Islamic microfinance indispensible for poverty alleviation in Arab countries

United Nations Development Program (UNDP) in collaboration with USAID and CGAP jointly organised "Iraq Microfinance Policy Forum" on 10 and 11 April 2012 in Erbil-Iraq.

The forum aimed to set up Policy Goals for Microfinance in Iraq, which was attended by high Government functionaries from Iraq Government, including Advisors to Prime Minister, Central Bank in Iraq, USAID, ILO, UNOPS, CGAP, UNHABITAT representatives.

Representatives from Yemen, Jordan, India, Italy, Poland, UAE, Syria and many other many countries also participated in the conference. Muhammad Zubair Mughal – Chief Executive Officer of AlHuda Centre of Islamic Banking and Economics (AlHuda-CIBE) presented his paper on "Microfinance Policy in Asia and the increasing trend of Islamic Microfinance" which was appreciated by many experts present at the forum.

Zubair Mughal presented a detailed analysis of poverty in 52 Asian countries with their techniques and strategies in poverty alleviation, legal and regulatory reforms, minimum investable funds limits, interest rates and other improvements efforts in microfinance sectors. While declaring the poverty analysis of these countries, In-spite of having oil and other minerals these countries are having 22.9 per cent in Iraq, 18 per cent in Iran, 34.8 per cent in Yemen, 13.3 per cent in Jordan, 12.5 per cent in UAE, 28 per cent in Lebanon and 11.9 per cent people in Syria are living below the poverty line.

Even more worrying point is that 96 per cent of the population in these countries is Muslims and the cause being that they avoid the conventional system of Microfinance as it is based on Riba. So the only solution to alleviate poverty in these countries is to adopt for Islamic microfinance system. These countries can only brought to development by adopting the Islamic microfinance following the Islamic Shari’ah. Yemen Iraq and Syria have already undertaken a start and this will create room for more Islamic Microfinance Institutions to be setup in these countries.

He further emphasised the need for Islamic microfinance through the research and surveys conducted by IFC, CGAP, USAID, Frankfurt School and FINCA wherein it is proved that the Muslim population in these countries prefer Shari’ah-compliant ways instead of conventional system of microfinance. Zubair Mughal added that Islamic banking and finance has taken a healthy growth in these Arab countries, which shows opportunity for Islamic microfinance to successful. AlHuda-CIBE has setup an Islamic Microfinance Helpdesk in order to strengthen Islamic microfinance globally. This help desk is providing state-of-the art services in technical, Shari’ah guidelines trainings to many institutions of the world.

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Naymet Islamic Microfinance to launch Islamic microfinance product

Pakistan's AlHuda-Centre of Islamic Banking (CIBE) and Economics has signed a Memorandum of Understanding with Naymet Islamic Microfinance to develop Islamic Microfinance Products for Naymet Microfinance.

AlHuda CIBE will operate manuals of Islamic financial products. It will provide accounting and auditing measures, Shariah supervision, and help in training staff members. It will also facilitate Naymet Islamic Microfinance in advisory for Shariah complaint I.T solutions.

Mr. Muhammad Zubair Mughal, Chief Executive Officer, AlHuda CIBE said that Alhuda Centre of Islamic Banking and Economics is very eager to develop Islamic Microfinance products. He added that Islamic microfinance is not only developing within Pakistan but Bangladesh, Lebanon, Syria, Malaysia, Indonesia South Africa and other countries are also benefiting from the products of Islamic microfinance.

President, Naymet Islamic Microfinance, Mr. Shahid I. Mohammad said, "It's our privilege to establish a working relation with AlHuda CIBE. Islamic microfinance products will be very beneficial in developing Shariah complaints industry. It will be a step forward to flourish a web of Islamic microfinance products network in Pakistan that will be very poverty alleviation and uplifting the economy of the country".

Islamic Banking, first choice: SME

Union of Small and Medium Enterprises (UNISAME) invited the attention of the Task Force (TF) on Islamic Banking (IB) in its first meeting at State Bank of Pakistan presided by Director IB Division Saleemullah that Musharaka and Mudaraba financing is the first choice of the SMEs and urged the TF to make it compatible for the sector for financing their needs for inland and international trading.

President UNISAME Zulfikar Thaver said the SMEs are disheartened by the conventional banks due to their unwillingness to take risk even in cases where the funds are provided by the SBP. The conventional banks do not have risk management expertise and are not well versed in collateral management and clinging to old methods of financing. They insist on immovable property as collateral and refuse to accept personal guarantees, goodwill of the firm, brand ownership and even goods in transit are declined as col lateral whereas in other countries of the world it is much easier for SMEs to get finance from the banks on the basis of their cash flows and track records.

He said the SMEs need running finance for their imports and exports, for purchase of raw materials and project finance for setting new industries. The SMEs also need finance for balancing, replacement and modernization.

He urged the members of the TF to develope products for SMEs for mutual benefit and said that there is much scope in the sector and especially in Venture Capital (VC) where innovative ideas could be put to use by the Islamic Banks.

Answering a question on lack of accounting systems he asserted that the micro sector lacks accounting system but the SMEs are now maintaining proper accounts and are growing constantly, they have become efficient and the younger generation is well aware of the fact that technology leads to success.

Microfinance role vital to alleviate poverty: SBP

Governor, State Bank of Pakistan, Salim Raza on Saturday said that microfinance banks/institutions have a key role to play in creating economic opportunities for the poorest sections of the society by broadening their outreach.
Delivering a keynote address on “ Economic Empowerment for the Base of the Pyramid “ at the Acumen Community Gathering here, Mr. Raza said that the regulatory role develops infrastructure of service delivery, cross fertilizes from researching and encouraging use of successful global practices , and guides the provision of rules and oversight that would enable Microfinance Institutions (MFIs) build sources of public funding and deposits, said SBP release.
In developing economies, the symbiosis between the regulators and the operators will be a critical underpinning for this vital function to pull its weight as a major solution to poverty, SBP Chief said.
Referring to SBP role in supporting the development of microfinance in the country, he said the State Bank is facilitating setting up a microfinance-exclusive credit information bureau to reduce risks associated with microfinance operations and their clients.
SBP has encouraged mobile-banking by issuing branchless banking guidelines and funding a pilot to provide access to remote areas of Pakistan, he said and added that SBP is a pioneer in regulation in branchless banking in South Asia.
He said several initiatives have been taken by the State Bank to support low income financial development. These together form a strategy, which includes measures to address most common causes of banking exclusion; to facilitate and create an enabling environment for banks to address needs of under-served and un-banked segments through dedicated prudential regulations, and through guidelines for Microfinance, SME finance, Agricultural finance and other areas; and to provide alternative finance models such as Islamic Banking which can operate in parallel with conventional banking.
SBP Governor said MFI Ordinance-2001 has been instrumental in catalyzing growth , creating investor confidence and protecting depositors. State Bank has recently amended the Prudential Regulations for Microfinance Bank (MFBs) removing regulatory bottlenecks pointed out by the industry.
He said now MFBs have an increased ceiling on lending limits and relaxed borrower criteria to allow for client graduation. MFBs can now extend micro loans of up to Rs 150,000/- for general purpose and Rs 500,000/- for housing-loan.
Similarly, he pointed out that NGOs are encouraged to restructure into licensed banks, so that they can operate transparently with an adequate capital base, while providing comfort to depositors and borrowers.
To encourage transformation of NGOs into MFBs, the Federal Government in June 2007 allowed a five-year income tax holiday to such institutions and now some large NGOs are in process of transformation into Banks.
SBP Governor also talked about Central Bank’s partnership with the UK department for International Development for a Financial Inclusion Program, which promotes market development through well considered subsidies.
A Microfinance Credit Guarantee Facility (MFCG), worth GBP 10 million has already been launched, he said and added that facility is aimed at increasing wholesale funds for MFBs and MFIs.
Moreover, SBP has recently allowed the microfinance banks/institutions to raise foreign currency loans from international financial institutions and from other social and commercial investors, he added.
He stressed that developing strategic alliances is increasingly important for MFIs to partner with the wider private sector or public sector entities.
As these arrangements capitalize on the comparative advantages of vastly different institutions, they can take many different forms, he said and added that in this context SBP encouraged partnership between the post office (PO) network and MF providers.
Post offices already manage over 4 million savings accounts, mainly small accounts below Rs 10,000, through more than 12,000 branches. Syed Salim Raza pointed out that social entrepreneurs act as the agent of change for society, seizing opportunities others miss and improving systems, inventing new approaches, and creating solutions to change society for the better. While a business entrepreneur might create entirely new industries, a social entrepreneur comes up with new solutions to social problems and then implements them on a large scale, he said and added it is through these new, innovative solutions that we will be able to achieve economic empowerment for low-income populations.

He pointed out that one of the biggest obstacles to the growth of micro, small, and medium enterprises is lack of credit making this available to the poor has the ability for large scale impact.

Link: http://www.nation.com.pk/pakistan-news-newspaper-daily-english-online/Business/13-Dec-2009/Microfinance-role-vital-to-alleviate--poverty-SBP/1

Islamic way of micro credit the best way to help the poor: Basix chief

Hyderabad: A leading practitioner of Micro Financing in India has strongly advocated the Interest free micro credit or equity financing as the best and the most appropriate method for the country’s poor in enabling them to stand on their own feet.

Vijay Mahajan, chairman, Basix, a micro finance company, said that his company was soon coming out with a pilot project based on the interest free or equity finance.

Vijay Mahajan, a product of IIT and IIM and Princeton University, was speaking at the inaugural session of a five day orientation and training camp on Interest Free Mirco Financing organized by the Human Welfare Foundation in Hyderabad.

“You call it Islamic finance or Shariah compliant finance, it is equity finance in which the investor and the entrepreneur share both the profit and the loss, good fortune and misfortune. Mirco equity fianance is the right way to do it”, he said.

Basix, launched in 1996 has so far provided loans worth Rs 2000 crore to 12 lakh poor household in several states, at an interest rate of 24% and presently has an outstanding of Rs 580 crore with a rate of recovery of 99.1%, he said.

But realizing the tremendous potential in the equity financing, the company was getting ready to launch its new product either in Hyderabad or Chennai soon. “Islamic finance is more equitable for the poor”, he said.

“Interest free finance does not mean only charity. It makes sound business sense. After all, what is venture capital? It is nothing but the equity finance at a large scale and the same has to be brought into the micro finance. It is more equitable specially for the poor people”, he said.

But sounding a word of caution, he said that the interest free credit system can work effectively in small community, where every body knows the other and which is based on Iman or honesty. “The enterprise should be sustainable to ensure that both the investor and the entrepreneur benefit from it”.

In his inaugural presentation Prof A K Siddique Hasan, secretary, Human Welfare Foundation, New Delh,i said that the interest free micro credit was part of the Vision 2016 prepared by the Foundation for the socio-economic development of the poorer sections of the society. The vision includes setting up super specialty and specialty hospitals, clinics, medical aid, schools, scholarships, and empowerment of women, he said.

“This is an ambitious vision and we would like to implement it by 2016 at an estimated cost of Rs 5000 crore”, Prof Siddique Hasan told this correspondent.

Pointing out that Islamic Banking was accepted even by the World Bank, Prof Hasan said that the system was being adopted in several countries across the world.

Pointing out that Muslims in India spend an amount of Rs 12000 crore towards Zakat or obligatory charity every year and there was six lakh acres of Waqf land in the country, Prof Hasan said that the proper and collective use of Zakat and the Waqf could solve all the problems of Muslim community in the country. He said that the Foundation had plans to put in place a network of five hundred micro credit institutions to extend interest free credit to the poor in the country

The camp was being attended by 70 delegates and experts from all over the country.

Link: http://twocircles.net/2009aug02/islamic_way_micro_credit_best_way_help_poor_basix_chief.html

Islamic Micro-finance good source for poverty alleviation

Islamic Micro-finance helpdesk is established by Alhuda Centre of Islamic Banking and Economics for the objective to provide the technical and Shariah guidance to the local and international micro-finance institutions in the conversion process of micro-finance structure into Shariah compliance micro-finance.

Islamic Micro-finance helpdesk is established by Alhuda Centre of Islamic Banking and Economics for the objective to provide the technical and Shariah guidance to the local and international micro-finance institutions in the conversion process of micro-finance structure into Shariah compliance micro-finance. This helpdesk will perform the services of Islamic financial product development, research, technical assistance, training & education and Shariah. Mr. Zubair Mughal (CEO) Alhuda CIBE said, Islamic Micro-finance is the most effective tool for the poverty alleviation from the society. He also said that Islamic Micro-finance is not only to reduce the poverty but also generate a pleasant change in the society and it will provide the better living standards for the poor. Through Islamic Micro-finance, necessary goods, equipment and machinery is provided to the clients instead of just money lending to run up the business at micro level. The 40% population of Pakistan is living below the poverty line and the indicator is still positive day by day, it is very important for us to control the rising indicator of poverty and I recommend that Islamic Micro-finance is the most effective tool to achieve the goals. Zubair Mughal passes this statement when he was addressing to the inauguration ceremony of Islamic Micro-finance Helpdesk in Lahore. There are so many Islamic Micro-finance institutions in practice in all over the world for the poverty alleviation and economic welfare including Sudan, Egypt, Syria, Indonesia and Malaysia. He also emphasized the government to support the Islamic micro-finance institutions for the poverty alleviation in Pakistan. Link: http://www.cibafi.org/NewsCenter/English/Details.aspx?Id=4032&Cat=0

Nigeria: Advocating Islamic micro-finance banking to reduce poverty

THE Principal, Association of Oasis Associates, Malam Ahmad Dogara has given nod to Islamic Micro financing in the Nigeria’s banking system, saying it could serve as a speedy remedy toward poverty eradication in the country.

Presenting a paper during Micro-Finance Investors Forum, organized by the Central Bank of Nigeria (CBN), held in Kano, Dogara believes that Islamic Micro-Finance could similarly be an excellent substitute for the conventional micro-finance currently being implemented in the country.

“In recent years, micro-finance has emerged as an important instrument to help a large number of unbreakable members of the society as a means of reducing poverty and encourage economic growth in neglected parts of the world”, the economist said.
Dogara, howeverm, lamented that inspite of its prior success, conventional micro-finance was found to be not fully reaching the poorest of the poor, while loans were going to activities unrelated to entrepreneurs.
“It was similarly discovered that over 1bn of the world population had lived under unacceptable condition of poverty and most of the people belonged to the developing nations, particularly the rural dwellers in Asia and the pacific Africa” he further explained.
“Still over the years, report had shown that over 30,000 people in the world die everyday because they were too poor to stay alive,” stressing that in some Muslim communities, conventional invest based microfinance has always been ejected, principally for its non compliance with the Islamic principles, particularly on the issue of interest” he said.

“While conventional microfinance institutions (MFIs) was always criticized for sharing exorbitant interest rates and fees, Islamic microfinance could arguably help current the short comings, since it focuses on achieving social justice, disallows exploitation and battles poverty as well,” he explained.

Another presenter, Hajiya Talatu S. Bashir while speaking on “the relevance of microfinance business in Nigeria: the need to establish microfinance banks” explained that even a cursory observer of the Nigerian economy could concede that poverty was assuming on alarming proportion in the country.

According to her over 75 per cent of Nigerians live below $1, which was equivalent to N178 per day expressing fear that this was more prevalent in northern Nigeria.