March 30, 2014

Key factors for market vibrancy

- March 2014

Dr. Sayd Farook, global head of Islamic finance at Thomson Reuters, speaks to Amilin TV at the WIBC Asia Summit 2013 about an initiative designed by Thomson Reuters and ADIB to recognize and reward innovation within an ethical framework in the Islamic finance industry.

http://www.zawya.com/video/Key_factors_for_market_vibrancy-VID20130724073210/

March 30, 2014

Poverty in Europe can be reduced by Islamic Microfinance

Poverty in Europe can be reduced by Islamic Microfinance
- March 2014

 

Zubair Mughal Chief Executive Officer at AlHuda Centre of Islamic Banking and Economics (CIBE) Top Contributor

In Europe 80% of the people which account for 17% of the whole European population, are living below the poverty line of European countries which is increasing in consequences of current European financial crisis and unemployment, while the major portion of European poverty prevails in eastern European countries i.e. Romania, Armenia, Albania, Bulgaria and Greece where more than 20% people are suffering from poverty which is unfavorably increasing where such indicators are proving that the poverty has not only been the critical issue of Africa, Latin America or South Asia rather the European countries are also being affected by it adversely whilst this issue can be addressed through introducing Islamic microfinance in Europe, said by Muhammad Zubair Mughal, Chief Executive officer- AlHuda Centre of Islamic Banking and Economics (CIBE) while addressing to the 10th Global Microfinance Forum held on 21st March, 2014 in Vienna, capital of Austria which was attended by delegates, experts and researchers from more than 35 countries.

He said that Islamic Microfinance should be introduced as a financial product in Europe for poverty alleviation to benefit all the religions without any religious discrimination. He added that recent researches as conducted by the international research institutes have proved that Islamic Microfinance has more impact in the lives of poor than the conventional microfinance and results in the better financial condition of poor beside improved health, education, employment creation, enhanced capacity and long lasting source of income. Islamic Microfinance, as per its characteristics, got enough appreciation and moving ahead, London is desired to be introduced as the Hub of Islamic Banking and Finance after the recent international financial crisis while number of Islamic Financial Institution are being established in Europe and America, while Islamic Microfinance institutions are also increasing rapidly, more than 300 Islamic Microfinance Institutions are working in 32 countries with a size of more than US $ 1 billion.

Muhammad Zubair Mughal said that to strengthen the Islamic microfinance there is need of introducing legal and regulatory regime of Islamic microfinance institutions so that Islamic Microfinance can be introduced globally in broader prespective. To gather the Islamic microfinance institutions on one platform, AlHuda Centre of Islamic Banking and Economics (CIBE) is going to organize Global Islamic Microfinance Forum 2014 in Abu Dhabi to streamline the policy for the development of Islamic microfinance, standardization and to resolve the similar issues for ultimate introduction of Islamic Microfinance as the best solution.
For further details: http://www.alhudacibe.com/imhd

courtesy: http://www.linkedin.com/groups/Poverty-in-Europe-can-be-3739650.S.5855417102000738306?view=&gid=3739650&type=member&item=5855417102000738306&trk=eml-anet_dig-b_nd-pst_ttle-cn

February 4, 2014

Securing the silent: An untapped potential for Islamic microfinance

Securing the silent: An untapped

potential for Islamic microfinance

  Published : 12:00 am  January 10, 2014  |

The 2014 budget reflects the Government’s desire to grow the country’s economy faster than other emerging market economies. Indeed, the Government has implemented some legal and tax reforms with the objective of permitting greater flexibility and meeting the needs of international investors. While such initiatives are commendable, it is to be noted that sustainable economic development cannot be achieved by focusing only on one segment of the economy while disregarding the other aspects, especially the social context.

Scaling up local innovations and entrepreneurship, among other things, is imperative for achieving sustainable socio economic development. Thus, access to finance has been recognised as being vital to enhance the capacity of the poor to utilise human effort for income generation and empowerment.
Islamic microfinance represents the convergence of two rapidly growing industries: microfinance and Islamic finance. It has the potential not only to respond to unmet demand but also to combine the microfinance’s power to provide financial access to the needy with the Islamic social principle of ‘caring for the less fortunate’. Unlocking this potential could be the key to providing financial access to many Sri Lankans who may be less favoured by the conventional banking system. A foundational step to this effect was taken by Amana Investments Ltd. as early in 2007 and recently by the Islamic Banking unit of the Bank of Ceylon.
What is microfinance?
Microfinance can be defined as the provision of financial services and products to people who are excluded from the traditional banking system, mainly because they lack the guarantees that can protect a financial institution against a loss or risk. These include microcredit, small scale venture capital, savings and certain forms of insurance.

Microfinance is considered as an effective and flexible tool to eradicate poverty and income inequalities. The United Nations General Assembly declared 2005 as the International Year of Microcredit in order to recognise the contribution and importance of microfinance.

The basic principle of microfinance as succinctly expounded by Dr. Muhamad Yunus, the founder of Grameen Bank Bangladesh and the recipient of the Nobel Peace Prize in 2006, is that credit is a fundamental right of a person.

The primary mission of microfinance, therefore, is to help the poor in assisting themselves to become economically independent. Credit or loans are given for self-employment and for financing additional income generating activities. The assumption of the Grameen model is that the expertise of the poor is underutilised. In addition, it is also believed that charity will not be effective in eradicating poverty as it will lead to dependency and lack of initiative among the poor.

Among the key features of microfinance is disbursement of small size loan to recipients who are micro entrepreneurs and needy. The loan is given for the purpose of a new income generating project or business expansion. The terms and conditions of the loan are generally easy to understand and flexible. It is provided for short term financing and repayments can be made on a weekly or on a lengthy basis. The procedures and process of loan disbursements are normally fast and easy.

Additional capital may also be given after the full settlement of the previous loan is made. This system gives individuals and families the financial fuel they require to stand on their own feet without the repressive burden of repaying moneylenders beyond their means.

A glimpse at Islamic finance
Islamic finance refers to a system of finance based on Islamic law (generally referred to as Sharia). Islamic finance principles are premised on the general principle of providing for the welfare of the population by prohibiting practices considered unfair or exploitative. The most widely known characteristic of the Islamic financial system is the strict prohibition on giving or receiving any fixed, predetermined rate of return on financial transactions. This ban on interest, agreed upon by a majority of Islamic scholars, is derived from two fundamental Sharia precepts:

  • Money has no intrinsic value. Money is not an asset by itself and can increase in value only if it joins other resources to undertake productive activity. For this reason, money cannot be bought and sold as a commodity, and money not backed by assets cannot increase in value over time.
  • Sharing risks and rewards. A predetermined rate of return cannot be guaranteed to providers of funds. The lender and borrower should share the rewards as well as the risks associated with the investment.
  • Material finality. All financial transactions must be linked, either directly or indirectly, to a real economic activity. In other words, transactions must be backed by assets, and investments may be made only in real, durable assets. This precludes the permissibility of financial speculation, and therefore, activities such as short selling are considered violations of Sharia.
  • Investment activity. Activities deemed inconsistent with Sharia, such as those relating to the consumption of alcohol or pork and those relating to gambling and the development of weapons of mass destruction, cannot be financed. In broader terms, Sharia prohibits the financing of any activity that is considered harmful to society as a whole.
  • No contractual exploitation. Contracts are required to be made by mutual agreement and must stipulate exact terms and conditions. Additionally, all involved parties must have precise knowledge of the product or service that is being bought or sold.

Islamic finance extends beyond the ban of interest based transactions and following are some other important principles laid down by Sharia:
There is growing interest from financial institutions around the world in designing Sharia compliant products and services to attract more investors. This can build a greater level of trust and understanding between the lender and the borrower due to the deeper relationship built through partnering than that through a mere service provider-client relationship. Since only investment in socially beneficial activities is permitted, ethical investments and business practices would be promoted among entrepreneurs. Indeed, Islamic finance shares many of the features of socially responsible finance.

The nexus
Many elements of microfinance could be considered as being consistent with the broader objectives of Islamic finance. At a very basic level, the disbursement of collateral-free loans in certain circumstances is an example of how Islamic finance and microfinance share common aims. This close relationship would not only provide obvious benefits for needy entrepreneurs, who would otherwise be left out by credit markets, but also would give investors in banks an opportunity to diversify their investments.

Both Islamic finance and microfinance theoretically start from a democratic approach as both systems of finance are open to all customers with different and sometimes coinciding needs without any apparent restriction among them. Both systems advocate entrepreneurship and risk taking through partnership finance and both are also forms of finance which represent unconventional solutions to financial needs focusing on cash-poor but promising business activities.

The main distinction between both systems is in respect of the mode of financing. Conventional microfinance adopts interest-based financing while Islamic microfinance adopts a profit and loss sharing approach. Some research papers on the subject have questioned the overall desired impact of the conventional microfinance since the poor are subjected to very high interest rates, sometimes as high as 30%.

Some have also argued that disbursing credit to the poor to make huge financial gains out of the same cannot be the aim of microfinance institutions. The rationale behind this argument is that interest charged is rather oppressive for the borrowers, thus which in effect is contrary to the noble objectives of microfinance.

Islamic microfinance products

Islamic finance with its emphasis on risk sharing is compatible with the needs of micro-entrepreneurs. Expanding Islamic finance to the poor could foster development in the right direction as it causes minimal financial hardship to micro-entrepreneurs and promotes entrepreneurship.

Most of the Islamic finance products that are being used by banks can be adopted in microfinance with necessary changes to adjust informal environment. The following products have great potentials to be advanced and adapted as Islamic microfinance schemes:

Musharakah: Musharakah can be developed as a micro finance scheme where the bank will enter into a partnership agreement with micro entrepreneurs. Where there is a profit, it will be shared based on a pre-agreed ratio, and where there is a loss, it will be shared according to the capital contribution ratio. The most suitable technique of musharakah for microfinance is the concept of ‘diminishing partnership’ or musharakah mutanaqisah.

Under ‘diminishing partnership’ the capital ratio of the entrepreneur gradually increases through repayment of capital resulting in the entrepreneur finally becoming the sole proprietor of the business. The repayment period depends on the pre-agreed period. This scheme is more suitable for existing businesses which require new or additional capital for expansion.

Another form of musharakah is musaqat which is a profit and loss sharing partnership contract for orchards. In this case, the harvest will be shared among all equity partners (including the entrepreneur) according to their respective capital contributions. All the musharakah principles will be applicable for this form of musharakah. This scheme, however, could be of high risk to the bank since it needs the capital and expertise to directly involve in the business, especially in managing the orchards.

Musharakah capital may be subjected to capital impairment risk – the capital may not be recovered as it ranks lower than debt instruments upon liquidation. The normal risk mitigation techniques that can be adopted by banks, a third-party guarantee for example, are also applicable in the case of microfinance.

Third-party guarantee can also be obtained and structured for the loss of capital of some or all partners through a system known as Credit Guarantee Corporation (CGC) as practiced in Malaysia. CGC is an institutional arrangement that provides guarantees to loans obtained by SMEs which lack collateral.

Mudarabah: Mudarabah is where the capital provider or microfinance institution (rabbul mal) and the small entrepreneur (mudarib) become partners. The profits from the project are shared between capital provider and entrepreneur. Subject to some restrictions, the financial loss will be borne by the capital provider. The entrepreneur’s loss is restricted to the fact that his labour has gone in vain and his work has not brought any fruit to him. However, as stated, this principle is subject to a condition that the entrepreneur work with due diligence which is normally required for that type of business. Where the entrepreneur has worked with negligence or has committed dishonesty, he shall be liable for the loss so caused.

Mudarabah structure could be based on a simple or bilateral arrangement whereby the bank provides the capital and the micro-entrepreneur acts as an entrepreneur.

The profit-sharing ratio on mudarabah is pre-determined only as a percentage of the business profit and not as a lump sum payment. The profit allocation ratio must be on the basis of an agreed percentage and must be clearly stated. Profit can only be claimed when the mudarabah operations make a profit.

Losses must be compensated by profits generated from future operations. Once the full settlement of capital provider’s share has been made, the business entity will be owned by the entrepreneur and the entrepreneur, therefore, will exercise full control over the business without any interference from the bank.

Meanwhile, muzara’ah is a form of mudarabah contract in farming where the bank can provide land or monetary capital for farming products in return for a share of the harvest according to a pre- agreed profit sharing ratio. In the context of microfinance, the capital provider may need huge capital and expertise to manage such initiative and may need to manage high risk since the bank needs to involve directly in the farming sector through provision of assets such as land. Although the entrepreneur exercises full control the bank can still undertake supervision as part of risk mitigation.

Murabahah: Using murabahah as a mode of microfinance requires the bank to acquire and purchase an asset or business equipment and then sell it to the entrepreneur at a mark-up. The entrepreneur may settle the selling price on an instalment basis. The bank will be the owner of the asset until full settlement. This is the most appropriate scheme for purchasing business equipment for a micro-entrepreneur.

Murabaha may seem similar to a hire purchase agreement but it must be noted that murabaha is essentially a contract of sale where the profit element is disclosed to the buyer and the buyer is given the option to pay the sales price in deferred terms.

Murabahah is said to be a more feasible and suitable scheme of Islamic microfinance to be provided by banks. This is due to the fact that the buy-resell model which allows repayments in equal instalments is easier to administer and monitor.

Under the extended concept of Murabahah i.e. Murabahah to the Purchase Orderer; a micro entrepreneur can enter into a sale and purchase agreement or memorandum of understanding to purchase a specific kind of goods or equipment needed by the micro-entrepreneur with the bank. The bank then can sell the goods to the entrepreneur at cost plus mark-up and the entrepreneur can pay back later in lump-sum or by instalments (bai muajal). A number of Shariah principles must be met for the contract to be valid such as the goods must be in existence at the time of sale; ownership of the goods must be with the bank; the goods must have commercial value; the goods are not to be used for a prohibited (haram) purpose; the goods must be specifically identified and known; the delivery of goods is certain and not conditional upon any event; and the selling price is fixed at cost plus mark up.

Murabahah could be easily implemented for microfinance purposes and can be further exemplified by the use of deferred payment sale.  The credit risks that may associate with Murabaha can be mitigated by requiring a third party financial guarantee or a pledge of assets. Besides, the bank can also institute direct debit from the entrepreneur’s account or make use of the centralised blacklisting system or impose a minimum non-compounded penalty to deter delinquent entrepreneurs. (Such penalty should not be considered as an income of the bank and the same should be used for Shariah approved charity after deducting bank’s administration charges).
Murabahah to the Purchase Orderer also exposes banks to delivery risk where the goods are not delivered or not delivered on time or not according to specification by the entrepreneur after payment is made by the bank. In order to mitigate delivery risks bank may request a performance guarantee from the seller to give assurance on the due delivery of goods.

Ijarah: Ijarah by definition is a long term contract for rental of property, plant and equipment subject to specific conditions as prescribed by Shariah. Unlike conventional finance lease, the lessors (bank) not only own the asset but also takes the responsibility of monitoring the use of the asset and discharges its responsibility to maintain and repair the asset in case of mechanical default not caused due to wear and tear.

The bank should first purchase the asset prior to the execution of an ijarah contract. The bank takes possession of the assets and subsequently offers the asset on lease to the customer. The bank is then responsible for the risks associated with the asset.

Ijarah Muntahia Bitamleek is an elaborate concept of ijarah where the transfer of ownership will take place at the end of the contract period and is pre-agreed between the lessor and the lessee. The title of the asset will be transferred to the lessee either by way of gift, token price, at a pre-determined price or through gradual transfer of ownership. Ijarah Muntahia Bitamleek is more suitable for micro finance schemes especially for micro entrepreneurs who are in need of assets or equipment. The entrepreneurs can use the asset on rent the asset over a period of time and pay the rentals at regular intervals. The entrepreneur, as the lessee, will be responsible for the safeguarding of the asset whereas the lessor will monitor its usage.  The bank may be exposed to minimal risk for ijarah in which case the bank, as the owner of the asset, should have the right to repossess the asset.

Qardhul Hasan: Another simple concept that can be advanced for microfinance purposes is qardhul hasan – an interest free loan. Banks can pursue this concept as one of their Corporate Social Responsibility (CSR) initiatives to provide finance to the entrepreneurs who are in need of small start-up capital. The bank, however, is allowed to charge a service fee. The terms of repayment will be on an instalment basis for an agreed period of time. The scheme is also relevant for micro entrepreneurs who are in need of immediate cash and also have the potential to make full settlement. The bank will bear the credit risk and the bank must choose the right technique to ensure repayments will be received as agreed.

Potential challenges and strategic responses

Even though Islamic microfinance has high potential to expand, the industry is yet to validate the fact that it can actually provide financial services that meet the needs of the poor on a larger scale. There are several challenges that could hinder the scaling up of Islamic microfinance in Sri Lanka.

 National reach

In order to improve the access of target groups, Islamic microfinance schemes should not be considered as a marginal program but as integrated programs with the general banking and financial services industry. Islamic microfinance will reach its full potential only if it is integrated into the country’s mainstream of finance. This is necessary to promote greater awareness of products; standardise regulations; improve transparency and strengthen outreach mechanisms.
 Regulatory environment
For Islamic microfinance programs to be successful, governments should provide for a policy environment that allows diverse and competitive Islamic microfinance service providers to emerge and flourish. A good policy environment supported by the Government would allow a range of financial service providers to coexist, compete and offer lower cost but higher quality services to large number of poor clientele. Conducive policies should also support and provide incentives for the private sector to introduce innovative funding channels to support the poor.

Furthermore, the Government’s role should ensure macroeconomic stability, liberalisation of interest rates and establishment of banking regulation and supervision to make microfinance viable and compatible for both conventional and Islamic microfinance programs.

While diverse models and practices are inherent in the choice and flexibility of Islamic microfinance offers, these services need to be regulated in order to improve transparency, consumer confidence and prevent fraud on beneficiaries due to the unfamiliarity with such products.

Stability

The failures in microfinance, in general, have occurred when microfinance financial institutions have not been properly administered.

The capacity building of microfinance financial institutions depends on building strong and transparent management structures. Merely espousing Islamic principles does not absolve them from creating a culture of accountability. As several reports have indicated, microfinance works best when its performance is measured and disclosed. Reporting not only helps stakeholders to evaluate costs and benefits but it also promotes a performance oriented culture.

Microfinance financial institutions need to produce accurate and comparable data on financial and social performance. Islamic microfinance institutions  which seek to enhance the position of the poor, including the realisation of their rights to secure shelter, must contribute to the development of a culture of financial and social accountability which embraces innovative approaches to participation by their members.

Product development

Sharing of best practice and harmonization of general Islamic microfinance products, allowing for inherent diversity, would enhance the credibility of the Islamic microfinance industry.  The demand for the development of Islamic microfinance products may not be as obvious or as strong as the demand for Islamic financial instruments in the commercial banking sector is. Nevertheless, there is considerable scope for Islamic microfinance providers to develop new products as solutions to a variety of financial problems. However, the right approach to product development is a strategic one that takes a holistic view of microfinance as a composite product which comprises of the need for financing, savings and investment, insurance, remittance and other related services.

Capital market participation

Lack of liquidity and capital are among the potential problems that confront Islamic microfinance players. Conceptually, the problem may be overcome by  profitable  and  high performing  microfinance  providers  as they are  able  to  raise additional  resources  from  the  capital market  or  through a  processes  of  asset securitisation. Securitisation may be pursued, if necessary, after creating a single pool of Islamic microfinance borrowers together with cash-flow-earning assets of several microfinance providers.

Rating agencies play an important role in debt capital raising as they provide indicators of default risk. In addition, dedicated funds could also be established to invest in Islamic microfinance financial institutions. The creation of such funds would involve a mechanism similar to that of the Islamic mutual funds within the framework of mudarabah or wakalah.

Education and training

As pointed out earlier, lack of education and training among clients and organisation personnel will constitute a major challenge for the Islamic microfinance sector. Especially, lack of trained manpower is a major constraint for its expansion, growth and consolidation. Thus, education and training are imperative for an effective strategy for the growth and rejuvenation of the Islamic microfinance sector.

Since traditional banking is not suited for collateral-free entrepreneurship-oriented microfinance, there is a need to create a cadre of microfinance experts by imparting training to persons with diverse experience in fields such as banking, finance, investments, entrepreneurship development and community development. There is also a need to educate the clients in subjects like basic accounting and management. Accounting knowledge is of high importance because  of  the  obvious  need  to  calculate  profits  in the case  of participatory financing methods, such as, mudarabah and musharakah.

Conclusion

It is apparent that Islamic microfinance is an effective socioeconomic development tool that has untapped potential to achieve the development goals of the Government while strengthening growth prospects of the economy. In fact, the gap between the wealthier and the poorer would be bridged to some extent by the scaling up Islamic microfinance contributing to the underlying philosophy of distributive justice which seems to be less catered by the country’s prevailing tax system.

The policy makers, regulatory authorities, banks, financial institutions, Islamic finance experts and other stakeholders should work together in order to realise the potential of Islamic microfinance.

Let us wish that the financial sector in Sri Lanka will seize the opportunity of Islamic microfinance and enhance its contribution to the society and the national economy at large.

(The writer is a Passed Finalist of the Chartered Institute of Management Accountants, United Kingdom and holds Bachelor of Laws Degree from the Faculty of Law, University of Colombo and Islamic Finance Qualification (IFQ) from the Chartered Institute for Securities and Investment, United Kingdom. He can be reached via shamilsm@gmail.com)

January 1, 2013

Islamic Microfinance Presentations

Islamic Microfinance – 1st January 2013

A collection of presentations on Islamic Microfinance have been collected by Al Huda Centre for Islamic Banking, from different sources and placed in their website, for promoting and backing up the cause of Islamic Banking and Finance. You are also invited to Share/Contribute your Research & Development works to strengthen this cause.

Please visit the following link to download the files.
http://www.alhudacibe.com/conference2012.php

June 26, 2011

Islamic Microfinance in Luxembourg

by Vincent Linari-Pierron and Elie Flatter
Luxembourg, April 2009

 

http://www.legal500.com/assets/images/stories/microfinance.pdf

 

 

 

 

 

http://www.legal500.com/assets/images/stories/microfinance.pdf

March 16, 2011

Waqf for Poverty Alleviation and Socioeconomic Development

Waqf for Poverty Alleviation and Socio Economic Development

Dr . Zeesh a n Ahmed , Ph .D. , CFA LUMS,  has made a presentation on Potential of Waqf for Poverty Alleviation and Socioeconomic Development
at the international Conference on Islamic Business and Finance – Feb 8-9, 2011.

The presentation slides could be downloaded from following link.

http://www.icib-riu.org/downloads/Dr%20Zeeshan%20Ahmed-%20Potential%20of%20Waqf%20for%20Poverty%20Alleviation%20and%20Socio-economic%20Development.pdf

March 16, 2011

Islamic Microfinance

Islamic Microfinance

Brother  Saleem Ullah Director Islamic Banking Department, State Bank of Pakistan,  has made a presentation on Islamic Microfinance
at the international Conference on Islamic Business and Finance – Feb 8-9, 2011.

The presentation slides could be downloaded from following link.

http://www.icib-riu.org/downloads/Saleemullah-%20Islamic%20Microfinance.pdf

March 16, 2011

An Alternate Approach to Micro Financing

Microcredit using Equity Financing: an Alternate
Approach to Micro Financing in an Interest Free Economy

Brother  Salman Ahmed Shaikh of Halal Tamweel – A Subsidiary of BMC PakistanHead, Islamic Financial Advisory Services,BMC Pakistan has made a presentation on Microcredit using Equity Financing: an Alternate
Approach to Micro Financing in an Interest Free Economy at the international Conference on Islamic Business and Finance – Feb 8-9, 2011.

The presentation slides could be downloaded from following link.

http://www.icib-riu.org/downloads/Salman%20Ahmed%20Shaikh-Microcredit%20using%20Equity%20Financing.pdf

March 11, 2011

Grameen La Riba Model: A Strategy for Global Poverty Alleviation

The objective of this paper is to develop and implement an Islamic microfinance model, using the Grameen group methodology, which can be used as a tool for global poverty alleviation.

 

http://www.ibtra.com/pdf/journal/v5_n2_article4.pdf

Our model begins with providing carefully self-selected client groups with murabaha contracts before providing musharaka finance. The murabaha financing agreement includes fixed payments each period of repayment and therefore is easier to administer and can be used to screen out potentially problematic clients who are most likely to default. Those clients who are in groups with successful repayment of the murabaha finance will have a choice between murabaha and musharaka financing in the future. Finally, we describe our implementation strategy and preparations for a pilot study in Colombo and Bibile, Sri Lanka.

visit here to download the article.

March 9, 2011

Muslim Aid Sri Lanka. Serving Humanity : Micro-Finance

Background – Microfinance

 

Muslim Aid Sri Lanka’s Micro Finance programme is run with the vision of alleviating both, poverty and dependency syndrome existing within the conflict affected poor who have no access to the formal financial sector. Providing the selected beneficiaries with micro loans, the Micro Finance Team then focuses on inculcating the spirit of competition and excellence within those individuals or groups by providing market linkages, Business Development Services and close Field officer – client relationship that motivate beneficiaries to repay their loans and then expand their enterprises by being granted a second and bigger loan and thus keep growing.

Islamic Microfinance provision in Sri Lanka is very low. Islamic financial  Institutions still  couldn’t reach the village level people in Sri Lanka. Muslim Aid is the pioneer in initiating a comprehensive Shari’ah microfinance package in Sri Lanka. And also Muslim Aid is creating and facilitating the Islamic Microfinance market and conducive environment by providing innovative solutions and creating knowledge among the stakeholders, specially creating awareness among the village community in general on Islamic Microfinance concept, theory and practice.

Clients belong to all communities and are selected from the segment of the entrepreneurial poor who were affected by, poverty and the recently concluded civil war. The large majority of them are sole proprietors where their own kith and kin help out in the running of the business. These enterprises are mainly located in village or market centers. Muslim Aid focuses on sectors such as Agriculture, Livestock, Fisheries, Trade/ Business and Skilled Labors.

MASL offers following Islamic Microfinance services to the poor to develop their livelihood interventions in innovative and sustainable manner.
Financial Services
• Murabaha
• Salam
• Isthisna
• Musharaka
At the end of March 2010, MASL has active clients of more than 700 in both Trincomalee District (Muthur Branch) and Batticaloa District (Batticaloa Branch).

http://www.muslimaidsl.org/microfinance.php

Background – Microfinance

Background – Microfinance

 

Muslim Aid Sri Lanka’s Micro Finance programme is run with the vision of alleviating both, poverty and dependency syndrome existing within the conflict affected poor who have no access to the formal financial sector. Providing the selected beneficiaries with micro loans, the Micro Finance Team then focuses on inculcating the spirit of competition and excellence within those individuals or groups by providing market linkages, Business Development Services and close Field officer – client relationship that motivate beneficiaries to repay their loans and then expand their enterprises by being granted a second and bigger loan and thus keep growing.

Islamic Microfinance provision in Sri Lanka is very low. Islamic financial  Institutions still  couldn’t reach the village level people in Sri Lanka. Muslim Aid is the pioneer in initiating a comprehensive Shari’ah microfinance package in Sri Lanka. And also Muslim Aid is creating and facilitating the Islamic Microfinance market and conducive environment by providing innovative solutions and creating knowledge among the stakeholders, specially creating awareness among the village community in general on Islamic Microfinance concept, theory and practice.

Clients belong to all communities and are selected from the segment of the entrepreneurial poor who were affected by, poverty and the recently concluded civil war. The large majority of them are sole proprietors where their own kith and kin help out in the running of the business. These enterprises are mainly located in village or market centers. Muslim Aid focuses on sectors such as Agriculture, Livestock, Fisheries, Trade/ Business and Skilled Labors.

MASL offers following Islamic Microfinance services to the poor to develop their livelihood interventions in innovative and sustainable manner.
Financial Services
• Murabaha
• Salam
• Isthisna
• Musharaka
At the end of March 2010, MASL has active clients of more than 700 in both Trincomalee District (Muthur Branch) and Batticaloa District (Batticaloa Branch).

 

Muslim Aid Sri Lanka’s Micro Finance programme is run with the vision of alleviating both, poverty and dependency syndrome existing within the conflict affected poor who have no access to the formal financial sector. Providing the selected beneficiaries with micro loans, the Micro Finance Team then focuses on inculcating the spirit of competition and excellence within those individuals or groups by providing market linkages, Business Development Services and close Field officer – client relationship that motivate beneficiaries to repay their loans and then expand their enterprises by being granted a second and bigger loan and thus keep growing.

Islamic Microfinance provision in Sri Lanka is very low. Islamic financial  Institutions still  couldn’t reach the village level people in Sri Lanka. Muslim Aid is the pioneer in initiating a comprehensive Shari’ah microfinance package in Sri Lanka. And also Muslim Aid is creating and facilitating the Islamic Microfinance market and conducive environment by providing innovative solutions and creating knowledge among the stakeholders, specially creating awareness among the village community in general on Islamic Microfinance concept, theory and practice.

Clients belong to all communities and are selected from the segment of the entrepreneurial poor who were affected by, poverty and the recently concluded civil war. The large majority of them are sole proprietors where their own kith and kin help out in the running of the business. These enterprises are mainly located in village or market centers. Muslim Aid focuses on sectors such as Agriculture, Livestock, Fisheries, Trade/ Business and Skilled Labors.

MASL offers following Islamic Microfinance services to the poor to develop their livelihood interventions in innovative and sustainable manner.
Financial Services
• Murabaha
• Salam
• Isthisna
• Musharaka
At the end of March 2010, MASL has active clients of more than 700 in both Trincomalee District (Muthur Branch) and Batticaloa District (Batticaloa Branch).

March 5, 2011

ISLAMIC MICROFINANCE – LEARN

AlHuda CIBE is a well established name in Islamic financial market focusing on Awareness, Education, Training, Promotion, Advisory and Publications on Islamic Banking and Finance in not only in Pakistan but also around the globe.

AlHuda CIBE is offering a one month specialised Training programme on

CERTIFIED ISLAMIC MICROFINANCE MANAGER

from 7th March 2011.

TOPICS TO BE DISCUSSED

Fundamentals of Islamic Finance

  • What is Islamic Finance – Basic concept
  • Introduction & Types of Riba
  • Islamic Financial Products Structures & Mechanisms for Islamic Micro Finance Institutions

Islamic Micro Finance

  • Incidence of Poverty and Low Economic opportunity
  • Micofinance a tool for poverty alleviation
  • Islamic Microfinance Shariah compliant way of poverty alleviation
  • Challenges and Opportunities for Islamic Microfinance Institutions
  • SBP efforts for Development of Islamic Microfinance
  • Potential of Islamic Microfinance for social Development
  • Need of Islamic Microfinance Network

Trade Based Mode of Financing in Islamic Microfinance

Murabaha

  • Islamic Law of Contracts
  • Understanding the key concepts of Murabaha
  • Product compositon of Murabaha
  • Practical execution in IMF System

Bai Salam & Istisna

  • Basic rules & types of Bai
  • Bai Salam & Parallel Salam
  • Bai Istisna
  • Practical implementations in IMF Institutions

Partnership based Mode of Finance

Mudaraba & Musharaka

  • What is Mudaraba & Musharaka?
  • Internal Product Structures
  • Profit & Loss Distribution
  • How can serve up IMF

Rental Based Products practiced in Islamic Microfinance

Ijarah

  • Ijarah as the alternative of Conventional Lease
  • Product structure of Ijarah financing
  • Rental Mechanism & Practicing in IMF institutions

Diminishing Musharaka

  • Concept and Definition
  • Determination of Rental Mechanism
  • Unit Sale Mechanism
  • DM as Micro Housing Finance

Zakat & Awqaf for Poverty Alleviation

Islamic Microfinance Bank Model

Micro & Banca Takaful

  • Principle of Takaful business
  • Practical aspect of Micro Takaful
  • Banca Takaful as distribution channel for Micro Takaful

Sukuk

  • What is Sukuk? Shariah Legitimacy of Sukuk
  • Sukuk for  Microfinance Sector

Innovaiton and Development in Islamic MIcrofinance Sector

  • Technological Intergration in Islamic Microfinance Sector
  • Web based Islamic Microfinance – A new Approach
  • International Trends of Islamic Microfinance – Case Study
  • Funding Sources of Islamic Microfinance
  • How Islamic Microfinance is beneficial for Donor Agencies
  • Delinquency Management for Islamic Microfinance

Panel of Lecuturers

Mr Zubai Mughal

CEO – Al-Huda CIBE

Chief Editor True Banking

Mr Hamad Rasool

Director Research & Development – Al-Huda CIBE

Mr Aamir Malik

Head of Islamic Microfinance Department

Mr Mujahid Rasheed

Head of Islamic Housing Finance Department – Meezan Bank Limited

Course structure

Date: 07th March 2011 onwards

Duration: 1 month – First 3 days of the a week

Time: 6.00 p.m. to 9.00 p.m.

Fee: PKR 9,500/-

CONTACT:

Rooma Malik

Trainings Manager,

AlHuda, Centre of Islamic Banking and Economics

192 Ahmed Block, New Garden Town, Lahore – Pakistan

Ph: + 92 (0)42 – 35913096 – 8 , 38407850

Fax: + 92 (0)42 – 35913056

Email: info@alhudacibe.com

web: http://www.alhudacibe.com

January 22, 2011

Publications in Islamic finance

Publications in Islamic finance: a list of recommended academic journals to which articles in Islamic finance could be submitted.

1. Review of Islamic Economics
2. Journal of Middle Eastern Finance
3. ISRA Journal
4. IIU journal
5. Islamic Finance Today
6.the journal from King Abdulaziz University on Islamic Economics Research Center (from their Islamic Economics Research Center).
7.- International Journal of Islamic and Middle Eastern Finance and Management
8.- Journal of Islamic Accounting and Business Research
9.Our blog and linkedin group where recently featured in Islamic Banking & Finance Magazine (thanks to Thomson Reuter’s Rushdi Sidiqqui):
http://tinyurl.com/4u6aatn

10. You can find the latest edition of Opalesque Islamic Finance Intelligence (OIFI) here:
http://tinyurl.com/4a9fp98

Alternatively, the historical archive of OIFI is here:
http://tinyurl.com/49xn372

11.The Islamic Finance Resources team
http://islamic-finance-resources.blogspot.com/

January 22, 2011

Islamic Microfinance – Collection of documents

22nd January 2011

Please visit following site.

You can access whole heap of information on Islamic Microfinance.

Its free.

http://ebookbrowse.com/search/islamic-microfinance

January 8, 2013

Innovations in Islamic Microfinance – Sudan

Innovations in Islamic Microfinance

for Small Farmers in Sudan

December 12, 2012

Kashif Naeem

To enable financial inclusion for small farmers, the entire value chain needs to be understood and supported, and financial products have to be designed keeping in mind their unique needs. We at Bank of Khartoum believe that Islamic microfinance products can effectively reach small farmers in Sudan when customized to their needs.

 

We are reaching small farmers through a series of capacity building projects and developing tools such as group financing, co-operative, production-risk guarantees, and crop-insurance products aimed at small-scale farmers.

One such effort is the Farmers2Markets project, called “Maringa & Jatropha”, which has the following elements:

Understanding the varied microfinance market

Farmers in many parts of rural Sudan have access to land but do not have access to finance and better opportunities to link their produce to the market. For example, a farmer with only two able-bodied members in the family, with no access to resources to invest in either land preparation or weeding cannot plant more than five acres. This leaves many families (especially single female headed households) in a very vulnerable state and keeps them in an endless cycle of poverty and food insecurity.

In comparison, poor urban farmers have no access to land or it is too expensive for them to own. For them, Bank of Khartoum has developed a micro leasing product (Ijara) as well as Muzaraa.

 

Role of microinsurance and financing risk guarantees

The idea is to cover part of the large-scale losses, if any, for a bank venturing into providing finance to small-scale farmers. This could significantly expand lending and over the long-term also get farmers to pay part of their initial financing amount for such financing-risk guarantees. Large-scale use of such a tool would also significantly reduce the cost of such a guarantee for all farmers involved.

We are working with insurance companies to offer insurance products specifically aimed at small-scale farmers. Our experience tells us that these products have to be accompanied with extensive program for educating  farmers on the use of micro-insurance and have the premiums paid directly by the farmers, or make it part of the initial  finance amount.

 

Investing in extension services

Currently extension services in Sudan are not a “market” in the strict sense of the word. When provided, it is a free service by the Ministry of Agriculture (MOA). In reality, such extension services are far and few due to significant funding constraints at government level. However, the MOA has built up a large group of eco-zone-specific and state-specific experts on agriculture. Some initial capital is required for these experts to work with farmers and identifying viable small-scale farms and businesses, through Small-Scale Farmers Associations (SSFA).

 

A key aspect of extension services in rural and rain-fed agriculture areas is to provide training to farmers on appropriate seed selection, fertilizer usage, crop growth parameters, rainfall and water harvesting techniques, pest control, proper harvesting techniques, cleaning/bagging of harvest, and connect to appropriate markets for sale of crops. The UN World Food Program contributed to our Farmers2Market project by implementing its Food for Training (FFT) program during the hungry season. Food also kept the farmers in the farm, rather than seek daily wage labor to secure food the next day. Public subsidy can be used effectively to build infrastructure such as electric grids.

 

Linking farmers to the market 

We are working on ways to connect farmers directly to big buyers. Three sets of options are being explored alongside exploring the use of mobile phones and extension agents to makes prices more transparent.

With an increase in the flow of information to farmers about prices, we hope that local traders will provide them with better prices for their produce than before. The second way is working with the World Food Program and the Central Bank of Sudan to convince private Sudanese companies (such as DAL Groups and Hajjar), as well as international companies to source produce directly. The idea is to get companies to share part of the profit with farmers (from buying directly at farm-gate prices) by paying insurance premiums, providing better quality seeds, and paying for extension services.

Finally, we are working with the Strategic Reserve Corporation of the Government, to act as a buyer of last resort. This arrangement will allow farmers to have the security of a buyer of their crops. This would also put pressure on traders to offer “better prices” for small-scale farmers for their produce. The UN World Food Program, where price/quality of farmer produces is on par with international standards, will try and buy the surplus for its own programs such as school feeding and food for work.

In conclusion, our experience shows how investment from private sector, as well as smart public subsidy, can be leveraged to make financial services help solve some of the problems that small farmers face on a daily basis.

 

—- The author is the Executive Vice President & Group Head of Retail & Microfinance at the Bank of Khartoum, Sudan.

For more information on Islamic Microfinance you could refer to a previous blog series on the topic.

 

Photo Credit: Samuel de Leon

Leasing or “Ijara” is an Islamic finance product in which the bank can buy the land and provide it to the farmer with monthly or annually fee, and in some cases the leasing contract ended by selling the land with small value amount to the farmer once he paid the entire agreed leasing fee.

Muzaraa is an Islamic finance product in which the land owner, the bank and the farmer are bonded together, where the land owner will provide the land for the famer, the bank will provide the capital for the farmer who will cultivate the land, and when harvesting, the crops will be distributed fairly between the three parties.

 

Pasted from <http://www.cgap.org/blog/innovations-islamic-microfinance-small-farmers-sudan>

January 8, 2013

Islamic microfinance: How is it different?

Islamic microfinance: How is it

different?

Posted by Brigitte Bradford on May 1, 2012

Kiva lends to thousands of entrepreneurs in countries where Islamic law impacts how people can borrow money and pay it back. Below, learn how Kiva’s Field Partners approach these loans, which will be identified in loan descriptions going forward.

How is Islamic microfinance different?

Islamic banking was created as a separate path of financing in order to comply with prohibitions stipulated by Islamic law. Also referred to as Sharia law, Islamic law can be considered God’s law as interpreted by Muslims.

Islamic scholars called Muftis in the Sunni tradition and Mullahs in the Shia tradition are charged with interpreting this law. The central texts of Sharia law are the holy book of the Qur’an, and the examples set forth by Muhammad and his early followers are documented in a collection of texts called the Hadith. To render a legal opinion, scholars weigh an action or principle against these texts and determine if it is in accordance with the spirit of the law.

Sharia law is very clear about charging interest on loans. The Qur’an forbids usury, or riba, in four different revelations based on the belief that money is only a medium of exchange and has no value in itself. Islam has not relented to pressures from the marketplace and has maintained its stance that charging interest on loans is usurious and a violation of Islamic law.

However, by differentiating trade from usury, the Qur’an reaffirms the practice of trading as a respectable profession. The importance of trading partnerships has motivated financial intermediaries to find creative ways to help Muslims access loans without violating Islamic law.

Some of Kiva’s Field Partners that serve Muslim borrowers have created loan products based on Islamic principles to better serve their clients. These products have 0% interest and vary in design and delivery mechanisms. While some charge a service fee to cover the costs of administering loans, others share risk between lenders and borrowers or lease assets to borrowers (see next section for more details).

To certify that these products are compatible with Islamic principles, it is important for a microfinance institution to receive a fatwa, a legal pronouncement made by an Islamic scholar or religious leader, that officially condones its work.

Why does Kiva support Islamic microfinance?
The prohibitions against usury in the Qur’an are designed to protect weaker individuals from exploitation. Islamic microfinance attempts to capture the spirit of Sharia law by allowing financial tools that create and maintain a just economic system — one that protects clients through built-in mechanisms like risk sharing.

Kiva believes in supporting products that are culturally compatible and designed to protect borrowers.

What Islamic loan products appear on Kiva?

Kiva Field Partners post the following loan products to serve Muslim clients (adapted from traditional Islamic financial principles):

1) Qard Hassan: Interest free loans, usually to students or the very poor.

2) Murabaha: Purchasing goods for borrowers and charging a fee* or mark-up.

3) Musawama: The seller and buyer arrive at an agreed price for a commodity.

4) Mudaraba: A limited liability partnership (not allowing for direct investor involvement).

5) Musharaka: A joint venture with profit and loss sharing.

6) Salam: An advance purchase of goods delivered on a future date set by the buyer and seller.

7) Ijarah: Leasing of goods with a second contract to purchase them at the end of a lease period.

8) Joala: Payment of upfront fees.*

*How much are the fees associated with Islamic loans?

The fees associated with Islamic loans vary from one microfinance institution to another. As with all loans on the Kiva site, the best measure of fees paid by a borrower is the Portfolio Yield, displayed on borrower profile pages as well as Field Partner profile pages.

How is paying a fee on a loan different than paying interest?

For many Muslim borrowers, paying a fee on a loan is like paying a service fee on any other service transaction. Borrowers are purchasing the service of being provided with money. They pay a fee in the same way they would pay for consulting or advisory services.

When a borrower is about to receive a loan, he or she pays a fee to the microfinance institution before receiving the funds. In contrast, interest paid during the course of a loan is seen as money earned by the microfinance institution on the money itself, rather than a fee for the service.

January 4, 2013

Islamic Microfinance from Bank of Ceylon

Islamic Microfinance in Sri Lanka, 04th January 2013

Islamic Banking unit of Bank of Ceylon has got the blessings of the Board to introduce Islamic Microfinance. Accordingly a Islamic Microfinance pilot project was launched at Pothuwil recently. If the project is viable, Islamic Banking unit of Bank of Ceylon shall offer Islamic Microfinance products through selected branches.

August 16, 2012

Islamic Microfinance Conference Lahore

2nd National Islamic Microfinance Conference Lahore, Pakistan – November 2-4, 2012
Venue: University of Veterinary and Animal Sciences, Lahore

The conference aims to unite, network, train and create capacity-building opportunities for professionals engaged or planning to engage in the Islamic Microfinance industry. The conference intends to explore different possibilities for low income groups to achieve self-reliance through interest-free microfinance products and halal investment opportunities.

The three day activity will feature keynote speeches, interactive panel discussions, workshops and case studies. The conference program is designed for Islamic Microfinance professionals, researchers, and practitioners, corporate and financial sector executives, governmental and civil society representatives.

Topics: Discussions
• Islamic Microfinance Sector: Roadblocks and Opportunities
• Bridging the Capital and Capacity Gap in Islamic Microfinance
• Technology Issues and Challenges
• Halal Investment Opportunities in Agriculture and Livestock
• Legal and Shariah Compliance and Audit: Best Practices Overview
• The role of state banks in promoting Islamic Microfinance
• Unlocking The Potential of The Islamic Banking Sector to Promote Prosperity
• The Musharkah Impact (case studies )
• Asset-based Financing (case studies)
• Shariah Compliant Savings (A Success Story )

Workshops
• How to start and run an Islamic microfinance institution?
• Marketing and Management of Islamic Microfinance Fund
• Islamic Microfinance Product Development
• Livestock Mudarbah
• The Actual Murabaha
• Monitoring and Evaluation
• Developing Shariah Compliant Contracts

For Registration and Inquiries:
Website: http://www.farzfoundation.org
E-mail: conference@farzfoundation.org
Phone: +92 321 446 8216+92 321 446 8216 | +92 423 529 1301

August 15, 2012

IDB exploring microfinance options in UK

May 31, 2012 by Microfinance Africa

The Islamic Development Bank (IDB) is exploring social and financial inclusion opportunities in the UK including the provision of community-based microfinance, SMEs (small-and-medium-sized enterprises) financing and technical assistance programs.

An IDB delegation, led by its President Dr. Ahmed Mohammed Ali, participated in a roundtable here Monday with financial institutions, law firms, corporates and community organizations and leaders.

Dr. Ali said that in addition to the direct assistance to microfinance institutions, initial discussions have taken place with the UK’s Department for International Development (DFID), World Bank and CGAP to start some pilot projects in various common member countries and eventually develop a global Islamic microfinance facility.

In the UK, there are several initiatives aimed at helping small business start-ups and young entrepreneurs and to promote financial inclusion. These include Community Development Financing Institutions (CDFI), the Enterprise Capital Fund, and regional ones such as Bolton Business Ventures.

On Monday, Lord Young, the former Conservative cabinet minister, announced the launch of a GBP85 million initiative to help young people in the above respect. The reality is that the UK is facing a multi-billion pound funding gap for small businesses.

One microfinance initiative that is seeking to cooperate with the IDB is GLEOne London, whose CEO Nicholas Nicolaou, revealed that the entity is working on a program to assist Muslim immigrants starting up small businesses and becoming entrepreneurs.

In fact, City law firm Norton Rose; Gatehouse Bank, one of the five UK-authorized Islamic banks; and international auditing firm and consultancy KPMG have been cooperating with GLEOne London to develop an Islamic microfinance product based on the Mudaraba (trust funding) concept.

According to Farmida Bi, Partner at Norton Rose, the product is ready to roll out and addresses the various tax and legal issues especially under the Consumer Credit Act, which protects the rights of customers.

Dr. Ali reiterated IDB’s support for various microfinance initiatives. He stressed that the Islamic banking industry registered a year-on-year growth of 35 percent in 2010 to 2011. Within OIC countries for instance, Islamic financial institutions are becoming major economic players in an increasing number of these countries.

In Indonesia, for instance, a recent Central Bank of Indonesia report has indicated that the industry is growing very fast at a rate of 35 to 40 percent per annum and is expected to capture up to 20 percent market share of the total banking industry in the next few years.

“If this trend continues the Islamic financial industry will become a major industry with an important role to play in global finance. London being the gateway for Islamic banking in Europe, needs to be prepared for this tremendous growth of this industry,” he said.

Dr. Ali also held talks with the Lord Mayor of the City of London, Alderman Ian Luder; the Sheriff of the City of London, Alderman Alan Yarrow; the British Consul General in Jeddah, Mohamed Shokat, and Richard Thomas, CEO, Gatehouse Bank, at Mansion House, the official residence of the Lord Mayor.

The IDB president’s visit was at the invitation of the Lord Mayor who earlier this year visited the bank’s headquarters in Jeddah.

Dr. Ali also met Andrew Mitchell, UK Secretary of State for International Development, to review progress on the implementation of the Memorandum of Understanding (MoU) signed by the two parties in Jeddah in March whereby the UK and the IDB agreed to cooperate in co-financing projects in IDB member countries aimed at generating youth employment and reducing poverty.

Alderman Luder stressed the close and historical relations between the City of London and the IDB and the GCC countries, in particular, Saudi Arabia. The City of London, as a premier international financial center, has much to offer not only in innovation, but also in education and training and also in the growing phenomenon of Islamic finance.

Dr Ali emphasized that the visit was a testament to the IDB’s partnership with the UK and specially with the City of London. “We have worked together to further some areas of our common interest. This visit also provides IDB with the opportunity to support the development of Muslim communities in the UK,” he said.

IDB’s Medium Term Note Program amounting to $6.5 billion for sukuk issuance is registered with the Financial Services Authority in UK and is listed on the London Stock Exchange.Under this program, IDB has made several issuances in US dollars, as well as pound sterling denominated private sukuk issuances have been made.

As far as the money market placements are concerned, the IDB has over the years increased its exposure to the UK’s financial institutions and IDB stands ready to do more in this regard when appropriate opportunities are identified.

The IDB is working with such recognized institutions as the Prince of Wales’ Prince’s Charities and has contributed just under $1 million to help young people in the inner cities to start up projects or small businesses.

The IDB has also been providing assistance for economic and social empowerment to UK citizens as part of IDB’s special assistance program for cooperation with Muslim communities in non-member countries. To date IDB has approved a total of 19 projects for the UK and further projects are being planned. These projects are mainly in the field of education, social welfare and research.

In the wake of the global financial crisis, economic recession and the impact of the eurozone debt crisis, the issue of embedded inclusiveness especially of the financial services industry is increasingly important. Not surprisingly, the IDB President appealed to the financial institutions to help in this respect.

“Achieving sound and sustainable socio-economic development is not simply a financing issue. It is a much broader endeavor,” said Dr. Ali, adding: “It is not within the bandwidth capacity of a single institution or even a single country. It requires strong commitment to reform the socio-economic system and its institutions. All stakeholders, including the government, private sector, civil society and donor community, have to play an active role and align their priorities and activities to achieve this common goal. Due to the strong banking traditions in the UK, it can contribute significantly to this endeavor.”

This, he added, is a once-in-a-lifetime opportunity and called upon all the Institutions to pull together and work towards building “an equitable, just and stable financial system which is capable of providing sustainable growth with employment creation for our own future. IDB would be happy to cooperate with initiatives in this regard.”

A key delivery vehicle for inclusiveness which the IDB has been promoting is through SME financing and microfinance programs aimed at generating employment, especially youth employment, and economic growth.

Due to the recent changes in the MENA region as a result of the Arab Spring, there has been a demand for funding of SMEs. In this context, the Bank has launched the IDB Youth Employment Support (YES) Program for which the IDB’s Board of Executive Directors approved $250 million to help empower Financial Institutions, Employers, Education and Vocational training organizations in the Arab Region to reduce youth unemployment.

Dr. Ali revealed that the targeted countries include Tunisia, Egypt and Morocco and that the first disbursements have started with Tunisia. However, he pointed out that it is up to the receiving countries to come up with project proposals to access the funding.

Furthermore, the Islamic Solidarity Fund for Development has allocated $500 million for Islamic microfinance and a similar amount for vocational literacy programs (VOLIP). The IDB Islamic Microfinance Development Program was established to strengthen the Islamic microfinance institutions and develop the overall enabling environment for them.

According to the IDB, the French Development Agency (AFD) and the Consultative Group to Assist the Poor (CGAP) are also collaborating with the IDB in the development of Islamic microfinance.

source: http://microfinanceafrica.net/news/ukidb-idb-exploring-microfinance-options-in-uk/

August 15, 2012

Islamic microfinance: a tool to cut poverty

Wed, 21/03/2012 – 2:01am | by priyodesk

Islamic microfinance can be an effective tool to eradicate poverty if it ensures distributive justice to the downtrodden people, analysts said yesterday.

Poverty has multi-dimensional aspects: it means not only a lack of money but other issues such as poor access to clean water and sanitation, inadequate physical security, lack of voice, insecurity, powerlessness and exclusion.

They spoke at a roundtable on “Islamic Microfinance: An Instrument for Poverty Alleviation” at Radisson Hotel in Dhaka.

Malaysia-based WIEF Foundation and Bangladesh-based SEACO Foundation co-organised the programme in collaboration with the Bangladesh Federation of Women Entrepreneurs, Bangladesh Malaysia Chamber of Commerce and Industry and the High Commission of Malaysia in Dhaka.

Mohammad Abdul Mannan, managing director of Islami Bank Bangladesh, said conventional microfinance failed to benefit the poor as it runs in an exploitative manner. “So, Islamic microfinance can be a role model.”

There is a philosophical difference between conventional banking and Islamic banking, he said. “Conventional banking is fully based on individual greed, while Islamic banking is based on universal brotherhood and distributive justice.”

The banker said Islamic microfinance can be an effective tool to satisfy the financial needs of the poor as it focuses on a credit-plus integrated poverty alleviation scheme.

“It means we not only provide credit rather we integrate other issues such as zakat (compulsory transfer), waqf (an inalienable religious endowment), and kaffara (atonement),” he said.

Speaking as chief guest, Atiur Rahman, governor of Bangladesh Bank, said Islamic banking has been thriving in the vibrantly growing Bangladesh economy and accounts for a fifth of total banking sector assets and liabilities.

In Bangladesh, compliance of banks and financial institutions with Islamic Shariah principles is being overseen by their Shariah boards, while Bangladesh Bank oversees their soundness, solvency and capital adequacy, he said.

The governor urged the Islamic banks and the Islamic windows of conventional banks in Bangladesh to pursue vigorous promotion of Islamic micro and SME financing, in line with the country’s efforts for faster poverty eradication with deeper, wider financial inclusion.

As a panel discussant, Dadang Muljawan, senior economic researcher of Islami Development Bank in Saudi Arabia, said Islamic financing would grow further as it is gaining popularity in Muslim and non-Muslim countries.

He said Shariah-based banks emphasise the development of the poor as it not only provides funds, but also transforms people’s life.

Datuk Hajah Zabidah Ismail, managing director of Amanah Ikhtiar Malaysia, said Shariah-based microfinance can be an alternative tool to eradicate poverty as it promotes a balance of equitable growth

Abul Hasan M Sadek, vice chancellor of Asian University in Bangladesh, said microfinance is only a part of Islamic banking. It can be an effective model to eliminate poverty as the conventional system charges higher interest.

source: http://news.priyo.com/business/2012/03/21/islamic-microfinance-tool-cut-48472.html

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