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8/8/2019 Asasah Islamic Micro Finance
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8/8/2019 Asasah Islamic Micro Finance
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An Introduction to
Islamic Microfinance
Muhammad Zubair MughalChief Executive Officer ,
AlHuda: Centre of Islamic Banking andEconomics
www.alhudacibe.com
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Contents
• What is Shariah Based Microfinance ?• Difference between Conventional & Islamic MF• Demand of Islamic Microfinance Worldwide• Global Landscape of Islamic Microfinance• Islamic Microfinance Update• The Way Forward
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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
Islam and Shariah
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Sources of Fiq’h in Islam (IslamicMicro Finance)
• Quran
• Sunnah
• Ijtehad / Qiyas
• Ijama’e Ummah
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Fulfillment of Financial Needs
Own Capital Others’ Capital
Equity Financing Debt Financing
• Murabahah• Ijarah•Salam & Istisna etc
• Musharakah• Modarabahah• Other Products
Human Financial Needs
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Equity Financing Debt FinancingUqud al-Ishtirak(Contracts of Profit
Sharing )
Uqud al-Muawadhat(Deferred Contracts of
Exchange)Al-Mudarabah(Trustee Profit Sharing)
Al-Bai’ Bithaman (Mu)Ajil(Deferred Installment Sale)
Al-Musharakah (JointVenture Profit Sharing)
Bai’ al-Murabaha(Cost Plus Profit Sale)
Others Al-Ijarah (Leasing)Bai’ al-Salam (Commodity Sale)
Bai’ al-Istisna’ Sale on Order
External (Equity & Debt) Financing
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PRODUCT TREE
Islamic Modes of Microfinance
Trade BasedModes
Partnership BasedModes
Rental BasedModes
Musharaka(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 )
DiminishingMusharaka
( Transfer of Ownership)
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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
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Industry Progress in Pakistan
• 6 Full fledge Banks having 239 and 12 Conventional Banks have 167 SAIBBS and 10 Su b Branchestill 1 st January , 09
•Total IB Branches = 519
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
2007 - 09
•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)
2004 - 06
1843
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Industry Progress in Pakistan
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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
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International Overview
• In Feb 1999, Dow Jones introduced the Dow JonesIslamic Market Index (DJIM) of 600 companies worldwide whose business complies with Islamic Shariah laws
• At present there are more than 170 Islamic Fundsoperational through out the world with a total fund baseof over USD 3.50 billion
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International Overview
• Governments of Bahrain ,Malaysia and now Pakistanhave issued Islamic Bonds (Sukuk) in order to facilitateIslamic Banks in managing their liquidity.
• Issuance of these bonds has also paved the way for Shariah compliant Government borrowings
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International Overview
• Institutions like Accounting and Auditing Organization for IslamicFinancial Institutions (AAOIFI) and Islamic Finance Services Board(IFSB) have been formed.
• These institutions are playing a key role in setting up andstandardizing Shariah , Financial and Accounting standards for Islamic Financial Institutions.
• Due to these collective efforts Islamic banking is now recognized byIMF, World Bank and Basel Committee.
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Islamic Microfinance
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Prohibition of Interest
Risk sharing
Social Development Mission
Prohibition of speculativebehaviour
Purity of contracts
Asset Based Financing
Shariah-approved activities .
Principle of Shariah BasedMicrofinance
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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 chargingof interest
Prohibition of Riba ( Interest)
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Conventional
MFI Client
money
money + money (interest)
Difference Between Islamic andConventional Microfinance
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Islamic
IMFI’S ClientGoods &Services
money
Difference Between Islamic andConventional Microfinance
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Modes of Islamic Microfinance
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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 Microfinance
Approximately 44% conventional microfinance clients worldwide reside
in Muslim countries (Source: MF Info Ex).Asset-based – can prevent diversion of funds for consumption
Need & Compatibility
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Survey Surveyed Countries Respondentspreference(%)
CGAP 08 Jordan, Algeria, and Syria 20 - 40%
PlaNet Finance 07 West Bank and Gaza 35% - 60 %USAID 02 Jordan 24.9%IFC/FINCA 06 Jordan 32%Frankfurt School of Fin & Mgmt 06
Algeria 20.7%
IFC sponsoredStudy
Yemen 40%
IFC 2007 Syria 43-46%Bank Indonesia2000
Indonesia (East Java) 49%
A recently survey Conducted by AlHuda CIBE in Azad Kashmir exhibits99% demand (4 Districts)
Demand of Islamic Micro Finance
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Institution Mode of Finance7 Sudanese Islamic Banks Murabaha, mudaraba, musharaka, and
saving deposit [SIB – Productive Families]
Islamic Cooperatives and RuralBanks of Indonesia
Cooperatives – Members’ Musharaka(integrated with Zakat Fund)
Rural Banks – Various modesIslami Bank Bangladesh, SocialInvestment Bank and AlFalah &Rescue
IBB – Mostly bai muajjalSIBL - Recourse generation - Cash Waqf andFinancing through various modes
Jordan Islamic Bank Musharaka and Mudaraba
UNCDF Yemen (HMFP) Murabahah and redeemable MudarabahSanabel (12 Arab countries, 64MFIs – meeting 80% of MFneeds)
Murabaha, mudaraba, musharaka
Amana Ikhtiar Malaysia andIslamic Pawn Broking
AIM – interest free loan Al Rahnu
– short term interest free loanagainst collateral at market value
International Experience of IslamicMicrofinance
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Pakistan’s Experiences
Institution Mode of FinanceAkhuwat AIM – interest free loan
Qaraz-e-Hasna
CWCD Murabahah, Ijarah, Salam & IstisnaMicroTakaful
NRSP – NWFP MurabahahMudarabah with BOK for funding Source
Khawendo Kor Murabahah but in limited scale
Islamic Relief Murabahah and Qarz-e-Hassan
KKCB Murabaha and MicroTakafulHelping HandMuslim AidTakaful Pakistan Limited
MurabahahMurabahahMicroTakaful
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Products for IMFI’s
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.•United States: 4•Kiva•Helping Hands•Muslim Aid
•Lariba
•Germany:2•- MuslimSociety•Switzerland:6•UK:
•- HSBC Amanah•- Muslim Aid•- Islamic Relief •- The Halal MutualInvestment Company
•Bahrain: 2
•Malaysia: 11•2 - Pure Islamic Banks(Bank Islam, BankMuamalat)•Rest - conventionalbanks
•UAE: 8•- Dubai Islamic Bank•- Abu Dhabi Islamic Bank•- HSBC Amanah
• Afghanistan: 4•- FINCA , WOCCU•- CHF• Ariana
•Kuwait: 2•- Kuwait FinanceHouse
•Iran: 8
•Egypt: 9•- Alwatany Bank of Egypt•- Egyptian Saudi Finance
•Indonesia: 4
•Sudan: 3
•Pakistan: 11•India: 3•Bangladesh:9
•Turkey: 7•- Faisal FinanceInstitution•- Ihlas FinanceHouse
• Yemen: 1
Islamic Microfinance InstitutionWorldwide
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A r i a n a F i n . S e r v i c e s
F I N C AWOCCUIMFI’s in Afghanistan
CHF
Akhuwat
Muslim
Aid
N R S P
K h w e
n d o K o
rCWCD
IMFI’s in PakKKCB
Donors
Islamic Funds
PPAF
IDB MISFA
Kuwaitfund
Int’l IMFI,s
AlBaraka AIM
UNCDF
F I N CA
I s l a m i c B a n k b d
B M T i n d o n e s i a
Islamic Microfinance Updates
HelpingHands
IR T P L
M e e z a n B a
n k I s l
a m i c F u
n d
UNDPWorldBank
USAID
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• FINCA loans are based on Murabaha principles,they don’t charge interest, but a Profit rate.
• Providing Shariah-compliant loans has made itpossible for FINCA to expand in areas of Afghanistan where other MFIs have been turnedaway for charging interest. According to 2007figures
• Clients: 41,213• Village Banks: 5,529• Portfolio: $8,324,142• Average loan size: $329• Staff members: 387• Clients per CO: 187
FINCA - Experience in Afghanistan
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Indicators Members of Investment and Finance Cooperatives
Unit of Measure Number
D a t a Di s
a g gr e g
a t i on
Regions North East GrandTotalProvinces Balkh Jawzjan Aqcha Samanga
nBaghlan Nangarhar
Total by Province 2,634 2,612 313 1,027 830 814 8,230
G e n d e r
Male 2,267 2,070 305 961 756 737 7,096
Female 367 542 8 66 74 77 1,134
004 – 2005 WOCCU helped to establish two area-based open bond credit unions in the nf Afghanistan: Balkh and Jawzjan.In 2007 , WOCCU has established another five Investment Finance Cooperatives (IFCs)the East and South of the Country for Murabaha
WOCCU Experience in Afghanistan
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• A UNDP run programme in one of the poorest areasin Syria.
• 22 self local financial institutions have beenestablished consisting of 4,691 members
• Each start up is self financed
• When ever repayment is satisfactory, UNDPprovides an additional capital injection
• Profit margin on Murabaha is 2.5%
• A source of income
• Repayment reached 100% by the end of the firstyear of operation (Brandsma, 2004)
JABAL AL HOSS, SYRIA:MURABAHA
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Functions and operations are basedon fully man made principles Functions and operations are basedon Sharia’h principles
assured of pre-determined rate of interest
Promote risk-sharing betweenprovider of capital (investor) and user of funds (entrepreneurs)
Aim at maximising profit without anyrestrictions
Aim at maximising profit but subjectto Sharia'h restrictions
Creditor-Debtor relationship Partners, investor and traders, buyer or seller relationship
Based on money trading. Money is amedium of exchange and not acommodity
Encourage asset-based financingand based on commodity trading &Services
Conventional Micro Finance Islamic Micro Finance
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It is almost risk free banking anddepositor has no risk of losing itsmoney because interest isguaranteed.
No right of profit if there is no riskinvolved. The profit and loss sharingdepositor may lose money in case of loss.
It can charge additional money incase of defaulters
Islamic banks have no provision tocharge any extra money from thedefaulters
Conventional Micro Finance Islamic Micro Finance