Islamic Microfinance Model for Halal Investment

LIVESTOCK THROUGHISLAMIC MICROFINANCE

A HALAL INVESTMENT PROJECT

FARZ FOUNDATIONPublic Company under the companies’

ordinance 1984/sub section 42

Business PlanFarz Foundation, The first Islamic Microfinance Institute of Pakistan

of 24 Poverty Alleviation through Islamic Microfinance

INTERNATIONAL PERSPECTIVE OF LIVESTOCK

Significant demand increases for livestock products associated with expanding urbanpopulations have been detected and are predicted to gather momentum. It is amazing thatdespite a continuous increase in the supply, per capita consumption of livestock products inIndia,USA and austraila remains low. The per capita consumption of milk is only about halfof its consumption in the US and Australia. In the developing countries, the demand forlivestock products is more elastic than the demand for cereals. This implies that with therise in per capita income, the demand for livestock products would rise faster. The supplyfor these products is also highly price‐elastic.(NCAP 2004) In the low‐income countries, thedemand for livestock products is more elastic than the demand for cereals. This implies thatwith the rise in per capita income, the demand for livestock products would rise faster in thethird world countries. The demand for livestock products in Pakistan is highly income‐andprice‐elastic while supply for these products is also highly price elastic.

Meat Demand. Rising meat demand will drive increased cereal feed demand. Global meatdemand, 208 million tons in 1997, is projected to grow 57 percent (118 million tons) by2020 (Table 4.5). Meat demand in the developing countries, rising a projected 92 percent(102 million tons) between 1997 and 2020, will account for the lion’s share of the increasein global demand, and Asia, led by China, will in turn account for the major share of theincrease in meat demand in the developing countries. In fact, China alone will account for 43percent of additional meat demand worldwide between 1997 and 2020. India, following itstraditional pattern of low meat consumption, will only account for 4 percent of additionalmeat demand. The rest of Asia, however, will exhibit strong growth, accounting for 13percent of the global increase. Meat prices will remain relatively stable throughout theprojection period. While per capita meat demand in the developing world will increasesubstantially between 1997 and 2020, per capita meat consumption in the developingcountries in 2020 will still be far below that in the developed countries. While per capitalivestock demand in the developed world will be 84 kilograms in 2020, livestock demand inthe two highest meat‐consuming developing regions, Latin America and East Asia, will onlyreach 69 and 70 kilograms per capita, respectively. Other developing regions will have muchlower per capita meat demand. Despite very rapid growth, Chinese meat demand will onlysurpass the per capita meat demand of one developed country, Japan, by 2020, reaching 71kilograms per capita to Japan’s 52 kilograms per capita. (Source: IMPACT projections, June 2001.)

PAKISTAN PERSPECTIVE

Agriculture is the backbone and single largest sector of Pakistan’s economy as itscontribution to Gross Domestic Product (GDP) exceeded 25.3 percent during 1997‐98.Crops, livestock, fishing and forestry sub‐sectors being its main components, only crop andlivestock sub‐sectors are of critical importance. They accounted for 59.6 and 36.2 percent ofthe sector’s output respectively. Because of the ongoing process of structuraltransformation, agriculture’s share in the national economy is shrinking. From 39 percent ofGDP in 1969‐70 it has fallen to its current levels [Pakistan (1999a)]. The livestock sub‐sectorhowever has not followed suit. It has risen from 27.3 percent in 1969‐70 to 36.2 percent in1997‐98. This trend in fact would be more pronounced if the national accounts did not



underestimate the sub‐sector’s components such as farm yard manure, dung cakes forhousehold fuels and animal draft power. Apart from its contributions to national income,the livestock sub‐sector is an active employer of thousands of landless poor and subsistenceand semi‐subsistence small farming families. Being a household activity, women are aspecial beneficiary of employment in the sub‐sector. It is a major source of nourishment likemilk, butter oil, eggs and meat and adds immensely to the health, nutrition and well beingof rural as well as urban people. While animal fat and butter oil supplies are helpful incontaining vegetable oil imports, many products of livestock origin such as wool and woolproducts, leather and leather made‐ups and animal casings are exported and contributesignificantly to hard earned foreign exchange [Ahmad, Ahmad and Chaudhry (1996)]. Itfollows from the above that the livestock sub‐sector is likely to maintain its position as thedominant sub‐sector of Pakistan’s agricultural sector or even that of the national economyfor quite sometime in the future. Despite the rising and critical importance of the sub‐sector, there, however, is no corresponding emphasis on analysing its achievements,problems and future prospects and likely policies to brighten these up. In view of thislimitation, the present paper makes a limited attempt to study the growth process of thelivestock sub‐

sector.{M.GhaffarChaudhry(PakistanInstituteofDevelopmentEconomicsIslamabad.)}

About two third of the farming community in Pakistan consists of small farmers who arecharacterized by small land holdings (less than 5 hectares) and by several factors thatinfluence their productive potential and income generating capacity [Pakistan (1998)].Livestock farming is an integral part of rural smallholders and has a vast untapped potentialfor productivity increase and income generation. Livestock holdings by the small farmersconstitute a significant portion of the farm incomes. Small farmers and landless livestockproducers derive around 10–25 percent of their incomes from this sub‐sector.

There have been and, largely, still are two primary purposes of raising livestock:

To meet the dietary needs of the rural and urban populace for milk and meatconsumption; and

To fullfil the work performance requirements of the farm.

Large ruminants receive more attention because of their capacity to perform both of theabove functions. About 50 percent of the red meat supply in the country comes from largeruminants, yet beef production is not considered a separate specialised production activity.Rather it is treated as a by‐product from animals kept for dairying and draught purposes.Most breeds of the large ruminants in Pakistan are famous for either milk production ordraught power with hardly any beef breed. Therefore, the entire livestock productionsystem revolves around milk production activity.



SUB‐SECTORAL CONTRIBUTION TO AGRICULTURAL GDP _ 2006‐07

Source: Economic Survey of Pakistan 2006‐07

Minor Crops, 12%Forestry, 3%

Livestock, 49%

Major Crops, 35%

Fisheries, 1%

THE ROLE OF LIVESTOCK FOR ALLEVIATING POVERTY

Livestock are an important and sometimes overlooked element of the livelihood strategiesof the poor. As much as 70 percent of the rural poor depend on livestock to some degree.Livestock holdings are diverse and include cattle, goats, sheep, poultry, horses and camelsetc. An estimated 600 million poor people, including 150 million landless poor, ownlivestock (Delgado et al. 1999; IFAD et al. 2004:9,10; Thornton et al. 2002).

Livestock are a crucial source of financial capital for the rural poor. For many, livestockownership is the only form of savings available. In fact, for pastoralists and often for poorwomen, livestock are the most important fungible asset they own. Livestock provide acritical reserve against emergencies and decrease vulnerability to financial shocks from illhealth,crop failures, and other risks. They yield direct benefits in the form of food, wool, orhides, and can raise farm productivity by providing manure and draught power (PPLPI2003:1). In a comparative study of poor livestock keepers in Bolivia, India, and Kenya,households in all three countries ranked livestock above business and housing as their bestinvestment (Heffernan et al. 2002in IFAD et al. 2004:14).

In 40 percent of Kenya’s districts, livestock represent more than a quarter of total householdincome (Thornton et al. 2002:75). In rural Nepal, they contribute 9‐14 percent of productionfor home consumption, and are even more important as a source of cash income. ForNepal’s isolated mountain communities, livestock are among the few items exchanged for



cash, constituting nearly half of total farm cash income (Maltsoglou and Taniguchi 2004:24‐25). Studies have found that livestock generally contribute significantly more to the incomestream of poor households’ particularly the income controlled by women’ than totheincomes of those living above the poverty line (Thornton et al. 2002:75; Heffernan 2001:60;Delgado et al. 1999).

The benefits from livestock can even extend to those who don’ t own livestock’ often

the poorest members of the community. Non‐owners are sometimes able to obtain milk,dung for fuel, or help with ploughing of fields. These may be given free of charge fromlivestock owners, or at greatly reduced prices (Shackleton et al. 2000b:53; Shackleton 2005).

Perhaps not surprisingly, livestock figure prominently in the movement of households intoand out of poverty. In a study of household poverty dynamics in 20 communities in Kenya,researchers found that more than 40 percent of families that escaped poverty did so bydiversifying their farm income, primarily by acquiring livestock (Kristjanson et al. 2004:12).When the poor have access to markets, livestock can serve as a source of collateral, givinghouseholds access to other forms of capital and opening pathways for further incomediversification (IFAD et al. 2004:3).

The role of livestock in rural communities extends significantly beyond their economic value.Most notably, livestock play a prominent role in social and cultural relationships. Loans andgifts of livestock contribute to family and communityties and often play a central role incultural traditions such as weddings and funerals. Owning livestock can also bring betternutrition to some of the most vulnerable groups, including women and children (IFAD et al.2004:19‐20).

THE ROLE OF LIVESTOCK IN DEVELOPING COMMUNITIES

ENHANCING MULTIFUNCTIONALITY

The role of livestock in developing communities Enhancing multifunctionality, was launchedon 9 November 2010 at the University of the Free State, in Bloemfontein, South Africa. Thebook was edited by Frans Swanepoel, Aldo Stroebel and Siboniso Moyo, co‐published by theUniversity of the Free State South Africa, the Technical Centre for Agricultural and RuralCooperation (CTA) and the International Livestock Research Institute (ILRI). The bookprovides critical information and knowledge on the importance of livestock in the globaleffort to alleviate poverty and promote human health. It describes and evaluates casestudies, examines theoretical frameworks, and discusses key global policy developmentissues, challenges and constraints related to smallholder livestock production systemsaround the globe. It describes successful livestock development strategies, including ways topromote gender equality and to empower women through livestock development and waysto develop small‐scale livestock enterprises without harming the environment. The book iswritten for academic professionals, industry experts, government officials and otherscholars interested in the facts and issues concerning the contribution of livestock to thesocial and economic progress of developing countries.(Source: Frans Swanepoel, AldoStroebel and Siboniso Moyo. Co‐published by the University of the Free State South Africa,



the Technical Centre for Agricultural and Rural Cooperation (CTA) and the InternationalLivestock Research Institute (ILRI), 9 November 2010.)

ROLE OF LIVESTOCK IN THE ECONOMY OF PAKISTAN

Livestock plays an important role in the economy of Pakistan and in the rural socio‐economic system, as 30‐40% of income of more than 35 million rural population comesfrom livestock production activities. The livestock sector contributed 50% of the

agriculture value added and 11% to National GDP in 2006‐07. Eight percent of total exportsderived from livestock and livestock products. Pakistan possesses some of the finest dairybreeds

like Nili‐Ravi and Kundi buffaloes, and Red Sindhi & Sahiwal cattle and more than 30different breeds of goat and sheep.

FACTORS IMPROVING THE FUTURE

A number of initiatives have been taken by the government to promote this industry, including duty free import of agro based machinery etc, provision of veterinary health coverageby livestock dept, establishment of beef and mutton fattening farms and slaughter housesin private sector.(Prof. Dr. Shahna Urooj Kazmi, Pakistan Agricultural research council)

LIVESTOCK SECTOR PAKISTAN AT A GLANCE

GOVT DEVOLVES LIVESTOCK & DAIRY MINISTRY

The Federal Government issued notification, copy of which is available with pakissan.com,regarding transfer of five ministries, including the Livestock & Dairy Development Ministry,to the provinces and other federal ministries.

0.320M ANIMALS EXPORTED

The Senate was informed on Friday that as many as 3,20,489 animals were exported todifferent countries under the commercial export of live animals through open policy sinceMay, 2009.

DAIRY INDUSTRY IN PAKISTAN

With the every passing day, dairy products are becoming costlier because live stock farminghas not scientifically grown with the increase in population and also it did not match withthe pace of urbanisation.

LIVESTOCK SECTOR IS A VICTIM OF NEGLECT

Dairy farming, better milk and meat production would strengthen the economy of thecountry. But due to a lack of access to livestock officials and facilities, farmers fail to benefitfrom new methods of farmin.



LIVESTOCK MARKET

A VERY big livestock market is set up in Karachi every year for about a month during Eid‐ul‐Azha where over one million animals ‐ about 0.4 million large ruminants and more than 0.6million small ruminants ‐ are brought from various parts of the country.

RURAL DAIRY FARMING AND ALLEVIATION OF POVERTY

There are about 125 million livestock in the country, of which 50 per cent are largeruminants (cattle and buffaloes) and 50 per cent small ruminants (sheep and goats)which is growing at a rate of 3–5 per cent annually.

PRODUCTION OF QUALITY MILK

The production of quality milk is an important part of any dairy operation. It increasesfarmer's profitability and has many benefits. Research has found the importance of loweringthe somatic cell count (SCC) in a herd.

THE LIVESTOCK REVOLUTION…..PATHWAY TO POVERTY ALLEVIATION

Globally demand for meat and milk rose greatly in the last 20 years. It will double in the next20 years. The skyrocketing orders are fuelling massive increases in livestock production inpoor countries.

LIVESTOCK REDUCES POVERTY

THE share of crops in value‐addition in agriculture has gradually declined from 65.1 per centin 1990‐91 to 47.5 per cent in 2005‐06, while the share of livestock has increased from 29.8to 49.6 per cent.

RETURNS FROM GOAT FARMING

SHEEP and goat farming has a great scope in Sindh due to climatic conditions, canalnetwork, forest areas, pastures within valleys, grass along canal and road sides, and efficientlabour force.

THE GROWING LIVESTOCK FARMING

Livestock is the second important sector of agriculture. While the share of agriculture inGDP declined from 26 in 1986‐87 to 24 per cent in 2003‐04, the share of livestock went upfrom eight to 11.4 per cent during that period.

DAIRY

IMPROVING PERI‐URBAN DAIRY FARMS

Pakistan is blessed with a good genetic potential for dairy development. Buffalo, being theprincipal source of milk, produces about 66 per cent i.e., 24.2 million tonnes, whilecows contribute 32 per cent, and goats and sheep two per cent.



DAIRY INDUSTRY IN PAKISTAN

With the every passing day, dairy products are becoming costlier because live stock farminghas not scientifically grown with the increase in population and also it did not match withthe pace of urbanisation.

SCHOOL MILK PROGRAM FOR NWFP

Milk is an essential food item for growing, school going children. Access to good quality milkis their right. Under the prevailing situation in the North‐West Frontier Province (NWFP) ofPakistan, there exists no arrangement for access of the school going children to good qualityand cheaper milk.

WOOL

QUALITY WOOL PRODUCTION

Although there is a strong need in Pakistan for wool and mutton development, no seriousefforts have so far been made in this regard because of resource constraints. A seriouseffort can change the economic fate of the nation. Farz Foundation is aiming to contributeat a grassroots level with the notion of changing the economic horizons through Islamicmicrofinance consisted of livestock products.

THE OPPORTUNITY OF LIVESTOCK THROUGH ISLAMICMICROFINANCE

During a survey for spotting a Farz SME Village in District Jhang, which is an untapped areaof Punjab province, and one cannot find any perceptible engagement from NGOs, becauseof (perhaps) being a sectarian violence affected area. However, Farz Foundation has startedits operations in two rural areas of the District Jhang. During research work, Farz Foundationfound the area very potent to launch their traditional products of livestock after a prettycustomization and aligning the products with a formal Islamic Microfinance mechanism(Farz Methodology). At the second stage of the study, the survey and the focus groupdiscussions revealed that the products of goats and sheep are more feasible than buffalosand cows at the first phase.

Study also shows that only the customization of the system is required with a capablehuman resource having a strong interpersonal relationship ability with the traditional andcultural familiarity to build a strong social and business relationship with the client. And ahuge untapped ripe market is awaiting because the 65% economy of Pakistan is based onagriculture and out of it almost 52% economy is based on livestock.

According to a Gilani Research Foundation survey carried out by Gallup Pakistan, meat is themost essential food item in people’s daily diet. In a survey in October 2008, respondentswere also asked to list what they would like as the main component of their daily diet.Assuming that



Financial constraints were removed and price was kept constant the results revealed:52% would prefer meat.

while the products are needed and marketable at the international level undoubtedly. Themarkets of UAE and Europe can be quoted as the potential meat markets for Pakistan.

Community is expert in nurturing and nourishing the livestock from centuries to maintaintheir living. They know every sophisticated detail about the animal and also very found ofhaving them as their assets. Livestock has been considered here as a social status also andone can measure the economic level of a family or a person by assessing the volume of thelivestock he or she has. There is a very common practice among the rural poor communityto get the livestock from a well‐off land lord on 33% partnership or sometimes at 50% for abreed period or a period of maturity of the animals for meat purpose. The livestock for meatpurposes has an extraordinary perspective on Eid e Qurban along with the dailyconsumption of the meat in the country. According to economic survey of Pakistan 2005and 2005, 1.9000 metric tan meat being consumed only in Pakistan. Mostly rural poor feedthe live stock by getting them to the jungles and green fields. Where the animals get thegrass and various other stuff to eat. They give animals also the special food called Wanda.

The poor stock the animals for their hard days and also to fulfill their immediate needs likeaccidents, weddings or in case of a death in their family. They usually sell the animal andaccomplish the necessity.

Studies predict the livestock is not only an ongoing consumable item and a very successfulbusiness but a social welfare work and a noble cause also as a poverty alleviating tool. Theeconomy of a country could be run and poverty could be eliminated only by the livestockbusiness if done properly. Any how the microfinance or even banking with conventionalstructures believing in monthly or fortnightly recoveries with interest or profit may not beable to do this kind of business. Primarily, Farz Foundation aims to disseminate theinformation and to invite the social investors to step in, particularly the people want to dothe Halal investments. If Islamic microfinance organizations engage themselves only inlivestock business, they can show the tremendous results. Secondly, Farz Foundation offersa partnership opportunity to all investors i.e. individuals and institutions, donors andphilanthropists to come and join hands with Farz Foundation in this regard.

DISTRICT JHANG‐‐‐‐A HISTORICALBRIEF

Jhang was built in 1288 by Rai Sial. The Sial tribe ruled this city for 360 years and the lastruler of the Sial Tribe was Ahmad Khan from 1812 to 1822 an d then Sikh took over. Andfrom the rule of the Sikh, Jhang was taken over by the British. A predom inantly ruraldistrict which has been split into two in 2009 (Jhang and Chiniot)

The district is currently divided into 3 tehsils. Jhang district has an area of 3397 sqkm and a population of 28,35,000. Jhang district has been endowed by nature with arich soil, aided by an efficient irrigation system; it has earned a name for agriculturalproductivity and in furniture making. The majorlanguages are Punjabi 87%, Urdu 11%and



other 2% (English etc.). Punjabi is the mother tongue of people.

The overall literacy rate of Jhang district is 37.1% and it is ranked 23rd out of 34 districtsof Punjab in terms of literacy rates. (PSLMs 2006‐07)

There are 3318 Public schools in District Jhang. Out of which, 2,824 are Primaryschools, 279 middle Schools, 171 are High schools and 44 are Higher. Sec/ Inter Colleges/Degree Colleges (XIII‐ XIV)/ Technical & Vocational Institutions/Deeni Madaris

MAP OF DISTRICT JHANG

Jhang District (Punjabi, Urdu: ضلع (جھنگ is a district of the Punjab province of Pakistan. Thecity of Jhang is the district's capital. According to the 1998 census of Pakistan, the district'spopulation was 2.8 million, of which 23 percent lived in urban areas. By 2008, according toestimates, the population had risen to 3.5 million. The native language is Punjabi, thoughUrdu is also spoken in educational institutions.

LOCATION AND GEOGRAPHY

Jhang is one of the oldest districts on the subcontinent, having been established around2,000 BC, when it was known as Jhagi Sial. Jhang is bordered by Sargodha District to thenorth, Gujranwala District to the northeast, Faisalabad District and Toba Tek Singh District tothe east, Khanewal and Muzaffargarh District to the south, Leiah District and BhakkarDistrict to the west, and Khushab District to the northwest.

The district comprises three administrative units, called Tehsils: Chiniot, Shorkot, andAhmad Pur Sial.

Jhang District covers 8,809 km².[7] Almost all the area is cultivatable land except in thenorth near Rabwah and Chenab Nagar where the land turns rocky as it approaches theKirana hills.



LOCATION AND GEOGRAPHY

The western portion of the district holds the Thal Desert, which starts in Mari Shah Sakhiraand extends to banks of the Jhelum River far to the west in the districts of Khushab andBhakkar. There is also an area known as the Sandal Bar arising from Pabbarwala near theGujranwala boundary. "Bar", in the local language, means a forested area where there areno resources for cultivation, like water. This area used to be forested and was unable to becultivated before British colonial rule, when a canal system was installed near the town ofLyallpur (now Faisalabad), which is now the textile industry hub of Pakistan. Between therivers Jhelum and Chenab is also a small area of Kirana bar, ending at Ghoriwala village. Thearea alongside the banks of rivers Ravi, Chenab and Jhelum is called Hitthar (area in whichflood water reaches), while the upland area between the bars and Hitthar is calledUtar.great person ansar abbas khan baloch s/o natha khan baloch

CLIMATE AND FLORA

The climate is hot and dry in the summer and cold and dry in winter. The surface of thedistrict presents three distinct levels (Thal's sand dunes on the extreme west, a low lyingriver valley in the centre and the Sandal Bar on the extreme east). The rivers of Jhelum andChanab make their way through the district and Trimmu Head‐works is the point of theirconfluence. Mari Shah Sakhira, a big town in the Thal Desert, is the district's hottest area,sometimes exceeding 50 C in June and July.

The district's trees consist of jand (Prosopis spicigera), karir (Capparis aphylla), beri(Zizyphus jujuba), van (Salvadora oleoides), kikar (Acacia nilotica), shisham (Dalbergia sissoo)and aak (Calotropois spp).[8] Various herbs can also be found, including harmal, akrey andbathoo.

CULTURE AND RELIGION

Punjabi folk dances such as Jhummar and Sammi originated in Jhang District. Jhummar is adance for men while Sammi is for women. The district also originated a well‐known form offolk music known as "Dhola", or "Jhang da Dhola".

Traditionally men wear turbans and dhotis (similar to a skirt or kilt) though in recent yearspeople have started wearing the national dress, the shalwar kameez. Some older womenalso wear dhotis. When women wear dhotis, the style is referred to called "Majhla" inJhangochi; th male style is called "Dhudder". However, it is more common for women towear shalwar kameez.

Street sports are important in Jhang District and include tent pegging (naiza baazi), kabaddi,volleyball, cricket and football (soccer).

In the past, women wove cloth with spinning wheels – known as Teeyan and Trinjan – butnow that the area is industrialized the practice is no longer common. The northwesternJhang District, particularly the area at the west bank of the Jhelum River, is somewhat



different in its culture because it is more influenced by the Thalochi culture emanating fromthe neighboring districts of Mianwali and Bhakkar .

Jhang District is predominantly Sunni Muslim, with a significant Sunni population and a smallnumber of Ahmadiyya. There is a sizable Christian minority also. Among the majority Sunnis,the Barelvi school of thought has a major influence. Maulana Haq Nawaz Jhangvi Shaeedwas another prominent and controversial leader from Jhang who created Anjuman‐e‐Spahe‐e‐Sohaba (A.S.S), which the United Nations has now banned. Jhang has been the center ofthe centuries‐old chess match between Sunnis and Shias for more than two decades.(source: Wikkipidia)

Jhang is more famous for its men than for its products. The Jhangvi men are hardy peasants,healthy, tall, strong and of wheatish complexion. The dress of the locals comprises a Majhla,a Kurta or Chola, a Chadar and a Turban or Pugri. It is completed by shoes, Chappli or Kherri.

The women also wear Majhla (Lungi) besides Chola and Dopatta but many women wearShalwar Qameez. The people live in the plains and therefore are plain and straight‐forwardpeople – broad minded, hospitable and progressive. Jhang is the centre of a purelyagricultural based feudalistic society. Agriculture is the chief source of income andemployment in Jhang. About 85% of the Jhang’s cultivable land is irrigated. Wheat andcotton are the principal crops. Other crops grown include rice, sugarcane, corn (maize),oilseeds, fruits, and vegetables. Livestock and poultry are also raised in large numbers indistrict Jhang.

Chenab river passing through District Jhang. Jhang is characterised by extreme climate – thetemperature is generally hot, with marked variations between summer and winter. In theplain the mean June temperature is 95 F (35 C), while the mean January temperature is 55 F(12 C). The monsoon reaches the area exhausted and therefore the rainfall is quite meagre.There is also occasional rain during the winters. The average annual rainfall is 7‐10 inches(180 mm) in district Jhang. Occasionally there are dust storms. The summer may besomehow discomforting, but for the greater part of the year the climate is ideal and



invigorating. The best part of the year is from the middle of February to the middle of April,which is the spring in the Jhang. It is neither cold nor hot but simply pleasant and enjoyable.The entire district‐side becomes a vast stretch of greenery. The mustard fields are coveredwith yellow flowers, trees put on new leaves, fruits begin to blossom and there are flowersevery where. This is also the time for several spring festivals, including Jhang CommitteeShow.

Jhang is connected by road or railway to some main cities of the country, but not any airservice is provided by government yet.

WHY FARZ FOUNDATION CHOOSE JHANG FOR THE PROJECT

Jhang is located in the centre of Punjab and it is an ideal location for the project.

It is equally accessible to farm breeders of Sargodha, Faisalabad on one side andMuzaffargarh, Sahiwal and Khanewal on the other.

Jhang district, apart from dozens of small and medium livestock farms, had ninemajor farms of the breeds of cattle ‐ Bukhari farms, Shah Jewna farms, Gill farms,Green Sands farms, Chadhar farms, Kot Amir Farms, Gillani farms, Sial farms andShamsher Khan Farms.

Jhang has a culture of livestock breeding at both levels rich and poot farmers.

People feel pride on having livestock as their assets.

The farmers usually love livestock and take care of them.

The climate and the geography of the district is very favorable for the growth.

Poor farmers is a potential target because of poverty, illiteracy, and suppression bythe feudal lords.

The poor can also be set aside from the sectarian influence by providing them betterlivelihood opportunities like livestock.

Live stock population of Jhang

ANIMAL POPULATIONBuffaloes 1175000

Goats 1007000Sheep 873000Cattles 385000

Source: Punjab Development Statistic 2008



According to a ruff estimate by collecting the informal information, atleast 4500 famiels canbe find easily as the potential poor farmers to facilitate them with the Islamic MicrofinanceProduct of Live stock.

A STRUCTURED INVESTMENT AVENUE

It is another trail blazing initiative by the Farz Foundation, which has laid the foundation ofnot only institutionalizing livestock business but has opened up a structured investmentavenue for those institutional and individual investors, who are looking for investmentchannels that provide safe, profitable and Sharia compliant mode of investment, which isduly backed by a reputed SECP registered organization.

The livestock sector expected rate of return is highly competitive when compared to othersectors, and as I see it, with institutional entry into this sector the returns may exceedexpectations given the huge livestock products local and export market potential.

Institutional intervention was a dire need of this sector in whose absence this sector'spotential was not being optimally exploited. Furthermore, with institutional interventionthis sector that has strong backward and forward linkages will strengthen SME sector in duecourse and will provide Fraz Foundation in particular an edge to fully exploit inherent supplymanagement potential.

PRODUCTS

FEATURESObjective BreedingSize Unit of 6 Goats for one poor Family ( 5 Female Goats + 1 Male Goat)Age of Animal 6 to 9 monthKind BeetalSize of Investment PKR: 65,000/ UnitPeriod 39 to 42 monthModality of partnershipwith poor Family

50%/50% at reproduced Goats

Modality of partnershipwith Investor

Investor gain 50% of the net profit

The parent Animals remain as owned by Farz Foundation and the Foundation can hold them backafter 39-42 months and can transfer the animals to another poor family for the same purpose.

Client, Foundation and investor can sell the out put after mutual agreement. After excludingthe principal amount the client will get 50% of the out put. Farz Foundation and investor willshare the profit with 50/50 ratio after excluding the operational expense. This Partnershipformula will apply on almost every product, however the opportunity of any new financialarrangement would be open subjected to discussion and mutual agreement.

SALIENT FEATURES

The Livestock model is sustainable since Stone Age



The poor family sustains, The village sustains, The economy of the country sustains SADQA‐E‐JAARIAH for Donors Also Profitable for Investors Interest free

OTHER FEATURES

80% time must be invested in the Selection of the potential Clients. Transparent Mudharbha (Partnership) Agreement as an Islamic business model for

investors. Farz Foundation’s Skilled Staff for the Operation, Monitoring and evaluation. Insurance of Each Animal (Theft and Death) Tagging for Monitoring (500M diameter) Full Time availability of an experienced Veterinary Doctor for care and growth of the

animals. Capacity Building of the clients for the enhancement of their nurturing ability. Monthly visit of the Social Officer (Field Officer) under the supervision of Branch

Manager and Monitoring Department. Farz Foundation provides health care facility to the clients and their family also. Farz Foundation also provides the other services to the clients the other like “Farz

Committee” (participatory rotating saving) to build their assets.

Link for.

Farz Committee: http://www.farzfoundation.org/services.html#s3

Health Care Facility: http://www.farzfoundation.org/services.html#s8

TARGET AREA

GEOGRAPHICALLY

Deep Rural Areas of the Pakistan

DEMOGRAPHICALLY

Gender: Particularly Male/Female

Income Level: The household consisting of 6 to 7 members should have a dailyincome from $2 to $5/day.

Age Group: 18 to 58 year

http://www.farzfoundation.org/services.html#s3

http://www.farzfoundation.org/services.html#s8



BRANCH STRUCTURE

Social Center Manger(BM)

Vetnery Doctor cumAcountent Farm Manager

Social officer(Mudharbha)



Social OfficerBai‐Salam

Social officer(Murabaha)

Office boy/Security guard

STRUCTURE OF CLUSTER AT COMMUNITY LEVEL

M = Member

GL = Group Leader

CM = Cluster Manager

GL GL GL

M M M M M M

M M M M M M

GL GL

M M M MCM

M M M M

Group: One group of five farmers including one head of the group

Cluster: One Cluster consisted of Five groups including one head of the cluster

Social Center (Branch) : One Branch of Total 450 farmers consisted of 18 clusters/ 90 groups



CLUSTER FORMATION PROCESS

Step 1• MOBILIZATION + TRAINING

Step 2• COMMUNITY MEETING CONDUCTED BY SOCIAL OFFICER (SO)

Step 3• TO FINALIZE THE CLUSTER MANAGER AND GROUP LEADERS

Step 4• HOME SCREENING

Step 5• BUSINESS SCREENING

Step 6• FINAL FORMATION MEETING

Step 7• AGREEMENT AND DELIVERY OF GOATS

DOCUMENT USE THROUGHOUT THE PROCESS

FORMS

i. Mobilization Formii. Home Screening Form

iii. Business Screening Formiv. KYC (Know your Client) and Application Formv. Mudharbha Agreement

vi. Etc.

BOOKS

i. Member Pass Bookii. Cluster Recored Book

iii. Tage Recored Bookiv. Membership Recored Bookv. Vaccine Schedule Book

vi. Etc.



PRODUCTION OF ONE FEMALE GOAT


QUANTITY, AGE AND PRICE OF PRODUCED ANNIMALS

OUT OF ONE FEMALE GOAT AFTER 36 TO 42 MONTHS

Male/Female Age (Month) Qty Price/Unit Total Price

Male 14 8 12,000 96,000Male 9 3 7,500 22,500

Male 6 3 5,000 15,000

Male 3 1 2,500 2,500

Male 1 1 1,000 1,000

Female 36 1 25,000 25,000

Female 30 1 21,000 21,000

Female 28 1 20,000 20,000

Female 25 2 18,000 36,000

Female 23 1 16,000 16,000

Female 20 1 14,000 14,000

Female 17 1 12,000 12,000

Female 9 3 7,500 22,500

Female 6 3 5,000 15,000

Female 3 1 2,500 2,500

Female 1 1 1,000 1,000

TOTAL 7 32 170,000 322,000

Less. Mortality rate 20% 64,400

Total 257,600

Total (out of 5 Female Goats After 36 to 42 months) 1,288,000

EXPECTED PROFIT SHARING O COMPLETION OF THE FIRST PARTNERSHIP CYCLE

Farmer Share 50% 644,000Investor Share 25% 322,000

Farz Share 25% 322,000


PRODUCT CYCLE

39 to 42 months for female goats to breed and growth/ nourishment and 14 months foreach male goat’s growth to sale.{ at the end of 42 months the distribution (and the time toend the partnership) among the partners according to the settled ratio of the male out putwould be decided with mutual consent because of not completing the 14 month cycle afterdeduction of insurance price as equal.}

Incase of any discontinuity and break or any other out of box happening occurs, FarzFoundation will handle the case through the assisting product range and make the furtherprocedures accordingly.

RISK MANAGEMENT AT FIELD

scheduled, inbuilt procedure of ongoing monitoring and follow ups along with aprofessional Information system makes the system fool proof to keep safe andsound the investor’s capital and services of the other two parties. Farz Foundationapplies LFA as the monitoring tool to mitigate the every possible risk.

Monthly weighing of the animals on continuous basis assures the proper growth ofthe animals.

An experienced veterinary doctor as a staff member of the office of Farz Foundationprovides 24 hour medical care/consultancy/facility in case of any illness or threat ofthe illness.

100% partner farmers must be engaged for basic information, awareness about theanimals and also make trained for proper, healthy growth of the animals.

Takaful ( Islamic insurance ) for death and theft is an essential part of the product. To mitigate the risks involved in sale, purchase, Farz Foundation has made an

agreement with a reputable vendor, while out sourcing the sale and purchase with amoney back and animal replace guaranty in case of any sick or damage animal.Vendor also bound to provide the breed required.

LEGAL MECHANISM BETWEEN INVESTOR AND FARZ

The Foundation, in order to promote welfare of the poor and needy in remote areas ofPakistan, developed and launched a scheme of common interest of the Investor, CommunityMember and the Foundation itself under the Name and Style “HALAL KAROBAR”(hereinafter referred to as the Scheme)

WHERE AS, Investor, is any individual and a prospective investor agrees through thisagreement to invest through the Foundation on the terms and conditions set forthhereunder.

WHERE AS, Community Member, is any individual selected/elected by the Foundationthrough pre‐determined procedures and who qualifies the criteria of selection set by the


Foundation and who is ready to perform his/her duties under a separate agreementbetween The Foundation and the Community Member.

WHERE AS, Unit shall be the combination of five female goats and one male goat(hereinafter referred to as Unit).

WHEREAS, Original Unit(s) shall be the Unit(s) procured out of the invested amount by theInvestor at the initial stage {hereinafter referred to as Original Unit(s)}.

PLACE OF BUSINESS/SCHEME

Head office for all the activities shall be at 327, 3rd Floor, Eden Center, Jail Road, Lahore,Pakistan. However, the Foundation may change its address and open its branch offices asmany as it thinks necessary and at as many places as required through need assessment.

OBJECTIVE

Fundamental and Sole objective of this partnership is to help the rural poor communitymember(s) through the upbringing, raising and development of Live Stocks & Dairy with thehelp of the Community Member(s), Financial support from the Investor(s) and OperationalSupport from the Farz Foundation. It is a double bottom line of alleviating poverty and theprovision of the opportunity of Halal Investment at the same time.

BUSINESS OF THE PARTNERSHIP

Under this partnership Agreement, the Invested amount of the investor shall be utilized toprocure the Unit(s) by the Foundation and the Foundation upon satisfactory selectionhandover the Unit(s) to the Community Member. Community Member shall look after theUnit(s) with the day to day help of the Foundation. In this way during the entire term,Community member shall get the 50% of the units or fractional Unit thereof and the 50% ofthe sale proceeds of the Unit(s) or sale of any fractional Unit excluding the original Unit(s) ofthe Investor which shall belong to the Investor during all times and after the end of theterm. Remaining 50% of the Unit(s), fractional Unit or sale proceeds of Unit(s) or fractionalUnit shall be shared equally by the Investor and the Foundation according to the ShariahCompliance. In case of loss the investor will share the loss through his/her invested capitaland rest of the both will share through their services and expanse if occurs. All modalitieswill be furnished restrictedly under the Islamic Principles.

TERM OF THE PARTNERSHIP

Term of this partnership shall be forty two months which is scheduled as under:‐

ACQUISITION PERIOD

One month from the date the amount is received by the Foundation.


DEVELOPMENT PERIOD

Fourty two months from the date of acquisition of unit(s)

DISSOLUTION PERIOD

One month from the date of end of development period.

CAPITAL INDUCTION/PERFOMANCE OF SERVICES

CAPITAL INDUCTION:

Investor shall invest Rs.62,000/‐ Rupees Sixty Thousand only (Variable)

for every single Unit of Goats comprising one male goat and five female goats and shallcover the following initial expenses:‐

Cost per Unit (including transportation, carrage, taxes, insurance, tagging and carriage)Rs.65,000/‐ (Variable)

Total Rs.65,000/‐(Variable)=================

PERFORMANCE OF SERVICES

Capital of the Foundation shall be other than cash and shall be in the form ofServices/Management which shall be rendered / conducted by the Foundation through itsmanagerial, field and marketing staff for day to day affairs of the scheme.

PROFIT AND LOSS SHARING RATIO

Profit and loss of the scheme shall be shared by both the parties equally after as statedabove.

RESPONSIBILITIES OF THE INVESTOR

The Sole responsibility of the investor shall be the provision of the amount for the desiredunits as applied by through an intention letter in writing annexed to this agreement.

RESPONSIBILITIES OF THE FOUNDATION

The foundation shall be responsible for the day to day management and operations of thescheme including the following:‐

i. The Farz Foundation shall be restricted of investing money in 100 & Halalbusinesses according the Islamic Principles


ii. The Foundation shall be responsible for procurement, transportation andcarriage of the Unit(s).

iii. The Foundation shall be responsible to elect/select the Community Member (s).

iv. The Foundation shall be responsible to ensure the proper nourishment, care andgrowth of the Unit(s).

v. The Foundation shall be responsible for provision of medicines, vaccinations andall services ancillary to upbringing and raising the Unit(s).

vi. The Foundation shall be responsible for the safe custody and security of theUnit(s).

vii. The Foundation shall be responsible for keeping record of each transactionindividually and collectively all times during the entire term.

viii. The foundation shall meet all the regulatory and taxation requirements.

ix. The Farz Foundation shall be responsible to the Takaful (Islamic Insurance ) ofthe animals owned by the investor in case of death and theft.

RIGHTS OF THE INVESTOR

Under this Partnership, the rights of the Investor shall be limited to the following:‐

i. The Investor shall have the right to enquire about the Unit(s), numbers, genders,present values and prospective updates.

ii. The investor may transfer his/her Unit(s) subject to the availability of the willfulbuyer.

iii. The Investor shall be the sole owner of the Original Unit(s) before and after thedissolution of this Partnership Agreement.

iv. At the end of the term, Investor shall have the right to opt for the Unit(s) or saleproceeds of the Unit(s) including the Original Unit.

RESTRICTIONS UPON THE INVESTOR

Under this Partnership Agreement, Investor shall not have the right to:‐

i. Ask for the information other than his/her Unit(s) and shall not in any case ask,demand, force etc. for the provision of any information, access to records. How everthe foundation it self offers the above said access.

ii. Shall not try to access directly to any Community Member but with the consent ofthe foundation.


iii. Shall not force the Foundation through any means to return the invested moneyother than the way of transfer to prospective buyers. In case of any emergencyFoundation may consider his/her request and can suggest the way‐out.

RIGHTS OF THE FOUNDATION

Under this Partnership agreement the Foundation shall have the following rights.

i. The Foundation shall have the right to select/elect Community Member(s)

ii. The Foundation shall have the right to accept or reject any intention letter from theInvestor.

iii. The Foundation shall have the right to terminate this Partnership Agreement in caseof violation of any clause of this Partnership Agreement.

Any dispute arising out of this partnership or as to interpretation, operation or enforcement ofterms of this partnership among the parties or their legal representatives shall be referred foradjudication to arbitration. The decision of arbitrators to be appointed by the parties and theirlegal representatives shall be final and acceptable to all the parties at that time.

IN WITNESS WHEREOF, the parties hereunto set their hands and seals and acknowledgedthis Agreement as of the date first above written.

AGREEMENT BETWEEN FARZ FOUNDATION AND THE FARMER

Farz Foundation provides, Animals, capacity building of the farmer and medical care for theanimals along with sale & purchase facility at the doorstep to the farmer.

Farmer is bound to provide required physical environment with care andgrowth/nourishment to produce best output.

The Farmer earns the 50% share of the profit, while the Investor and the operator ( FarzFoundation ) earn 25% for each.

POTENCIAL PARTNERS

The followings are may be the potenicial partners of the project.

Investors ( individuals, financial institutions, banks, donors, etc. )

Technical ( Government, Universities, Viterinry institutions, Research Units etc. )

Strategic ( Organizations for Live stock, Agriculture and economic growth etc )

Islamic Microfinance Model for Halal Investment

Documents

Transcript of Islamic Microfinance Model for Halal Investment