Download Muhammad Zubair Mughal Chief Executive Officer

Islamic Microfinance and Its
funding Sources
at
3rd African Islamic Finance Summit
19th – 20th May, 2016
Muhammad Zubair Mughal
Chief Executive Officer
Allhuda centre of Islamic banking and economics
Contents
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Why Islamic Microfinance ?
Source of Islamic Micro Finance Product Products
Need Assessment of Islamic Microfinance
Compatibility of IMF Products with Conventional
Microfinance Models
Funding Sources for Islamic Microfinance Institutions
Opportunities & Challenges Faced by IMF Sector
Why Islamic Microfinance?
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Prohibition of Interest - Financial Inclusion.
Care for the poor is a religious obligation in Islam.
Asset Based Financing
Approximately 44% conventional microfinance clients
worldwide reside in Muslim countries
Almost one-half of the 57 IDB member countries in Asia and
Africa are classed as United Nations Least Developed
Countries (LDCs)
Sustainable Financial Solution for All.
Higher Impact Compare to Conventional Microfinance
“Assisting the poor is a pillar of Islam”
Source of Islamic Microfinance Products
Sources of Islamic
Micro Finance
•Quran
•Sunnah
•Ijma’a (jurist
consensus)
•Ijtihad &
Qiyas
(analogy)
Islamic Banking & Microfinance
Product Mechanism
Ideal Utilization of Islamic Microfinance
Products
MicroTakaful
Salam, Istisna
and other
products
Non-Poor
Transitory Non-Poor
Transitory Vulnerable
Transitory Poor
Chronic Poor
Extremely Poor
5
Qarz-e-Hasan,
Murabahah, Ijarah,
Mudarabah
Zakat, Sadqa, Ushar
Factors to be considered while doing
Islamic Finance
Moral
Ethical
Social
Micro Takaful
Free from
Interest
Financing
Ensure Shariah
Compliance
Trainings &
Quality HR
Poverty Alleviation and more….
Element
A Misconception
removed
Free from
Gharar
Islamic
Micro
Finance
Shariah
Compliant Funds
Shariah Vetted
Products
Shariah
Compliant
Investments
Islamic Microfinance is a
system not the Religion,
it can be utilized &
operated by both
Muslims and
Non-Muslim
Communities for Poverty
Alleviation, Social &
Economic Development.
Compatibility IMF Products with MF Models
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Grameen Model:
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Village Bank Model:
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Credit Union Model: Muslim Credit Union (Tobago), The Amwal
Amna Iftikhar – Malaysia, Islami Bank
Bangladesh Limited etc.
Sanadiq program -Jabal al-Hoss, Syria,
FINCA - Afghanistan etc.
Credit Union etc.
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Cooperative Model:
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Self-Help Group:
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For Profit Banks/MFIs Ghana Islamic Microfinance Banks –
AlBaraka MPCS – Mauritius, Al- Khair
Coop. – India, Muslim Community Coop.–
Australia, Karakorum Cooperative Bank –
Pakistan.
Aameen Society - India
Ghana, HSBC Amanah – U.K,
Current Status of Islamic Finance Industry
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300+ Islamic Microfinance Institutions operating in 32
Countries
USD 1 billion Market Size.
Indonesia, Bangladesh, Pakistan and Afghanistan have
80% share of Global Islamic MF industry (CGAP)
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2 Million+ Active financing Clients.
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Murabahah & Qarz-e-Hasan are the Major Products.
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Share of Islamic Microfinance in Islamic Finance industry
& Microfinance Industry is less than 1%
Islamic Microfinance Institution Worldwide
•Germany:2
•- Muslim
Society
•UK: 5
•United States: 3
•Helping Hands
•ISNA
•Lariba
•- HSBC Amanah
•- Muslim Aid
•- Islamic Relief
•Faith Matters
•- The Halal Mutual
Investment Company
•UAE: 4
•Switzerland
:2
•- Dubai Islamic Bank
•- Abu Dhabi Islamic Bank
•- HSBC Amanah
•Kuwait: 2
•- Kuwait Finance
House
•Bahrain: 2
Family Bank
• Afghanistan 9:
•Iran: 8
•Turkey: 2
•- FINCA , WOCCU
•- CHF
• Ariana
•Pakistan: 11
•India: 3
•Bangladesh:9
•- Faisal Finance
•Malaysia: 11
Institution
•- Alwatany Bank of Egypt
•- Ikhlas Finance •2 - Pure Islamic Banks
•- Egyptian Saudi Finance
(Bank Islam, Bank
House
•Sudan: 13
Muamalat)
•Rest - banks
•Yemen: 05
•Egypt: 3
•South Africa
Awqaf SA
IMFI’s Worldwide: 300 *
in Countries: 32
Market Size: 1 billion USD+
•Al- Amal
•Al Kuraimi
•Indonesia: 133
•BPRS , BMT.
Muaritius
AlBaraka MPCS
Funding Sources for IMFI’s
Social Sukuk
Generally Sukuk is utilized in the corporate sector
for raising the funds for long term financing projects
usually utilized for mega projects
A new term “Social Sukuk” can be devised for such
sukuk which is issued for social development and
poverty alleviation projects.
Crowd Funding Technological Platform
Crowd fund platform concept is emerging rapidly
and now many IMFI’s are utilizing this concept to
secure the fund for Islamic Microfinance. AlHuda
Center of Islamic Banking and Economics (CIBE)
has also established a crowd funding system which
is available to integrate with any Islamic
Microfinance institution.
Crowd Funding Platform
Venture Capital and Equity Financing:
Venture Capital is usually utilized to start up,
Islamic Microfinance Institutions can also be
developed through venture capital in Shariah
Compliant manners
Islamic Microfinance institutions can raise their
funds through Equity Financing or Venture capital
by utilizing Mudaraba or Musharaka mechanism.
Shariah compliant equity fund is also available in
Islamic financial industry which is an motivational
factor to introduce a equity fund for the
development of Islamic Microfinance industry
which facing problem of funding.
Donor Grants, Soft Loans (Qarz-e-Hassan)
& Govt. Subsidies
Donor Grants, Soft loans and Govt. Subsidies play
a vital role for the development of Microfinance
sector, but unfortunately, it is observed that
International donor agencies are bit reluctant for
Islamic Microfinance
Multilateral donor agencies are taking interest for
the promotion of Islamic Microfinance as tool of
financial inclusion and social development like
Islamic Development Bank, GIZ, USAID, UKAID,
IFAD and other agencies. Recently, the Govt. of
Pakistan provides Qarz-e-Hassan (Soft Loans) to
Islamic Microfinance institutions as well
Less Commercial Approach in Islamic
Banking
Unfortunately, Islamic Microfinance have less than
1% in Islamic finance industry, which is a big
question mark as well in Islamic finance that why
Islamic Microfinance have less than 1% share in it
Islamic
Banking
78%
Takaful
3%
Islamic
Microfina
nce 1%
Sukuk
14%
Islamic
Finance
Market Size:
US $ 2
trillion
Islamic
Funds 4%
Charity Funds of Islamic Banks & Financial
Institutions
The charity amount as collected by Islamic Banks
and Financial institutions all over the world
consists of huge amount which is utilized in
different charitable purposes but did not utilized
in Islamic Microfinance to address the funding
need of IMFIs, so it would be the ideal source for
Islamic Microfinance institutions as well.
Musharaka Model for Islamic Microfinance
Institution
Mudaraba of Islamic Finance Industry
Challenges faced by Islamic Microfinance
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Non - Availability of Donor/Shariah Compliant Sources
of Funds
Need to develop a uniform regulatory and legal
framework for the Islamic Microfinance Institutions.
Accounting & I.T systems., Rating Agencies.
Lack of Quality HR in Islamic Microfinance Sector.
Standardization of Islamic Microfinance Products.
Reluctance in Research & Implementation of new
Products, as only (Murabahah) is serving almost 80% of
Islamic Microfinance Industry.
Development of Shairah Expertise towards the Growth
of Islamic Microfinance.
Policies & Regulations on Zakat & Awqaf.
Opportunities for Islamic Microfinance
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Islamic Microfinance Network (IMFN) for an effective
interface and Coordination among IMFI’s
Expansion of Market where the Conventional MFI’s face
limitations especially in Muslim Majority Countries
AlHuda Centre of Excellence in Islamic Microfinance is
offering all Islamic Microfinance Solution.
A Trend in diversion of donors funds to more ethical
objectives
IDB - Microfinance Development Program (MDP )
Islamic Banking and Finance is emerging in South Asia,
Central Asia & MENA region which will strengthened the
Islamic Microfinance effectively.
JazzakAllah
Thank you for listening