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8/6/2019 Islamic Micro Finance in Different Countries by Fadlullah Wilmot
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International Conference on Islamic Microfinance
International Conference on Islamic Microfinance
CENTER OF ISLAMIC BANKING & ECNOMICS
Held At:
Organized By :
8/6/2019 Islamic Micro Finance in Different Countries by Fadlullah Wilmot
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ISLAMIC MICROFINANCE IN DIFFERENT COUNTRIES
Need to serve the ultra-poor
ISLAMIC MICROFINANCE IN DIFFERENT COUNTRIES
Need to serve the ultra-poor
Fadlullah Wilmot
Country Director
Islamic Relief Pakistan
Fadlullah Wilmot
Country Director
Islamic Relief Pakistan
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DESIGNING PROGRAMS FOR THE ULTRA POOR
DESIGNING PROGRAMS FOR THE ULTRA POOR
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Conventional MF fails to reach the ultra poor
Conventional MF fails to reach the ultra poor
Microfinance has reached 150 million people but one billion people are living belowthe poverty line
Earn less than $1 / day (often less than $0.50 / day), and income very irregular - Income usually derived from manual labour or begging;
School-aged children working manual labour jobs instead of attending classes;
Severe malnutrition (i.e., access to only one meal per day);
High incidence of physical handicap;
Own few productive assets;
Frequent migration, transient lifestyles in search of work;
Landless, or own less than 1 acre of cultivable land (including homestead);
Poverty is inter-generational;
Highly vulnerable to natural disasters and health catastrophes
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Without help for the poor there is no Islam
Without help for the poor there is no Islam
Have you seen him who denies Our religion? It is he who harshly repels theorphan and does not urge others to feed the needy. Woe to those who pray butare heedless of their prayers; who put on a show of piety but refuse to giveeven the smallest help to others.
The surah starts with a question as to who is the disbeliever ³It is he who harshly repels the orphan and does not urge others to feed the
needy.´
They pray but ³refuse to give even the smallest help to others,´.
Allah wishes human life to be elevated, happy, based on pure motives and
characterized by mutual compassion, brotherhood and purity of hearts andbehaviour.
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Pakistan the lowest-performing South Asian country in reducing poverty
Pakistan the lowest-performing South Asian country in reducing poverty
Average annual rate of poverty reduction (%)
-6
-4
-2
0
Bangladesh India Nepal Pakistan Sri Lanka
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Weaknesses of Conventional Micro-financeWeaknesses of Conventional Micro-finance
Loans used for consumption
Assumption that the poor can be good entrepreneurs given access to credit
Asymmetric Information Problems
Economic Viability of MFIsCharging Fixed Interest Rates
Higher Interest Rates and focus on short term loans
Low Rate of Return on Investment
High Dropout Rate and Non-Graduation from PovertyDebt Trap
Non-Conforming to Religious Beliefs
Credit Rationing
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Poverty eradication scheme of IslamPoverty eradication scheme of Islam
Poverty eradication scheme of Islam
Positive measures
Incomegrowth
Functionaldistribution of
income
Equalopportunity
Preventivemeasures
Control of ownership
Preventionof
malpractice
Corrective measures
Compulsorytransfer: Zakat
Recommendedtransfer : Charity
Governmentresponsibility
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Islamic Financial ModesIslamic Financial Modes
Participatory Mechanism
Profit and Loss Sharing
Mudarabah
Musharakah
Musaqat
Muzar'ah
Direct investment
Non Profit and Loss Sharing
Qard al Hasanah
Bai'mua'jjal
Bai'salam
Ijara wa iqtina
Murabaha
Jo'alah
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Different countries and different regions different approachesDifferent countries and different regions different approaches
Indonesia
± Yogyakarta profit sharing with the ultra poor
± Aceh ± group system with women entrepreneurs
Bangladesh ± group system 20% ultra poor no charge, 60% moderate poor 7.5% service charge with any excess returned to borrowers 20% minientrepreneurs with Islamic financing modes
Pakistan individual system using Islamic financing modes
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HeterogeneityHeterogeneity
The idea of heterogeneity and exclusion from/by existing models[non deliberate, via design and logic, unassailable] have beenpowerful concepts to draw policy attention and create urgency for action
Microfinance discourse
[µpoorest of the poor¶ as landless, non agriculture, women]
The hard core poor/ ultra poor
[microfinance left outs, and throw outs. Not only poorer than the poor butdifferently so]
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PoorestDecile
2nd poorestdecile
t-value
Male labour force participation (% of 15-60 years
old)
91 89 1.83*
Female labour force participation (% of 15-60
years old)
15 10 3.40***
Child labour (% of 10-14 years old) 12 10 0.79
Primarily involved in day labour (% of labour force)
61 52 4.20***
Hours worked per day (mean) 6.45 6.49 0.32
Cash wage received per day (mean in Taka) 65 75 6.10***
Received in kind payment (% of day labourer) 6 3 2.38***
Owns cultivable land (% of HHs) 27 32 2.37**
Leased in cultivable land (% of HHs) 22 22 0.02
Owns livestock (% of HHs) 67 70 1.05
Own at least one non-agriculture enterprise (% of
HHs)
18 21 1.96**
Net annual revenue from the enterprises (mean in
Taka)
25,059 28,653 1.69*
Receive remittance from within country (% of HHs) 16 17 0.53
Remittance received in 12 months (mean in taka) 3,959 6,101 1.36
Work harder,
especially
women
Earn less
Weak
asset base
What about heterogeneity among the poorest?What about heterogeneity among the poorest?
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Informal safety nets as
important as formal
ones
Poorest 2nd
decile
t-value
Participant of social safety net programme (% of
HHs)
24 21 1.57
Receive informal charity in cash (% of HHs) 16 14 1.03
Receive informal charity in kind (% of HHs) 28 22 2.77***
Total amount received in informal charity (meantaka)
1,642 2,455 2.95***
The poorest lose out
even in informal safety
nets
What about heterogeneity among the poorest?
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Education and housing situation of the ultra-poorEducation and housing situation of the ultra-poor
Poorest 2nd decile t-value
Education
Enrolment rate of 6-15 years old boys (%) 55 66 4.24***
Enrolment rate of 6-15 years old girls (%) 65 71 2.24**
Housing
Amount of homestead land owned (mean in
decimal)
6.15 7.23 2.14**
House wall is made of tin/brick (% HHs) 28 38 4.63***
Value of the house living in (mean in Taka) 21,276 28,380 5.90***
Owns any kind of toilet (% of HHs) 70 81 5.45***
Have electricity connection (% of HHs) 14 23 4.68***
The education
opportunity div ide
The living environment
divide
What about heterogeneity among the poorest?
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Is there a spatial heterogeneity?Is there a spatial heterogeneity?
Poorest
districts
Moderate
poor
districts
Male labour force participation (% of 15-60
years old)
88 91
Female labour force participation (% of 15-60
years old)
13 11
Child labour (% of 10-14 years old) 13 7Primarily involved in day labour (% of labour
force)
59 51
Hours worked per day (mean) 6.63 6.39
Cash wage received per day (mean in Taka) 64 66
Owns cultivable land (% of HHs) 30 32
Leased in cultivable land (% of HHs) 22 27
Owns livestock (% of HHs) 69 77
Own at least one non-agriculture enterprise(% of HHs)
16 28
Net annual revenue from the enterprises
(mean in Taka)
25,449 24,646
Receive remittance from within country (% of
HHs)
18 18
Amount of remittance received in 12 months 3,498 4,988
Vulnerable labour
market engagement
Weak asset base
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GraduationGraduation
Mainstream poverty alleviation interventions by and large leave out thepoorest
Safety net interventions are not designed to help the poorest graduate
Design Safety nets as stimulus package: interventions combining and
sequencing safety nets and poverty alleviation instruments for graduationoutcomes for a large majority of the poorest:
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Graduation FrameworkGraduation Framework
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BRAC two-step modelBRAC two-step model
1. In 1985 BRAC realised its microfinance programmes were unlikely to meetthe needs of the ultra poor.
2. Food donations provided a µbreathing space¶ for the poorest these would notremove chronic poverty.
3. Attempt to combine food relief with skills training program, to create a basisfor enhanced household income in the future.
4. Regular compulsory savings of a few cents during the period of their foodrelief to build up a lump sum for investment.
5. Training on poultry and vegetable production for female VGF cardholders was
given and they were able to access microcredit
6. At the end of the 24-month programme the ultra poor were eligible for microcredit
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Poverty reduction as a 'two-step' process of livelihood protection and promotionPoverty reduction as a 'two-step' process of livelihood protection and promotion
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Results mixedResults mixed
1. About 80% of the IGVGD beneficiaries joined BRAC¶s regular microfinanceprogramme
2. But only 70% continued beyond three years i.e. over 40% of the IGVGDbeneficiaries fail to start the process of graduation.
3. Those who dropped had fragile socio-demographic structures ± the femaleheaded households who do not having a working adult male in the householdand/or suffer from chronic illness, etc
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Need to look atNeed to look at
Tackling the social and attitudinal constraints which reproduces a non-enabling environment for the ultra poor.
Asset transfer
Dealing with local elites
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Islamic MFIsIslamic MFIs
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
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Problems facing Islamic MFIsProblems facing Islamic MFIs
1. Dilution in the Application of Islamic Modes of Financing
Main mode- murabahah or bai-muajjal .
± It is difficult to go out with the clients and buy the goods/assets fromfaraway markets
IMFIs delegates someone else (and inspects later)
Alternative is to use Profit-sharing modes
± Problem is the moral hazard problem--No book-keeping and difficult tomonitor
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ConclusionConclusion
There are strong economic reasons for establishing Islamic alternatives topoverty-focused micro financing.
Traditional institutions of w aqf , zakat , and qard hassan are important meansof financing IMFIs
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Thank YouThank You
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