Muhammad Zubair Mughal Chief Executive Officer Allhuda centre of Islamic banking and economics Islamic Microfinance and Its funding Sources at 3 rd African Islamic Finance Summit 19 th – 20 th May, 2016 Islamic Microfinance and Its funding Sources at 3 rd African Islamic Finance Summit 19 th – 20 th May, 2016

Contents  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?  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”

Sources of Islamic Micro Finance Islamic Banking & Microfinance Product Mechanism Quran Sunnah Ijma’a (jurist consensus) Ijtihad & Qiyas (analogy) Source of Islamic Microfinance Products

5 Qarz-e-Hasan, Murabahah, Ijarah, Mudarabah Transitory Vulnerable Transitory Poor Chronic Poor Extremely Poor Zakat, Sadqa, Ushar Salam, Istisna and other products Non-Poor Transitory Non-Poor Ideal Utilization of Islamic Microfinance Products MicroTakaful

Factors to be considered while doing Islamic Finance Moral Ethical Social Poverty Alleviation Element and more …. A Misconception removed 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. Islamic Micro Finance Ensure Shariah Compliance Shariah Compliant Investments Shariah Vetted Products Shariah Compliant Funds Free from Gharar Micro Takaful Free from Interest Financing Trainings & Quality HR

Compatibility IMF Products with MF Models  Grameen Model : Amna Iftikhar – Malaysia, Islami Bank Bangladesh Limited etc.  Village Bank Model : Sanadiq program -Jabal al-Hoss, Syria, FINCA - Afghanistan etc.  Credit Union Model : Muslim Credit Union (Tobago), The Amwal Credit Union etc.  Cooperative Model : AlBaraka MPCS – Mauritius, Al- Khair Coop. – India, Muslim Community Coop.– Australia, Karakorum Cooperative Bank – Pakistan.  Self-Help Group: Aameen Society - India  For Profit Banks/MFIs Ghana Islamic Microfinance Banks – Ghana, HSBC Amanah – U.K,

Current Status of Islamic Finance Industry 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) 2 Million+ Active financing Clients. Murabahah & Qarz-e-Hasan are the Major Products. Share of Islamic Microfinance in Islamic Finance industry & Microfinance Industry is less than 1%

Islamic Microfinance Institution Worldwide United States: 3 Helping Hands ISNA Lariba Germany:2 - Muslim Society Switzerland : 2 UK: 5 - HSBC Amanah - Muslim Aid - Islamic Relief Faith Matters - The Halal Mutual Investment Company Bahrain: 2 Family Bank Malaysia: Pure Islamic Banks (Bank Islam, Bank Muamalat) Rest - banks UAE: 4 - Dubai Islamic Bank - Abu Dhabi Islamic Bank - HSBC Amanah Afghanistan 9: - FINCA, WOCCU - CHF Ariana Kuwait: 2 - Kuwait Finance House Iran: 8 Egypt: 3 - Alwatany Bank of Egypt - Egyptian Saudi Finance Indonesia: 133 BPRS, BMT. Sudan: 13 Pakistan: 11 India: 3 Bangladesh:9 Turkey: 2 - Faisal Finance Institution - Ikhlas Finance House Yemen: 05 Al- Amal Al Kuraimi IMFI’s Worldwide: 300 * in Countries: 32 Market Size: 1 billion USD+ South Africa Awqaf SA 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 Finance Market Size: US $ 2 trillion Islamic Banking 78% Sukuk 14% Islamic Funds 4% Islamic Microfina nce 1% Takaful 3%

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  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  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