Download INTEREST FREE MICRO FINANCE FOR THE MARGINALIZED

ROLE OF ISLAMIC FINANCE
AUSAF AHMAD
Hyderabad
 More
than three billion people live below
poverty line
 More than two billion do not have safe water
to drink
 It has been estimated that it would require
only $21 bn. to provide micro finance to
world’s 100 million most poor families.
Poverty could be eradicated from the face of
earth if seven richest families could get
together.
 The world does go by charity alone.
 Why
Micro Financing?
 What is Micro financing?
 Why interest free micro finance?
 Some Major Experiments:
Emergence of Islamic Banking, MitGhamr Project
 Grameen Bank Project
Micro Financing in India
Cooperatives and Micro financing

 Financial
Intermediation between savers and
investors
 Mismatch between the preferences of savers
and investors
 Problems of Moral hazards
 Problems of Adverse Selection
 Specialized agencies
 Failures of organized finance
 Emergence of Micro financing
 Micro
financing is a term used for providing
financial services such as micro credit, micro
savings and micro insurance to poor people.
 Standard finance, credit worthiness,
profitability and bankable projects ( Poor
people do not have collaterals)
 Poor people can be relied to pay loans
 Group liability as a collateral
 Market mechanism can be productively used
to improve the economic conditions of the
poor.
 1864
Wihelm Raiffesen’s German village
Experiment of rural financing
 1900 Alphonsoe Desjardin: Quebec
Experiment
 1963 Mitghamr (Egypt) Project
 1970 Grameen Bank (Bangladesh)
 1980 onwards: International institutions,
NGOs, Multinational banks, financial
companies: Widespread acceptability of the
idea
 Established
in 1976 in Jobra, Bangladesh by
Dr. Mohammed Younus
 Incorporated in 1983 by Special law
 Owned by poor borrowers
 No Collaterals, No legal instruments, No
group or joint liability
 Responsibility of repayment with the
individual borrowers, 97% borrowers are
women.
 Number
of branches 2000, works in 75,000
villages, Total staff : More than 21,000
 Total loans disbursement
TK310 bn. Repaid:
277 bn. Outstanding: TK 33 bn. Recovery
rate: 98.5 Percent
 Loans financed 100 percent from own
deposits
 Group of Five, All denied credits if some one
defaults
 Fixed
for Micro Credit programs 11 %
 Housing loans
8%
 Students loans
5%
 Struggling members
Zero
 Deposit rates
8.5 – 12%
 Housing
loans, Micro enterprise loans,
Scholarships, Higher education loans,
 17 Companies in Grameen Network: Grameen
phone, Telecom, Communications,
Cybernetics, Software, IT Parks, Information
highways, Udyog, Knitwear, Textiles, Shiksha,
Bayopar Vikas, Grameen Trusts etc.
 Usurious:
High interest rates
 Exploitative
 Benefits large corporations
 Harms family relationships as Grameen
model focuses the female members of the
house holds only.
 With
63000 branches of commercial banks,
14000 branches of regional rural banks,
100,000 branches of cooperative banks,
banking and finance is still out of reach for
millions.
 More than 75 million households are still
dependent on money lenders
 More than 90 percent rural population has no
access to institutional credit
Micro Finance can change lives of
millions. !
 NABARD
(National Bank for Agriculture and
Rural Development)
 India Together
 ARCOD (Association for Rural Community and
Development)
 VMCS (Village Micro Credit Services)
 The
emergence of Islamic banking removes
biggest objection (interest) against modern
banking
 The objective of Islamic banking and micro
financing coincide. From the objective point
of view, Islamic financing techniques are well
suited to micro financing.
 Relevance of Mitghamr project
 Modern Islamic banks are in the corporate
sector, touching only upper crest of the
society. Islamic banking movement has yet to
benefit from cooperative principles.
 Tip
of the Iceberg. Only a few institutions.
Examples:




Al Khair Cooperative Society
All India Council of Muslim Economic Upliftment
Bair al Nasr Housing Society (Now defunct)
Beit al Mal
 Mostly
in the organized sector
 Mostly unregistered.
 Mobilizes small savings from small wage
earners
 Develop saving habits and frugality
 Small investment
 Interest free loans in times of distress
 Advance of loans against collaterals (Mosly
rahn of Jewelry, house, or land)
 Reorganization of Islamic finance institutions
along the cooperative lines.
 Democratic
Participation and Control
 Open Membership
 Cooperative Education
 Cooperative Cooperation
 Insulation
from Competition from the
corporate sector
 Less regulated, More Incentives
 More elastic with respect to size
 More amenable to different purposes
 More decentralized
 Less paper work
 Channelization
of individual initiatives and
voluntary efforts: Working through self help
groups
 NABARD STUDY FINDINGS



Value of assets increased by 72 %
Average borrowing increased from Rs 4,000 to Rs.
8,000 per borrower with 70% loans for income
generating activities.
Household income increased by 33%
 Professionalism
 Rate:

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Responsibility
Accountability
Transparency
Efficiency
MAY ALLAH BLESS YOU ALL!