ESAAR MICROFINANCE A Community Based Model Arshad Mehmood Head of Program Helping Hand for Relief & Development “4 th Global Islamic Microfinance Forum” 1-2 November 2014, Dubai UAE

Foundation of Esaar Microfinance Those who spend (in the cause of Allah) privately or publicly, by night and day, have their reward with their Lord. And (on the Day of Resurrection) they shall neither fear nor grieve. (Al- Baqarah 2:274) Abu Musa reported Allah’s Messenger (May peace be upon him) as saying: A believer is like a building for another, the one part supporting the other. (Sahih Bokhari Sharif Vol.3, Pg 440) Whereas Allah has permitted trading and forbidden Riba (usury). (Al-Baqarah 2:275) Charity Prohibition of RibaBrotherhood & Scarify

Cont. Charity Prohibition of Riba Brotherhood & Sacrifice Source of funding Riba is not just Haram, harmful for economy Social networking: mobilization & organization lead to social collateral

Mission Statement To facilitate and support livelihood opportunities and microenterprise development for poverty alleviation on brotherhood and solidarity bases through provision of Islamic Microfinance

Working Model Donation Disburse ment Recovery Recycle

Poverty Level & Esaar MF’s Approach At the Poverty Line Below the Poverty Line Abject Poor Growth Livelihood Safety Net Mudarbah Murabah Qarad e Hasan MED IGAs Survival ClassificationObjectiveApproach Mode of Financing

Modes of Financing Qarad e Hasan MurabahMudarbah

Murabah & Mudarbah Model: Background In Pakistan, 63% population living in Rural areas High Poverty Ratio in Rural areas as of Urban Agriculture is major sector of Rural Economy Agriculture contributes 21.4% of GDP Livestock contributes 55.4% and Crops 37.6% of Agricultural Production Crops sector is, mostly, financed through Murabah Livestock sector is financed through Mudarbah

Murabah Model Conventional Practice Money lender or Arti system Delivery of Seed & Fertilizer on delay payment Price not declared at delivery time (not permissible in Shariah) Quality of delivered goods not up to mark Farmers are bounded to sale out their crop to same Arti Exploitation of farmers Esaar’s Murabah Model Sharia based Murabah Participatory approach Price and profit declared at delivery time Quality up to mark, purchase by producer/importer Low rates compared to market Farmers are free to sale out their crop in open market Farmers has extra income – due to low cost inputs and relatively high price of crop in open market.

Mudarbah Model Conventional Practice Livestock rearing on partnership bases Owner purchased and handed over to shepherd/herdsmen Purchasing price not declared Shepherd/herdsmen responsible for fodder, medicines etc. No written contract At the time of selling profit sharing No proper mechanism of loss sharing Esaar’s Mudarbah Model Livestock rearing on partnership bases Purchasing is done in presence of Mudarib and handed over Written contract as per Shariah rules Fodder and medicines are responsibility of Rub-ul-Mal (Esaar MF) Sale is done in presence of Mudarib 60% profit goes to Mudarib Loss sharing as per Shariah rules

◘ Mansehra ◘ Rawalpindi ◘ Mianwali ◘ Muzaffargarh ◘ Rajanpur ◘ Dir ◘ Bahawalpur ◘ Ziarat ◘ Jaffarabad ◘ Jacobabad ◘ Kashmoor ◘ Shikarpur ◘ Chitral ◘ Kotli ◘ Rawalakot ◘ Hattianbala ◘ Gilgit ◘ Thatta ◘ Swat ◘ Malakand Charsada ◘ Nowshera ◘ ◘ Benazir Abad ◘ Matiari ◘ Tando Allah Yar Our Coverage ◘ Mirpur Khas

Implementation Strategy Area Identification HR Selection & Facilitation Base Line Survey Target Group Identification Community Mobilization & Organization Disbursemen t Recovery & Follow up

Esaar MF Interest Free: Shariah Compliant Cluster & Community Based Approach Online System Capacity Building Component Sustainable & Universally Replicable Integrated Approach Esaar Microfinance Model

Summary No. of Clusters26 Geographic Coverage (District and Union Councils - UCs) 24 Districts, 26 UCs Accumulative Beneficiaries13,968 Accumulative DisbursementUSD 3.86 Million Operating Cost Ratio15% Recovery Ratio99.5% Upper limit of FinancingUSD 600

Targeted Income Generating Activities Fertilizer, Seeds & Pesticides Agriculture Calves, Goats, Fodder, Hens Livestock & Poultry Motor Cycles, Fridges etc. Household Items Sugar, Flour, Medicines, Stationery, Keryana Store Items etc. Small Enterprise Sewing Machines, Tools, Raw Material etc. Services

Practice Issues Qualified and Trained Human Resource Community Awareness Local Religious Leaders Tax Procedures Natural disasters Shariah based funding source

Abdul Majid from Batakundi, Naran Valley – earthquake affected area and Pea farmer Received seed and fertilizer from money lender. The price was very high. Delivery not timely. Bounded to sale out the production to same money lender. Sale price low compared to market price. Problem Financial assistance with out exploitation Got seed and fertilizer from Esaar Microfinance on Murabah bases having amount USD 550 Solution Got required inputs at low price and timely Sale out the production in open market Got USD 700 additional benefit Purchased some household items Result A Case Study