islamic micro finance - pmn
TRANSCRIPT
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An Introduction to
Islamic Microfinance
Muhammad Zubair MughalChief Executive Officer,
AlHuda: Centre of Islamic Banking andEconomics
www.alhudacibe.com
http://www.alhudacibe.com/http://www.alhudacibe.com/ -
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Contents
What is Shariah Based Microfinance ?
Difference between Conventional & Islamic MF
Demand of Islamic Microfinance Worldwide
Global Landscape of Islamic Microfinance Pakistans Islamic Microfinance Updates
Islamic Microfinance Update
The Way Forward
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Islam
Aqidah
(Faith & Belief)
Shariah
(Practices & Activities)
Akhlaq
(Morality & Ethics)
IBADAT
(Man to God Worship)
Muamalat
(Man to Man Activities)
Political Activities Economic Activities Social Activities
Banking & Financial Activities
Islam and Shariah
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Fulfillment of Financial Needs
Own Capital Others Capital
Equity Financing Debt Financing
Murabahah IjarahSalam & Istisna etc
Musharakah Modarabahah Other Products
Human Financial Needs
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Equity Financing Debt Financing
Uqud al-Ishtirak
(Contracts of Profit
Sharing )
Uqud al-Muawadhat
(Deferred Contracts of
Exchange)Al-Mudarabah
(Trustee Profit Sharing)
Al-Bai Bithaman (Mu)Ajil(Deferred Installment Sale)
Al-Musharakah (Joint
Venture Profit Sharing)
Bai al-Murabaha
(Cost Plus Profit Sale)
Others Al-Ijarah (Leasing)
Bai al-Salam (Commodity Sale)
Bai al-Istisna Sale on Order
External (Equity & Debt) Financing
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Prohibition of Interest
Risk sharing
Social Development Mission
Prohibition of speculativebehaviour
Purity of contracts
Asset Based Financing
Shariah-approved activities.
Principle of Shariah BasedMicrofinance
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And ALLAH has permitted trading and forbidden Riba
(Al Baqara 275)
Riba means any fixed or guaranteed interest payment on cash
advances or on deposits.
Islam encourages the earning of profits but forbids the chargingof interest
Prohibition of Riba ( Interest)
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Conventional
MFI Client
money
money + money (interest)
Difference Between Islamic andConventional Microfinance
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Islamic
IMFIS ClientGoods &
Services
money
Difference Between Islamic andConventional Microfinance
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Modes of Islamic Microfinance
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For Muslim majority country great need for Islamic MF exist and large
target segment is averse to the interest based microfinance products.
Islamic Microfinance emphasize ethical, moral & social factors to
promote equality and fairness for the good of the society. Risk Sharing, individual duties, property rights and purity of contracts
are part of Islamic Microfinance
Approximately 44% conventional microfinance clients worldwide reside
in Muslim countries (Source: MF Info Ex).
Asset-based can prevent diversion of funds for consumption
Need & Compatibility
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Survey Surveyed Countries Respondentspreference(%)
CGAP 08 Jordan, Algeria, and Syria 20 - 40%
PlaNet Finance 07 West Bank and Gaza 35% - 60 %USAID 02 Jordan 24.9%
IFC/FINCA 06 Jordan 32%
Frankfurt School ofFin & Mgmt 06
Algeria 20.7%
IFC sponsored
Study
Yemen 40%
IFC 2007 Syria 43-46%
Bank Indonesia2000
Indonesia (East Java) 49%
A recently survey Conducted by AlHuda CIBE in Azad Kashmir exhibits99% demand (4 Districts)
Demand of Islamic Micro Finance
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Institution Mode of Finance
7 Sudanese Islamic Banks Murabaha, mudaraba, musharaka, andsaving deposit[SIB Productive Families]
Islamic Cooperatives and RuralBanks of Indonesia
Cooperatives Members Musharaka(integrated with Zakat Fund)
Rural Banks Various modesIslami Bank Bangladesh, SocialInvestment Bank and AlFalah &Rescue
IBB Mostly bai muajjal
SIBL - Recourse generation - Cash Waqf andFinancing through various modes
Jordan Islamic Bank Musharaka and Mudaraba
UNCDF Yemen (HMFP) Murabahah and redeemable Mudarabah
Sanabel (12 Arab countries, 64MFIs meeting 80% of MFneeds)
Murabaha, mudaraba, musharaka
Amana Ikhtiar Malaysia and
Islamic Pawn Broking
AIM interest free loan
Al Rahnu short term interest free loanagainst collateral at market value
International Experience of IslamicMicrofinance
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Pakistans Experiences
Institution Mode of Finance
Akhuwat AIM interest free loan
Qaraz-e-Hasna
CWCD Murabahah, Ijarah, Salam & Istisna
MicroTakaful
NRSP NWFP Murabahah
Mudarabah with BOK for funding Source
Khawendo Kor Murabahah but in limited scale
Islamic Relief Murabahah and Qarz-e-Hassan
KKCB Murabaha and MicroTakaful
Helping Hand
Muslim Aid
Naimat Islamic Microfinance
Farz Foundation
Takaful Pakistan Limited
Murabahah
Murabahah
Murabahah
Murabahah
MicroTakaful
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Products for IMFIs
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.United States: 4KivaHelping HandsMuslim Aid
Lariba
Germany:2- Muslim
Society
Switzerland:6UK:
- HSBC Amanah
- Muslim Aid- Islamic Relief- The Halal Mutual
Investment Company
Bahrain: 2
Malaysia: 112 - Pure Islamic Banks(Bank Islam, Bank
Muamalat)Rest - conventional
banks
UAE: 8- Dubai Islamic Bank- Abu Dhabi Islamic Bank- HSBC Amanah
Afghanistan: 4- FINCA , WOCCU
- CHF Ariana
Kuwait: 2- Kuwait Finance
House
Iran: 8
Egypt: 9- Alwatany Bank of Egypt- Egyptian Saudi Finance
Indonesia: 4
Sudan: 3
Pakistan: 11India: 3Bangladesh:9
Turkey: 7- Faisal Finance
Institution- Ihlas Finance
House
Yemen: 1
Islamic Microfinance InstitutionWorldwide
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ArianaFin.Services
FINCAWOCCU
IMFIs in AfghanistanCHF
Akhuwat
Muslim
Aid
NR
SP
Khwe
ndoK
orCWCD
IMFIs in Pak
KKCB
Donors
Islamic Funds
PPAF
IDB MISFA
Kuwait
fund
Intl IMFI,s
AlBaraka AIM
UNCDF
FINCA
Islamic
Bankbd
BMTindones
ia
Islamic Microfinance Updates
Helping
Hands
IRTPL
Meez
anBank
Islami
cFun
d
UNDP
WorldBank
USAID
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FINCA loans are based on Murabaha principles,they dont charge interest, but a Profit rate.
Providing Shariah-compliant loans has made itpossible for FINCA to expand in areas ofAfghanistan where other MFIs have been turnedaway for charging interest. According to 2007figures
Clients: 41,213
Village Banks: 5,529
Portfolio: $8,324,142
Average loan size: $329
Staff members: 387
Clients per CO: 187
FINCA - Experience in Afghanistan
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Indicators Members of Investment and Finance Cooperatives
Unit of Measure Number
DataDi
saggregation
Regions North East GrandTotal
Provinces Balkh Jawzjan Aqcha Samangan
Baghlan Nangarhar
Total by Province 2,634 2,612 313 1,027 830 814 8,230
Gender
Male 2,267 2,070 305 961 756 737 7,096
Female 367 542 8 66 74 77 1,134
004 2005 WOCCU helped to establish two area-based open bond credit unions in the nf Afghanistan: Balkh and Jawzjan.In 2007 , WOCCU has established another five Investment Finance Cooperatives (IFCs)the East and South of the Country for Murabaha
WOCCU Experience in Afghanistan
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A UNDP run programme in one of the poorest areasin Syria.
22 self local financial institutions have beenestablished consisting of 4,691 members
Each start up is self financed
When ever repayment is satisfactory, UNDPprovides an additional capital injection
Profit margin on Murabaha is 2.5%
A source of income
Repayment reached 100% by the end of the firstyear of operation (Brandsma, 2004)
JABAL AL HOSS, SYRIA:MURABAHA
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Risk SharingInsure ShariahCompliances
Poverty Alleviation
Asset BasedFinancing
Micro TakafulFree from Interest
Financing
Joint ResponsibilitiesPurity of Contracts
IslamicMF
Islamic Microfinance Deal in
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Functions and operations are basedon fully man made principles
Functions and operations are basedon Shariah principles
assured of pre-determined rate ofinterest
Promote risk-sharing betweenprovider of capital (investor) and userof funds (entrepreneurs)
Aim at maximising profit without anyrestrictions
Aim at maximising profit but subjectto Sharia'h restrictions
Creditor-Debtor relationship Partners, investor and traders, buyeror seller relationship
Based on money trading. Money is amedium of exchange and not acommodity
Encourage asset-based financingand based on commodity trading &Services
Conventional Micro Finance Islamic Micro Finance
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It is almost risk free banking and
depositor has no risk of losing itsmoney because interest isguaranteed.
No right of profit if there is no risk
involved. The profit and loss sharingdepositor may lose money in case ofloss.
It can charge additional money in
case of defaulters
Islamic banks have no provision to
charge any extra money from thedefaulters
Conventional Micro Finance Islamic Micro Finance