ISLAMIC MICRO

FINANCING

Presented by : MUHAMMAD MEHRAN M.COM (Finance)

Supervisor : SIR SOHAIL AHMAD

I.B.M.SUNIVERSITY OF AGRICULTURE

FAISALABAD

CONTENTS

Introduction to Islamic Microfinance Principles of Islamic Microfinance Riba ( Interest ) Modes of Islamic Microfinance Difference between Islamic &

Conventional Micro Finance Islamic Micro financing in Pakistan &

Worldwide

MICRO FINANCE

Means of providing financial services to poor

Average transaction size is very small

Services offered by profit and non-profit organizations

Microcredit, micro savings, micro insurance, and other transactional products

ISLAM AND SHARIAH

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

SOURCES OF FIQ’H IN ISLAM (ISLAMIC MICRO FINANCE)

Quran

Sunnah

Ijtehad / Qiyas

Ijama’e Ummah

Poverty Alleviation

Asset Based Financing

Micro Takaful

Free from InterestFinancing

Joint Responsibilities

IslamicMF

Islamic Microfinance deals in

Risk Sharing

PRINCIPLE OF SHARIAH BASED MICROFINANCE

Prohibition of Interest

Risk sharing

Social Development Mission

Prohibition of speculative behaviour

Purity of contracts

Asset Based Financing

Shariah-approved activities.

PROHIBITION OF RIBAH(INTEREST)

And ALLAH has permitted trading and forbidden Riba

(Al Baqara 275)

Islam encourages the earning of profits but forbids the charging of interest.

Fulfillment of Financial Needs

Own Capital Others’ Capital

Equity Financing

Debt Financing

Human Financial Needs

MODES OF ISLAMIC MICROFINANCE

PARTNERSHIP BASED

Musharka

Mudarba

TRADE BASED

Murabaha

Musawamah

Sal’m

Istisna

RENTAL BASED

Ijara

Diminishing

Musharka

BASIC DIFFERENCE IN ISLAMIC AND CONVENTIONAL MICROFINANCE

ClientIMFI

MFI Client

Goods and Services

MONEY

Islamic

CONVE..

money

Money+Interest

Functions and operations are based on fully man made principles

Functions and operations are based on Sharia’h principles

assured of pre-determined rate of interest

Promote risk-sharing between provider of capital (investor) and user of funds (entrepreneurs)

Aim at maximising profit without any restrictions

Aim at maximising profit but subject to Sharia'h restrictions

Creditor-Debtor relationship Partners, investor and traders, buyer or seller relationship

Based on money trading. Money is a medium of exchange and not a commodity

Encourage asset-based financing and based on commodity trading & Services

Conventional Micro Finance

Islamic 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 Finance

Islamic Micro Finance

ONUS SHIFTS!!!

Customer to Halal Restaurant Owner

Halal Restaurant Owner to Halal Meat Supplier.

Halal Meat Supplier to Halal Butcher.

Customer to Islamic Banker

Islamic Banker to Shariah Scholars

INDUSTRY PROGRESS IN PAKISTAN

Year 2001

•Meezan Bank•Al Baraka

•Meezan Bank•Al Baraka•MCB•Alfalah•SCB•Bank AlHabib•Habib AG Zur.•Metropolitan•Bank of Khyber•Soneri Bank

2002 2003

•Meezan Bank•Al Baraka•MCB

•Meezan Bank•Al Baraka•MCB•Alfalah

2 10

2012- 14

•Meezan Bank (161) •Al Baraka (30) •MCB (8) •Alfalah(40) •SCB (11) •Bank AlHabib(4 ) •HMB(4) •Bank of Khyber(16) •Soneri Bank ( 5) •HBL(1) •Bank Islami(102) •DIB (25) •EGIBL (40) • Dawood(21) •NBP(5) •RBS (3) •Askari(18) •UBL (5)

2007 - 09

1843

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 Pakistan

34 non-Muslim countries including USA, UK, Canada,

Switzerland, South Africa and Australia

.•United States: 4•Kiva•Helping Hands•Muslim Aid•Lariba

•Germany:2•- Muslim Society•Switzerland: 6•UK:

•- HSBC Amanah•- Muslim Aid •- Islamic Relief•- The Halal Mutual Investment Company

•Bahrain: 2

•Malaysia: 11•2 - 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: 11•India: 3•Bangladesh:9

•Turkey: 7•- Faisal Finance Institution•- Ihlas Finance House

•Yemen: 1

Islamic Microfinance Institutions Worldwide