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CENTER OF ISLAMIC BANKING & ECNOMICS
Held At:
Organized By :
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Islamic Microfinance :Islamic Microfinance :
An Outreach Analysis inAn Outreach Analysis in
Global PerspectiveGlobal Perspective
Presentation By :
Dr Shabbir Hussain
MD, HHRD
International Conference on IslamicInternational Conference on Islamic
MicrofinanceMicrofinance organisedorganised by Al Huda inby Al Huda in
collaboration withcollaboration with AkhawatAkhawat
13 June, 201113 June, 2011
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PRESENTATION
MICROFINANCE MODELS
OUTREACH ANALYSIS
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Integrated
Approach
Minimalist
Approach
Credit Only
FINANCIAL INTERMEDIATIONy Working Capital
y Fixed Asset Loansy Savings
SOCIAL SERVICESyEducation
yHealth & NutritionyLiteracy Training
EDEVELOPMENT SERVICESyEntrepreneurship TrainingyProduction/Skills Training
yMarketing
SOCIAL INTERMEDIATIONy Community Mobilization
yGroup Formationy Social Collateral
y Insurance
Credit +
(Financial&
Non
Financial)
³ Credit Plus´ includes development and social
services in comparison with ³Credit Only´ approach
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MF Models of Outreach based upon the
integration level of supply chain
NGOs
Specialized
Banks
Promotion of MED,
training & helping
linkage with banks V/WOs
NGOs
Specialized
Banks
Promotion of
MED, training& providing
Credit Support
V/WOs
Specialized
Banks
Promotion of MED, training &
providing Credit
V/WOs
NGOs as
Facilitators
Three- Pronged Approach
NGOs as
FinancialIntermediaries
Banks as MFIs
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At the
Poverty Line
Below the
Poverty Line
Abject PoorSafety Net
Livelihood
Growth
M E D
Consu
mption
Credit
I G A s
Classification Objective Approaches
The effectiveness of Microfinance approaches
varies across different levels of poverty
HHRD
Qard Hasn
HHRD
Murabah
HHRD
Mudarba
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OUTREACH ANALYSIS OF SELECTED
INTERNATIONAL MODEL OF MFIs
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(Source: www.micromarket.org,
MFI # of Borrowers %
Women
Cost per
Borrower
Self
SufficiencyRatio
Grameen Bank
Bangladesh
6,707,000 96 10 98.80
BRAC Bangladesh 6,397,635 96 12 106.65
ASA Bangladesh 5,422,787 96 7 187.17
Spondana India 1,188,861 96 8 159.07
Bandhan India 896,698 100 9 133.14
Cashpor India 303,243 100 15 102.00
AML India 565,806 100 14 111.53
Kash Pakistan 295,396 95 23 164.10
Khushali Bank
Pakistan
405,111 48 15 79.70
FMBF Pakistan 229,443 42 23 90.43
WDB Sri Lanka 146,808 100 10 162.44
BRAC Sri Lanka 34,550 100 25 48.80
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(Source: www.micromarket.org.
Poverty Transition Microfinance
Burrowers
%
Very Poor to Moderately Poor 48 38.4
Very Poor to Non Poor 22 17.6
Moderately Poor to Non Poor 26 20.8
No Change 27 21.6
Non Poor to Moderately Poor 1 0.8
Moderately Poor to Very Poor 1 0.8
125 100
Microfinance is fast emerging viable tool to reduce Poverty
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Outreach features of IMFIs
IMFI retains the basic operational format of MFIs� Banking with the poor at door steps
� Weekly/Monthly Repayments
� A Social/Development Program (to fulfill the social role of Islamic finance)
IMFIs have some distinguishing features:Sources of Funds
� Other than external sources, can also use funds from zakah,awqaf , and other forms of charities
Use of funds (Mode of Financing)
� Sale based and hiring modes (murabahah, salam, ijarah)� Profit-sharing modes (M usharakah and mudarabah)
Amount transferred to the poorest
� Islamic modes are sale based, the price of the asset is paid
(no deductions are allowed)
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Group Dynamics
� Islamic values of brother/sister-hood improves cooperationamong the group members
Financing the poorest
� Z akat and other charities can supplement MFI activities
(non-diversion of funds)
continued---
Social Development Program
� behavioral, ethical, and social aspects in light of Islamic
teachings
Targeting the family through women
� Spouse co-signs the contract dealing with women more
efficient and convenient
� Women disseminate knowledge to children
Dealing with Arrears/Default
Less aggressive and use Islamic teachings to recover loans
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SOME MODES OF ISLAMIC FINANCE
PARTNERSHIPBASED
Musharka
Mudarba
TRADE BASED
Murabaha
Sal¶m
Istis a
RENTAL BASED
Ijara
Dimi ishi gMusharka
Islamic microfinance represents the convergence of two rapidly growingindustries: microfinance and Islamic finance.
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13
Findings of IFC Commissioned Market Studies
60 percent low income survey respondents prefer to
Islamic Products over conventional products (WestBank & Ghaza)
25-30 percent reveal religious reason for not seekingconventional loans (Jordon)
40 percent of the poor demand Islamic financialservices regardless of price (Yemen)
43 percent of respondents consider religious reasons
to be largest obstacle in obtaining microcredit (Syria)
49 percent of rural population consider ShariaCompliant financial institutions (Indonesia)
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14
Outreach of IMFIs is very limited
380,000 loans through 126 institutions operating in 14countries
Bangladesh has largest outreach (100,000 +) withtwo active institutions . However it represent about
one percent of its microfinance market
Syria and Indonesia has 3 % and 2 % of respectivemicrofinance market
80 percent of global outreach is concentrated inthree countries :Bangladesh, Indonesia andAfghanistan)
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15
Outreach of IMFIs in respect of women
59 percent on average but up to 90 percent inBangladesh are women borrowers of IMFIs
Overall percentage of female participation usingIslamic Microfinance products is comparable to those
using conventional microfinance products (66 %)globally (Mf Info Exchange 2007)
70 percent of products offered are Murabah based
Average operational efficiency ratio in Islamic RuralBanks is 20 % higher than 15 % operational efficiencyratio for conventional banks
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16
Institution Type # of
Institutions
Total # of
Borrowers
% Total Loan
Portfolio
(Ud $)
% Average
Loan size
(US $)
Cooperative 1 6,671 2 926,251 <1 132Village Bank
(Syria)
1 2,298 1 1,838,047 <1 800
NGO 14 125,793 42 41,421,580 21 303
Rural Bank
(Indonesia)
165 74,698 25 122,475,158 62 1640
NBFI 3 4,293 1 1,893,207 61 595
Commercial Banks 2 87,569 29 29,030,997 15 305
Total 126 305,237 100 198,090,268 100 629
Outreach of Islamic Microfinance by Institution Type
Source : CGAP 2007
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17
Country # of included
Institutions
Percentage
of Female
Total # of
Borrowers
Total
Outstanding
Loan Portfolio
Average
Loan
BalanceAfghanistan 4 22 53,011 10,347,290 162
Bahrain 1 n/a 323 96,565 299
Bangladesh 2 90 111,837 34,490,490 280
Indonesia 105 60 74,698 122,480,000 1640
Jordon 1 80 1,481 1,619,909 1094
Lebanon 1 50 26,000 22,500,000 865
Mali 1 12 2,812 2,973,293 97
Pakistan 1 40 6,069 746,904 123
West bank Gaza 1 100 132 145,485 1,102
Saudi Arabia 1 86 7,000 586,667 84
Somalia 1 n.a 50 35,200 704
Sudan 3 65 9,561 1,891,819 171
Syria 1 45 2,298 1,838,047 800
Yemen 3 58 7,031 840,240 146
Total 126 59 302,302 197,891,882 541
Outreach of Islamic Microfinance
Source : Focus Notes No 49, August 2008, CGAP
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Indonesia
Bangladesh
Afghanistan
Pakistan
Malaysia
India
Azerbaijan
Microfinance Divisions of Islamic Banks (Islamic Rural Banks) Islamic Financial Cooperatives referred as bait Maal wat Tamwil
(BMT) ; BMTs are large network of over 2000 institutions serving
millions of poor Indonesian Muslims. These are backed and supported
by over hundred million members
The products are based on Mudaraba, Murabaha, Musharaka, Ijara
and qard Hasan
Islamic Bank Bangladesh
Social and Investment Bank
Al-Fallah and Rescue
FINCA (Qard Hasan) Village Banking methodology with solidarity
groups
Akhuwat , HDF, Islamic Relief, CWCD, Farz Foundation ,HHRD
Islamic Banking : Govt agencies µs organizations finances small
and medium scale enterprises
AICMEU
Bait ±un Nasr
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Egypt
Syria
Lebanon
Yeman
Mit Ghamar Project : Modern Islamic banking
Sanadiq project , Jabal Al-Hoss : Village Banks which can bereplicated. The model is based on : (i) Musharka structure owned and
managed by the poor (ii) financing based on Murabaha which
provides high profit rates shared among members (iii) good
governance through committees with sound election and voting
procedures (iv) project management team responsible training of
committee members (v) Financial management based on standardized
bylaws,´fair ³ credit decisions and low transaction costs (vi)
Financially viable operations with 100 % repayment rate (vii) equal
access to both men and women (viii) UNDP provides matching grant
equal to minimum share capital of village fund
Mu¶assat Bayat Al-Mal : Affliate of Hezbollah comprises qard Al-
Hasan financing on profit loss sharing mode. It is run by volunteers
Hodeidah Microfinance Program : Group methodology like
Grameen but it uses Murabaha mode for financing
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OUTREACH ANALYSIS OFMICROFINANCE IN PAKISTAN
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Roughly 80% of the current borrowing is from the
non-formal sector in Pakistan
However, the cost of borrowing from the non-formal sector is 4% higher
Borrowings by sources
22%
78%
Formal
Non Formal
Int t t ( n %)
Formal vs. Non Formal
0
10
20
30
For l on For l
I n t
r e s t R
a t e
Borrowing Pattern in
Pakistan
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Informal Lenders
Commission
Agents
12%
Money
Lenders
37%
Feed
Dealers
12%
Others
2%
Agra InputDealerds
22%
Shopkeeper
15%
c
Approximately 60% of the non-institutional lending is through
money lenders, Shopkeepers, and agriculture input dealers
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1999 2000 2001
PIR: PMN starts
collecting and
publishing
member MFIs·
performance
indicator report
PPAF begins
disbursing
microfinance funds
PPAF Phase I & II :
US$ 300 Million
Khushhali
Bank
becomes
operational
MicrofinanceSector
Development
Programme (ADB)
Microfinance
Ordinance
US$ 150 Million
5 Microfinance Banks2005 2009
NMFB.
BRAC-PAK
2006
1.4 million
40 + MFPs
FMFBL,TM
FBL,RMFBL
, POMFBL,NRSP, ASA
Kashf Bank
PPAF Phase III
2011
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MFIs Akhuwat
Asasah
Orangi Pilot Project
Sindh Agriculture & Forestry Workers Cooperative Orgn (SAFWCO)
Community Support Concern Development Action for Mobilization and Emancipation Network (DAMEN)
Center for Women Cooperative Development (CWCD)
Kashf Foundation
CWCD
HHRD
MFB Khushhali Bank Ltd
Network Microfinance Bank Ltd Pak Oman Microfinance Bank Ltd
Rozgar Microfinance Bank Ltd
Tameer Microfinance Bank Ltd
First Microfinance Bank Ltd
Kashf Microfinance Bank Ltd
NRSP Bank
RSP
Others
NRSP
PRSP
SRSP
TRDP
Lachi Poverty Reduction Project
Sungi Development Foundation
Orix Pakistan
Sindh Rural Support Program Taraqi Foundation
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Presentation By : Dr Shabbir
Hussain,
0
50000
100000
150000
200000
250000
300000
350000400000
450000
SP KB Kashf B P SP
428075 405111
288076
229443
78878
Largest Providers of Microfinance( Number of active borrowers)
Data S
urce: Micr
¡
atch, PMN, Sep 2009
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Presentation By : Dr Shabbir
Hussain,
0
1000
2000
3000
4000
5000
6000
NRSP KB FMFBL Kashf TMFB
5030
4150
32002880
1350
million
rupees
GLP of Largest Providers of MicrofinanceIn Pakistan exceeds 15 billion rupees
DtSource:
¢
icrowatc£
,¤
¢
¥
, Se¦ 2009
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Current Outreach
1.83 million borrowers
Estimated Demand
27.7 million borrowers
Access
Quality
Products
Funding
ustaina ility ustaina ility
Funding
Products
Quality
Access
Only 5 to 10 % of the poor population in need of
micro credit is currently covered
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29
An estimated 72 percent of
people living in Muslim-majority
countries do not use formalfinancial services
Of the total US $ 500.5 billion global
Islamic finance market, 36 percent is
located in the Gulf Cooperation Council
(GCC) countries
(Bahrain, Kuwait, Oman, Qatar, Saudi
Arabia, and UAE), 35 percent in non-GCC
Southwest Asia and North Africa, and 23
percent in Asia (primarily
Malaysia, Brunei, and Pakistan) (The
Banker 2007).
Islamic microfinance is
concentrated in a few
countries, with the top three
countries(Indonesia, Bangladesh, and
Afghanistan) accounting for 80
percent of global outreach.
Bangladesh is a country where conventional
microfinance products have the largest outreach
exceeding 18 million borrowersand Islamic
Microfinance represents only 1 percent of its
microfinance market.
Conclusion
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Presentation By : Dr
Shabbir Hussain,
`TJAZAK ALL
`Thank You!
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CENTER OF ISLAMIC BANKING & ECNOMICS
Head Office:192- Ahmad Block, New Garden Town , Lahore, Pakistan
Ph: +92-42-35913096-8, 35858990, 38407850
Fax: +92 -42-35913056
E-mail : [email protected]
Web: http://www.alhudacibe.com
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