AMANAH IKHTIAR MALAYSIA The Role of Microfinance in Poverty Alleviation: AIM’s Experience ISLAMIC...

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AMANAH IKHTIAR MALAYSIA The Role of Microfinance in Poverty Alleviation: AIM’s Experience ISLAMIC MICROFINANCE AN INSTRUMENT FOR POVERTY ALLEVIATION

Transcript of AMANAH IKHTIAR MALAYSIA The Role of Microfinance in Poverty Alleviation: AIM’s Experience ISLAMIC...

Page 1: AMANAH IKHTIAR MALAYSIA The Role of Microfinance in Poverty Alleviation: AIM’s Experience ISLAMIC MICROFINANCE AN INSTRUMENT FOR POVERTY ALLEVIATION ISLAMIC.

AMANAH IKHTIAR MALAYSIA

The Role of Microfinance in Poverty Alleviation: AIM’s Experience

ISLAMIC MICROFINANCE AN INSTRUMENT FOR POVERTY ALLEVIATION

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Microfinance Definition

Microfinance is the provision of financial services to low-income clients in solidarity lending groups including consumers and the self-employed, who traditionally lack access to banking and related services

Microfinance is a broad category of services, which includes microcredit

Objectives

To eradicate poverty amongst the poor and achieve sustainable independence

to bring lower income groups and micro enterprise into the mainstream

To enable poor segments of the population and microenterprises to participate in income generating economic activities, thereby equalizing opportunities and reducing inequalities

Microfinance is a broad category of services, which includes microcredit

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Microfinance Promoting Balance and Equitable Growth

Financial Services

Healthcare

Education

Housing

Basic Service

Eradicate poverty

Financial Inclusion

Ensure that every economic activity,

geographical region & segment of society

has access to financial services

Ensure all economic sectors, regions an the population at range have access to a broad range of financial products and services

Financial Services

Access to financial services

Access to financial

assistance

Access to financial

information

Access to financing

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Introduction to Islamic Microfinance in Malaysia

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Evolution of Micro financing in Malaysia

1987 1998 2006 2009

Amanah Ikhtiar Malaysia (AIM)

Tabung Ekonomi Kumpulan Usaha

Niaga (TEKUN)

Micro Institutional Framework

Central Bank (Amendment)

Act 2009

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Differentiations of Players and Schemes

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Differentiation : Conventional Banks Vs Microfinance Institutions

Conventional Banks Microfinance Institutions

Objective Profit-maximization Non-profit governance / Non government organizations

Type of Service Provider Financial Intermediary between saver and investor in the economy

Fund from external sources

Liabilities Deposit forms and the bulk of the liability Saving (forced) of the client only deposit

Additional Scope Does not include social / educational programs

Include social / educational programs

Collateral Physical Collateral required to get funds Social collateral through group and centre formation

Customer Demographic Clients are relatively well off Clients are poor

Modus Operandi Clients come to the bank MFI goes to the people

Facility Quantum Amount of loan in large Amount of loan is small

Mode of Servicing Capital and interest usually paid at the maturity of the contract

Capital and interest paid in weekly/monthly instalments over a year

Gender Demographic Most clients are men Most clients are women

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Differentiation : Islamic Vs Conventional MFI

Islamic MFI Conventional MFI

Liabilities (Sources of Funding)

External FundClients SavingsIslamic Charitable Bodies

External FundClients saving

Assets (Mode of Financing)

Islamic Financing Interest Base

Funds Transfer Goods Transferred Cash given

Financing the Poorest Poorest can be included by integrating with Microfinance

Poorest are left out

Deduction at Contract Inception

No deduction at inception Part of funds deducted in inception

Target Group Family Women

Objective of Targeting Women

Ease of availability Empowerment of women

Deal with default Group / centre / spouse guarantee and Islamic ethics

Group / centre pressure and threat

Social Development Program

Religious (include behavior, ethics and social)

Secular (non – Islamic) behavioral. Ethical and social development

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Case Study : Amanah Ikhtiar Malaysia (AIM)

Largest microcredit organization in Malaysia – established in 1987 Objectives – Reducing poverty in Malaysia through disbursement of loans to poor households to finance income generating activities Practice Islamic microfinance scheme – instead of paying interest rates, members pay “service charge” Since inception, more than RM 6.4 billion or USD 2.0 billion has been disbursed to about 280,000 borrowers

Basic Information

Number of Members 286,105

Number of Groups 58,154

Number of Centers 6,779

Number of Branches 114

Number of Staff 2040

Financial Information

Total Loan Disbursed USD 2,109,829,557.7

Loan Outstanding USD 404,810,142.6

Quality Portfolio 99.6%

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Business Process FlowSet a group comprising 5 persons of

the same gender without close family relationship, in mutual trust among

each other and responsible with similar socio economic status to obtain credit

The group undergoes compulsory short-term course to be familiar with the rules and procedures

Past the group recognition test (a brief test carried out at the end of 5 days

course) and joint a center

A center is made up of between 2 to 12 groups with a center chief, deputy center chief, secretary and treasurer

elected amongst them

Weekly meeting of the center are held at a convenient place in the locality. All members (i.e

beneficiaries) of the center are required to attend these meetings. AIM’s staff attends the meet to

conduct the transactions, perform weekly reviews of performance etc.

Social collateral is introduced by forming groups since AIM offer small amount of credit on interest to the poor without any physical

collateral

Loan repayment by individual member of the group is the collective

responsibility of all the members in the group and default by a member

disqualifies all members to get new loans

Members in group monitor the activities of each other and peer

preassure induces the repayment of the loan. This format of peer

monitoring mitigates the problem of asymmetric information and reduces

transaction cost

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Type of Contract – Qard Hasan

QardIntensive supervisionSkills TrainingHuman Capital DevelopmentConsultation

0% Service Charge

(Ujrah) 10%

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Commodity Market

KOMODITI

Enhancement in Microfinance Contract : MurabahahCommodity

AIM

SAHABAT

Commodity Suppliers A

Commodity Suppliers B

Commodity Suppliers C

Commodity Suppliers D

Commodity Supplier E

Purchasing Commodity (Pool of Suppliers)

Cash Payment

Selling Commodity

Deferred Payment

BURSA SUQ AL-SILA

(Trading & Clearing Engine)

Selling Commodity

Cash Payment

1

2

5

3

4

6

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Impact of Microfinance to Household Income

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Service Types of Training / Service

Training Developing Entrepreneur CharacterBasics of EntrepreneurshipBasic skills (Technical)Business Enhancement Skill

Business Development

Business Transformation

Human Capital Development

Motivational ProgramLeadership Social Skill

Enhancement in Microfinance : (i) Entrepreneurs Development Program

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Enhancement in Microfinance : (ii) Entrepreneurs Development - Business Development

From Grocery Shop to Mini Market

Before

Make over

After

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Enhancement in Microfinance : (iii) Human Capital Development