Out Reach of Islamic Micro Finance by Dr Shabir Hussain

8/6/2019 Out Reach of Islamic Micro Finance by Dr Shabir Hussain

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CENTER OF ISLAMIC BANKING & ECNOMICS

Held At:

Organized By :



Islamic Microfinance :Islamic Microfinance :

An Outreach Analysis inAn Outreach Analysis in

Global PerspectiveGlobal Perspective

Presentation By :

Dr Shabbir Hussain

MD, HHRD

International Conference on IslamicInternational Conference on Islamic

MicrofinanceMicrofinance organisedorganised by Al Huda inby Al Huda in

collaboration withcollaboration with AkhawatAkhawat

13 June, 201113 June, 2011



PRESENTATION

MICROFINANCE MODELS

OUTREACH ANALYSIS



Integrated

Approach

Minimalist

Approach

Credit Only

FINANCIAL INTERMEDIATIONy Working Capital

y Fixed Asset Loansy Savings

SOCIAL SERVICESyEducation

yHealth & NutritionyLiteracy Training

EDEVELOPMENT SERVICESyEntrepreneurship TrainingyProduction/Skills Training

yMarketing

SOCIAL INTERMEDIATIONy Community Mobilization

yGroup Formationy Social Collateral

y Insurance

Credit +

(Financial&

Non

Financial)

³ Credit Plus´ includes development and social

services in comparison with ³Credit Only´ approach



MF Models of Outreach based upon the

integration level of supply chain

NGOs

Specialized

Banks

Promotion of MED,

training & helping

linkage with banks V/WOs

NGOs

Specialized

Banks

Promotion of

MED, training& providing

Credit Support

V/WOs

Specialized

Banks

Promotion of MED, training &

providing Credit

V/WOs

NGOs as

Facilitators

Three- Pronged Approach

NGOs as

FinancialIntermediaries

Banks as MFIs



At the

Poverty Line

Below the

Poverty Line

Abject PoorSafety Net

Livelihood

Growth

M E D

Consu

mption

Credit

I G A s

Classification Objective Approaches

The effectiveness of Microfinance approaches

varies across different levels of poverty

HHRD

Qard Hasn

HHRD

Murabah

HHRD

Mudarba



OUTREACH ANALYSIS OF SELECTED

INTERNATIONAL MODEL OF MFIs



(Source: www.micromarket.org,

MFI # of Borrowers %

Women

Cost per

Borrower

Self

SufficiencyRatio

Grameen Bank

Bangladesh

6,707,000 96 10 98.80

BRAC Bangladesh 6,397,635 96 12 106.65

ASA Bangladesh 5,422,787 96 7 187.17

Spondana India 1,188,861 96 8 159.07

Bandhan India 896,698 100 9 133.14

Cashpor India 303,243 100 15 102.00

AML India 565,806 100 14 111.53

Kash Pakistan 295,396 95 23 164.10

Khushali Bank

Pakistan

405,111 48 15 79.70

FMBF Pakistan 229,443 42 23 90.43

WDB Sri Lanka 146,808 100 10 162.44

BRAC Sri Lanka 34,550 100 25 48.80



(Source: www.micromarket.org.

Poverty Transition Microfinance

Burrowers

%

Very Poor to Moderately Poor 48 38.4

Very Poor to Non Poor 22 17.6

Moderately Poor to Non Poor 26 20.8

No Change 27 21.6

Non Poor to Moderately Poor 1 0.8

Moderately Poor to Very Poor 1 0.8

125 100

Microfinance is fast emerging viable tool to reduce Poverty



Outreach features of IMFIs

IMFI retains the basic operational format of MFIs� Banking with the poor at door steps

� Weekly/Monthly Repayments

� A Social/Development Program (to fulfill the social role of Islamic finance)

IMFIs have some distinguishing features:Sources of Funds

� Other than external sources, can also use funds from zakah,awqaf , and other forms of charities

Use of funds (Mode of Financing)

� Sale based and hiring modes (murabahah, salam, ijarah)� Profit-sharing modes (M usharakah and mudarabah)

Amount transferred to the poorest

� Islamic modes are sale based, the price of the asset is paid

(no deductions are allowed)



Group Dynamics

� Islamic values of brother/sister-hood improves cooperationamong the group members

Financing the poorest

� Z akat and other charities can supplement MFI activities

(non-diversion of funds)

continued---

Social Development Program

� behavioral, ethical, and social aspects in light of Islamic

teachings

Targeting the family through women

� Spouse co-signs the contract dealing with women more

efficient and convenient

� Women disseminate knowledge to children

Dealing with Arrears/Default

Less aggressive and use Islamic teachings to recover loans



SOME MODES OF ISLAMIC FINANCE

PARTNERSHIPBASED

Musharka

Mudarba

TRADE BASED

Murabaha

Sal¶m

Istis a

RENTAL BASED

Ijara

Dimi ishi gMusharka

Islamic microfinance represents the convergence of two rapidly growingindustries: microfinance and Islamic finance.



13

Findings of IFC Commissioned Market Studies

60 percent low income survey respondents prefer to

Islamic Products over conventional products (WestBank & Ghaza)

25-30 percent reveal religious reason for not seekingconventional loans (Jordon)

40 percent of the poor demand Islamic financialservices regardless of price (Yemen)

43 percent of respondents consider religious reasons

to be largest obstacle in obtaining microcredit (Syria)

49 percent of rural population consider ShariaCompliant financial institutions (Indonesia)



14

Outreach of IMFIs is very limited

380,000 loans through 126 institutions operating in 14countries

Bangladesh has largest outreach (100,000 +) withtwo active institutions . However it represent about

one percent of its microfinance market

Syria and Indonesia has 3 % and 2 % of respectivemicrofinance market

80 percent of global outreach is concentrated inthree countries :Bangladesh, Indonesia andAfghanistan)



15

Outreach of IMFIs in respect of women

59 percent on average but up to 90 percent inBangladesh are women borrowers of IMFIs

Overall percentage of female participation usingIslamic Microfinance products is comparable to those

using conventional microfinance products (66 %)globally (Mf Info Exchange 2007)

70 percent of products offered are Murabah based

Average operational efficiency ratio in Islamic RuralBanks is 20 % higher than 15 % operational efficiencyratio for conventional banks



16

Institution Type # of

Institutions

Total # of

Borrowers

% Total Loan

Portfolio

(Ud $)

% Average

Loan size

(US $)

Cooperative 1 6,671 2 926,251 <1 132Village Bank

(Syria)

1 2,298 1 1,838,047 <1 800

NGO 14 125,793 42 41,421,580 21 303

Rural Bank

(Indonesia)

165 74,698 25 122,475,158 62 1640

NBFI 3 4,293 1 1,893,207 61 595

Commercial Banks 2 87,569 29 29,030,997 15 305

Total 126 305,237 100 198,090,268 100 629

Outreach of Islamic Microfinance by Institution Type

Source : CGAP 2007



17

Country # of included

Institutions

Percentage

of Female

Total # of

Borrowers

Total

Outstanding

Loan Portfolio

Average

Loan

BalanceAfghanistan 4 22 53,011 10,347,290 162

Bahrain 1 n/a 323 96,565 299

Bangladesh 2 90 111,837 34,490,490 280

Indonesia 105 60 74,698 122,480,000 1640

Jordon 1 80 1,481 1,619,909 1094

Lebanon 1 50 26,000 22,500,000 865

Mali 1 12 2,812 2,973,293 97

Pakistan 1 40 6,069 746,904 123

West bank Gaza 1 100 132 145,485 1,102

Saudi Arabia 1 86 7,000 586,667 84

Somalia 1 n.a 50 35,200 704

Sudan 3 65 9,561 1,891,819 171

Syria 1 45 2,298 1,838,047 800

Yemen 3 58 7,031 840,240 146

Total 126 59 302,302 197,891,882 541

Outreach of Islamic Microfinance

Source : Focus Notes No 49, August 2008, CGAP



Indonesia

Bangladesh

Afghanistan

Pakistan

Malaysia

India

Azerbaijan

Microfinance Divisions of Islamic Banks (Islamic Rural Banks) Islamic Financial Cooperatives referred as bait Maal wat Tamwil

(BMT) ; BMTs are large network of over 2000 institutions serving

millions of poor Indonesian Muslims. These are backed and supported

by over hundred million members

The products are based on Mudaraba, Murabaha, Musharaka, Ijara

and qard Hasan

Islamic Bank Bangladesh

Social and Investment Bank

Al-Fallah and Rescue

FINCA (Qard Hasan) Village Banking methodology with solidarity

groups

Akhuwat , HDF, Islamic Relief, CWCD, Farz Foundation ,HHRD

Islamic Banking : Govt agencies µs organizations finances small

and medium scale enterprises

AICMEU

Bait ±un Nasr



Egypt

Syria

Lebanon

Yeman

Mit Ghamar Project : Modern Islamic banking

Sanadiq project , Jabal Al-Hoss : Village Banks which can bereplicated. The model is based on : (i) Musharka structure owned and

managed by the poor (ii) financing based on Murabaha which

provides high profit rates shared among members (iii) good

governance through committees with sound election and voting

procedures (iv) project management team responsible training of

committee members (v) Financial management based on standardized

bylaws,´fair ³ credit decisions and low transaction costs (vi)

Financially viable operations with 100 % repayment rate (vii) equal

access to both men and women (viii) UNDP provides matching grant

equal to minimum share capital of village fund

Mu¶assat Bayat Al-Mal : Affliate of Hezbollah comprises qard Al-

Hasan financing on profit loss sharing mode. It is run by volunteers

Hodeidah Microfinance Program : Group methodology like

Grameen but it uses Murabaha mode for financing



OUTREACH ANALYSIS OFMICROFINANCE IN PAKISTAN



Roughly 80% of the current borrowing is from the

non-formal sector in Pakistan

However, the cost of borrowing from the non-formal sector is 4% higher

Borrowings by sources

22%

78%

Formal

Non Formal

Int t t ( n %)

Formal vs. Non Formal

0

10

20

30

For l on For l

I n t

r e s t R

a t e

Borrowing Pattern in

Pakistan



Informal Lenders

Commission

Agents

12%

Money

Lenders

37%

Feed

Dealers

12%

Others

2%

Agra InputDealerds

22%

Shopkeeper

15%

c

Approximately 60% of the non-institutional lending is through

money lenders, Shopkeepers, and agriculture input dealers



1999 2000 2001

PIR: PMN starts

collecting and

publishing

member MFIs·

performance

indicator report

PPAF begins

disbursing

microfinance funds

PPAF Phase I & II :

US$ 300 Million

Khushhali

Bank

becomes

operational

MicrofinanceSector

Development

Programme (ADB)

Microfinance

Ordinance

US$ 150 Million

5 Microfinance Banks2005 2009

NMFB.

BRAC-PAK

2006

1.4 million

40 + MFPs

FMFBL,TM

FBL,RMFBL

, POMFBL,NRSP, ASA

Kashf Bank

PPAF Phase III

2011



MFIs Akhuwat

Asasah

Orangi Pilot Project

Sindh Agriculture & Forestry Workers Cooperative Orgn (SAFWCO)

Community Support Concern Development Action for Mobilization and Emancipation Network (DAMEN)

Center for Women Cooperative Development (CWCD)

Kashf Foundation

CWCD

HHRD

MFB Khushhali Bank Ltd

Network Microfinance Bank Ltd Pak Oman Microfinance Bank Ltd

Rozgar Microfinance Bank Ltd

Tameer Microfinance Bank Ltd

First Microfinance Bank Ltd

Kashf Microfinance Bank Ltd

NRSP Bank

RSP

Others

NRSP

PRSP

SRSP

TRDP

Lachi Poverty Reduction Project

Sungi Development Foundation

Orix Pakistan

Sindh Rural Support Program Taraqi Foundation



Presentation By : Dr Shabbir

Hussain,

0

50000

100000

150000

200000

250000

300000

350000400000

450000

SP KB Kashf B P SP

428075 405111

288076

229443

78878

Largest Providers of Microfinance( Number of active borrowers)

Data S

urce: Micr

¡

atch, PMN, Sep 2009



Presentation By : Dr Shabbir

Hussain,

0

1000

2000

3000

4000

5000

6000

NRSP KB FMFBL Kashf TMFB

5030

4150

32002880

1350

million

rupees

GLP of Largest Providers of MicrofinanceIn Pakistan exceeds 15 billion rupees

DtSource:

¢

icrowatc£

,¤

¢

¥

, Se¦ 2009



Current Outreach

1.83 million borrowers

Estimated Demand

27.7 million borrowers

Access

Quality

Products

Funding

ustaina ility ustaina ility

Funding

Products

Quality

Access

Only 5 to 10 % of the poor population in need of

micro credit is currently covered



29

An estimated 72 percent of

people living in Muslim-majority

countries do not use formalfinancial services

Of the total US $ 500.5 billion global

Islamic finance market, 36 percent is

located in the Gulf Cooperation Council

(GCC) countries

(Bahrain, Kuwait, Oman, Qatar, Saudi

Arabia, and UAE), 35 percent in non-GCC

Southwest Asia and North Africa, and 23

percent in Asia (primarily

Malaysia, Brunei, and Pakistan) (The

Banker 2007).

Islamic microfinance is

concentrated in a few

countries, with the top three

countries(Indonesia, Bangladesh, and

Afghanistan) accounting for 80

percent of global outreach.

Bangladesh is a country where conventional

microfinance products have the largest outreach

exceeding 18 million borrowersand Islamic

Microfinance represents only 1 percent of its

microfinance market.

Conclusion



Presentation By : Dr

Shabbir Hussain,

`TJAZAK ALL

`Thank You!



CENTER OF ISLAMIC BANKING & ECNOMICS

Head Office:192- Ahmad Block, New Garden Town , Lahore, Pakistan

Ph: +92-42-35913096-8, 35858990, 38407850

Fax: +92 -42-35913056

E-mail : [email protected]

Web: http://www.alhudacibe.com

Out Reach of Islamic Micro Finance by Dr Shabir Hussain

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