2. Dr. Aliyu Dahiru Muhammad Other Researchers Prof. Dr. Mohamed Aslam Haneef Prof. Dr. Ataul Huq Pramanik Dr. Mustafa Umar Mohammed Dr. MD. Fouad Bin Amin 5th Global Islamic Microfinance Forum, 24 th -25 th November, 2015, Kuala Lumpur Malaysia

3. Outline  Motivation for the study  The Research Problem  The IWIM Model  Testing IWIM Model in Sudan and Nigeria  Major Findings  Conclusion

4.  High incidence of poverty in Muslim countries. - Approximately 31% of the total population of the 57 OIC member countries lives below the poverty line of USD 1.25 per day [Alpay, 2013].  Failing Measures and Models.  Several measures by the public, private and non profit organizations seem inadequate to contain the problem  Microfinance institutions look promising but are in need of innovations – viable model

5. Inherent weaknesses of standard economic theories ◦ Washington consensus” that high economic growth will bring about reduction in poverty or what is called trickle-down effect. ◦ Yet, the mechanism in which the growth will spread is loosely stated and not effectively proven in developing countries. ◦ This requires direct interventions in form of policies and programs (thus microfinance) Motivation (2) 5

6.  Microfinance institutions constantly face the following major problems: Economic viability (cost of fund or financing, high operating and administrative cost for monitoring loan operations, dependency on foreign aid). exploitative interest rate, ◦ Interest rate is destructive at macro level as well as micro level ◦ 25 to 50 percent or even more ◦ high interest rate is one of the major causes of business bankruptcies even in non-Muslim countries (Abulkhair 2011). limited products, ◦ include microcredit, micro-insurance, transfers, savings and investment opportunities. Challenges of Microfinance (1) 6

7. High dropout rate and non-graduation from poverty Debt trap lack of shariah compliance Human Resource Development Limited products and lack of Takaful coverage Hence the proposed IWIMM Challenges of Microfinance (2) 7

8.  Integrated waqf based Islamic microfinance model can be defined as a microfinance model that complies with sharia and aimed at reducing poverty in terms of enhancing the material-wellbeing and empowering the poor members of the society

9. Waqf Fund (A) IsMF (B) Poverty Alleviation (F) Human Resource (E) Project Financing (D) Takaful- Islamic Insurance (C )

10. A. Funding: from Waqf/IDB/other possible sources B. Financing institution: Islamic Microfinance or other institutions C. Takaful: to be used to cover investment risks as well as individuals and family. D. Project financing: i) Individually initiated ii) group initiated iii) project collaboration with IsMF institution ( financing modes - Qard Hassan, Murabahah, Partnership) E. Human resource Training: To improve skills hence productivity F. Poverty alleviation Some Notes about the IWIMM 10

11.  Facts and figures of selected countries under study Source: World Bank, 2015 http://databank.worldbank.org

12.  The study focused on Kano, Nigeria, a commerce centre in the federation with large number of micro-entreprenuers as well as the most densely populated Muslim community in the country.  The state has population size of around 10 million people which is the largest in the country  The sample size used is 248.

13.  A field survey was conducted in Sudan to validate the Integrated Waqf based Islamic Microfinance Model (IWIMM).  A total of 163 sample of Islamic microfinance clients were obtained from three locations: 50 from Kasala, where clients are mostly involved in livestock farming;  52 from al-Jazira, where clients work in agriculture and;  61 from Khartoum, where clients are engaged in business activities.

15.  The Central Bank of Sudan issued a rule requiring commercial banks to allocate 12% of their capital to finance various microfinance projects  The central Bank established in 2008 the Microfinance Development Facility to solve the funding problems of MFIs.  The Central Bank introduced Mudarabah, Musharakah, Salam, Istisna and Murabahah modes of financing for MFIs.

16.  There are several types of Waqf properties in Sudan.  However, the focuses of Waqf activities are mostly religious and for commercial and professional activities. The level of direct involvement of Waqf institutions to poverty alleviation programs through microfinance is still negligible.

17.  The Sudanese Micro Takaful was first launched in 2008 with the direction and guidance of the Central Bank of Sudan. Micro Takaful supports Islamic microfinance against default risk and encourages banks to finance poverty alleviation programs.  Presently, Micro Takaful covers material damages like loss of livestock, loss of property due to theft or fire, fire and burglary and other damages related to agriculture.  The challenges facing Micro Takaful include inefficient risk management tools, lack of reinsurance capacity and limited insurance products

18.  In the case of Nigeria, there exist microfinance of around 900 MFBs  Only one so far receives license to operate as Non-Interest microfinance i.e Attijarah Microfinance Bank.  There are other institutions that are however practicing Islamic microfinance in disguise  Waqf is largely under the control of state government and there exist various practices  However, there is high potential to mobilise waqf for microfinance in the country

19.  According to Malhotra (2010), reliability refers to the extent to which measurements of the particular test are repeatable. Hair et al. (2010) says, reliability is an “assessment of the degree of consistency between multiple measurement of variables”. In other word, reliability is the degree of uniformed results on repeated trails given by an instrument measure (Bougie and Sekaran, 2010).  Reliability

20. DimensionNo. of items Cronbach Alpha Islamic Microfinance070.917 Project Financing070.934 Takaful Financing090.808 Waqf Resources060.980 Human Resource Development110.933 Poverty Reduction060.832 Reliability of the Constructs

21. Full Fledge Structural Equation Model for IWIMM

22. Hypothesized paths Coefficient (β) P-value (sig.)Remarks H1Waqf Resources → Islamic Microfinance 0.315 0.001Supported H2 Islamic Microfinance → Project Financing 0.324 0.001Supported H3 Islamic Microfinance → Takaful Financing 0.202 0.001Supported H4Islamic Microfinance → Human Resource Development 0.527 0.001Supported H5 Project Financing → Takaful Financing 0.735 0.001Supported H6Takaful Financing → Poverty Reduction 0.373 0.001Supported H7Project Financing → Poverty Reduction -0.231 0.035Supported H8Human Resource Development→ Poverty Reduction 0.548 0.001Supported Hypotheses Tested

23.  As illustrated in Figure 1 above the R square values for the five dependent (endogenous) variables were poverty reduction = 0.40, takaful financing = 0.67, human resource development = 0.27, project financing= 0.10,and Islamic microfinance investment = 0.10 which indicated that dependent (endogenous) variables moderately explained by the independent (exogenous) variables.  Based on the SEM analysis it was observed that all eight hypotheses were supported in the SEM model at 1% and 5% significant level. However, project financing have negative influence on poverty reduction in Nigeria through integration of waqf resources and Islamic microfinance investment.  This may be due lack of its application in the microfinance sector in Nigeria Hypotheses

25.  The validity and acceptability of IWIMM was tested in Malaysia, Indonesia and Bangladesh  In Bangladesh, only one hypothesis, H7, is not supported.  In Nigeria all are supported  Meanwhile four hypotheses [H1, H4, H5 and H7] are not supported by results from Malaysia and Indonesia (Ataul Huq. P. et al, 2015). Testing IWIMM

26.  Waqf Based Islamic Microfinance model is applicable in Sudan and Nigeria as some elements are already on ground such as waqf (GRMB has RM260,000 to disburse from 2 philanthropists) and waqf fund in Sudan under the control of government  Comprehensive Regulatory framework is needed for effective application of IWIMM  Awareness constitute a major area of emphasis for stakeholders particularly on partnership issue  For the implementing institutions, screening and pre- disbursement training become very important  For the funding agencies, collaborations with other agencies is very crucial to achieve the goal of poverty reduction

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