Asasah islamic microfinance

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Transcript of Asasah islamic microfinance

  • An Introduction toIslamic Microfinance Muhammad Zubair MughalChief Executive Officer,AlHuda: Centre of Islamic Banking and [email protected]

  • Contents

    What is Shariah Based Microfinance ?Difference between Conventional & Islamic MFDemand of Islamic Microfinance WorldwideGlobal Landscape of Islamic MicrofinanceIslamic Microfinance UpdateThe Way Forward

  • Islam and Shariah

  • Sources of Fiqh in Islam (Islamic Micro Finance)Quran


    Ijtehad / Qiyas

    Ijamae Ummah

  • Murabahah IjarahSalam & Istisna etc

    Musharakah Modarabahah Other Products

    Human Financial Needs

  • External (Equity & Debt) Financing

  • PRODUCT TREEIslamic Modes of MicrofinanceTrade Based ModesPartnership Based ModesRental Based ModesMusharaka(Joint Venture Profit Sharing )Mudaraba( Trustee Profit Sharing)

    Murabaha(Cost Plus Profit Sale)Musawama(Bargain sale )Salam(Commodity Sale)Istisna(Sale on Order)

    Ijarah ( Leasing )Diminishing Musharaka( Transfer of Ownership)

  • ONUS SHIFTS!!Customer to Halal Restaurant Owner

    Halal Restaurant Owner to Halal Meat Supplier

    Halal Meat Supplier to Halal Abattoir / Butcher

    Customer to Islamic Banker

    Islamic Banker to Shariah Scholars

  • Industry Progress in Pakistan

    6 Full fledge Banks having 239 and 12 Conventional Banks have 167 SAIBBS and 10 Sub Branches till 1st January , 09Total IB Branches = 519

  • Industry Progress in Pakistan

  • International Overview The size of Islamic Financial Industry has reached US$ 950 Bln. and its growing annually @ 15% per anum.70 countries have Islamic Banking Institutions 37 Muslim countries including Bahrain, UAE, Saudi Arabia, Malaysia, Brunei and Pakistan34 non-Muslim countries including USA, UK, Canada, Switzerland, South Africa and Australia

  • International OverviewIn Feb 1999, Dow Jones introduced the Dow Jones Islamic Market Index (DJIM) of 600 companies world wide whose business complies with Islamic Shariah lawsAt present there are more than 170 Islamic Funds operational through out the world with a total fund base of over USD 3.50 billion

  • International OverviewGovernments of Bahrain ,Malaysia and now Pakistan have issued Islamic Bonds (Sukuk) in order to facilitate Islamic Banks in managing their liquidity. Issuance of these bonds has also paved the way for Shariah compliant Government borrowings

  • International OverviewInstitutions like Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) and Islamic Finance Services Board (IFSB) have been formed. These institutions are playing a key role in setting up and standardizing Shariah , Financial and Accounting standards for Islamic Financial Institutions.Due to these collective efforts Islamic banking is now recognized by IMF, World Bank and Basel Committee.

  • Islamic Microfinance

  • Prohibition of Interest

    Risk sharing

    Social Development Mission

    Prohibition of speculative behaviour

    Purity of contracts

    Asset Based Financing

    Shariah-approved activities. Principle of Shariah Based Microfinance

  • 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 charging of interest

    Prohibition of Riba ( Interest)

  • ConventionalMFIClient money money + money (interest)Difference Between Islamic and Conventional Microfinance

  • IslamicIMFISClientDifference Between Islamic and Conventional Microfinance

  • Modes of Islamic Microfinance

  • 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 MicrofinanceApproximately 44% conventional microfinance clients worldwide reside in Muslim countries (Source: MF Info Ex).Asset-based can prevent diversion of funds for consumption

    Need & Compatibility

  • Demand of Islamic Micro Finance

    Survey Surveyed CountriesRespondents preference (%) CGAP 08Jordan, Algeria, and Syria20 - 40%PlaNet Finance 07West Bank and Gaza35% - 60 % USAID 02Jordan24.9%IFC/FINCA 06Jordan32%Frankfurt School of Fin & Mgmt 06Algeria20.7%IFC sponsored StudyYemen40%IFC 2007Syria43-46%Bank Indonesia 2000Indonesia (East Java)49%A recently survey Conducted by AlHuda CIBE in Azad Kashmir exhibits 99% demand (4 Districts)

  • International Experience of Islamic Microfinance

    InstitutionMode of Finance7 Sudanese Islamic BanksMurabaha, mudaraba, musharaka, and saving deposit [SIB Productive Families]Islamic Cooperatives and Rural Banks of IndonesiaCooperatives Members Musharaka (integrated with Zakat Fund) Rural Banks Various modesIslami Bank Bangladesh, Social Investment Bank and AlFalah & RescueIBB Mostly bai muajjalSIBL - Recourse generation - Cash Waqf and Financing through various modesJordan Islamic BankMusharaka and MudarabaUNCDF Yemen (HMFP)Murabahah and redeemable MudarabahSanabel (12 Arab countries, 64 MFIs meeting 80% of MF needs)Murabaha, mudaraba, musharakaAmana Ikhtiar Malaysia and Islamic Pawn BrokingAIM interest free loanAl Rahnu short term interest free loan against collateral at market value

  • Pakistans Experiences

  • Products for IMFIs

  • .Islamic Microfinance Institution Worldwide

  • Ariana Fin. ServicesFINCAWOCCUIMFIs in Afghanistan CHFAkhuwatMuslim AidNRSPKhwendo KorCWCDIMFIs in PakKKCBDonorsIslamic FundsPPAFIDBMISFAKuwait fundIntl IMFI,sAlBaraka AIMUNCDFFINCAIslamic Bank bdBMT indonesiaIslamic Microfinance UpdatesHelping HandsIRTPLMeezan BankIslamic FundUNDPWorldBankUSAID

  • FINCA loans are based on Murabaha principles, they dont charge interest, but a Profit rate.

    Providing Shariah-compliant loans has made it possible for FINCA to expand in areas of Afghanistan where other MFIs have been turned away for charging interest. According to 2007 figures

    Clients: 41,213Village Banks: 5,529Portfolio: $8,324,142Average loan size: $329Staff members: 387Clients per CO: 187

    FINCA - Experience in Afghanistan

  • 2004 2005 WOCCU helped to establish two area-based open bond credit unions in the north of Afghanistan: Balkh and Jawzjan. In 2007 , WOCCU has established another five Investment Finance Cooperatives (IFCs) in the East and South of the Country for MurabahaWOCCU Experience in Afghanistan

    IndicatorsMembers of Investment and Finance CooperativesUnit of MeasureNumberData DisaggregationRegionsNorthEastGrandTotalProvincesBalkhJawzjanAqchaSamanganBaghlanNangarharTotal by Province2,6342,6123131,0278308148,230GenderMale2,2672,0703059617567377,096Female36754286674771,134

  • A UNDP run programme in one of the poorest areas in Syria.

    22 self local financial institutions have been established consisting of 4,691 members

    Each start up is self financed

    When ever repayment is satisfactory, UNDP provides an additional capital injection

    Profit margin on Murabaha is 2.5%

    A source of income

    Repayment reached 100% by the end of the first year of operation (Brandsma, 2004)


  • Risk Sharing Insure Shariah Compliances Poverty AlleviationAsset Based FinancingMicro TakafulFree from InterestFinancing Joint ResponsibilitiesPurity of ContractsIslamicMF Islamic Microfinance Deal in

  • Functions and operations are based on fully man made principlesFunctions and operations are based on Shariah principlesassured of pre-determined rate of interestPromote risk-sharing between provider of capital (investor) and user of funds (entrepreneurs)Aim at maximising profit without any restrictionsAim at maximising profit but subject to Sharia'h restrictionsCreditor-Debtor relationshipPartners, investor and traders, buyer or seller relationshipBased on money trading. Money is a medium of exchange and not a commodityEncourage asset-based financing and based on commodity trading & Services

    Conventional Micro FinanceIslamic Micro Finance

  • It is almost risk free banking and depositor has no risk of losing its money because interest is guaranteed.No right of profit if there is no risk involved. The profit and loss sharing depositor may lose money in case of loss.It can charge additional money in case of defaulters Islamic banks have no provision to charge any extra money from the defaulters

    Conventional Micro FinanceIslamic Micro Finance

    Source: Institute of Policy StudiesCollective Ijtamaee Ijtehad at 4.5***