Selecting High-income Generating Activities for Microentrepreneurs: The Case Study of Amanah Ikhtiar Malaysia, International
Journal of Humanities and Social Science, Vol. 1 No. 5; May 2011.
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Pakistan Microfinance Review 2010 (Annual Assessment of Industry), Pakistan
Microfinance Network, Edited by Ali Shahrukh Pracha.