akhuwat: fighting poverty with interest-free microfinance

KS1198

Case Number 2074.0

This case was written by Ussama Ahmad Khan, HKS MPP 2016, in collaboration with Dick Cavanagh, Adjunct Lecturer in Public Policy, at the John F. Kennedy School of Government, Harvard University. HKS cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management.

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Akhuwat: Fighting Poverty with Interest-Free Microfinance “As a philosophy, Akhuwat cannot fail; if the movement does not succeed, it will not be a failure of the principles

and ideals that guide the organization. Failure could only stem from the waning strength of men and the weakness

of their resolve but never from the lack of strength in the idea of Akhuwat itself.”

Dr. Amjad Saqib, Founder and Executive Director Akhuwat Pakistan

In July 2011, Dr. Amjad Saqib, head of Akhuwat, one of Pakistan’s largest microfinance organizations, sat on

the carpet inside his office and looked outside the window towards the vast open sky, contemplating a decision

that could potentially make or break Akhuwat’s future. In the last ten years, Saqib had led Akhuwat from being a

philanthropic experiment to a fast growing non-profit microfinance organization with 70 branches across Pakistan.

Now, Akhuwat had an opportunity to expand more rapidly than he had ever imagined.

“We had access to a large sum of money from the government and we wanted to double Akhuwat’s

operations,” said Saqib.1 “I went to a very famous management guru, who also teaches at one of the world’s most

prestigious universities, and told him that we want to go from 70 branches to 150 branches in three months. He

told me that this was not possible and that we were preparing the perfect recipe for disaster: ‘You have managed

to operate 70 branches in 10 years and now you want to double your size in three months? This is not possible,’ he

said.”

But Saqib was convinced that Akhuwat’s unique business model had the ingredients for rapid expansion. He

took a deep breath and started laying out a plan.

The Plight of a Widow

Akhuwat2 was created in 2001, out of the plight and desperation of a widow who had to nurture her four

children without any support. Seeing no way out, she approached Saqib, who then worked with the Punjab Rural

Support Program, which gave out small business loans in the rural villages of Punjab (a province in Pakistan). Saqib

was deeply moved by the woman’s plight. Later as he met a group of friends over lunch, he expressed his desire

1 Author interview with Dr. Amjad Saqib conducted in July 2015 in Lahore. Unless noted, subsequent quotations from and

attributions to Saqib come from this interview. 2The name Akhuwat is derived from the Arabic word “mwakhat” meaning brotherhood. This term took shape when the earliest

Muslims and Prophet Muhammad migrated north from Mecca to the small town of Medina. The citizens of Medina formed an unusual pact of brotherhood wherein they willingly gave away half their wealth and property to the emigrants. This event is known as the “Mwakhat.”

HKS Case Program 2 of 24 Case Number 2074.0

for what would later become Akhuwat. During the conversation, it quickly became clear that one of the problems

facing the poor was limited access to affordable finance. The solution was clear: easy access to interest-free loans.

Within a few days, Saqib went back to the widow and gave her an interest-free loan of Rupees 10,000 ($100)

so that she could start a small business of her own. By successfully utilizing and returning the loan within a period

of six months, she reinforced his belief that interest-free loans were a way to help people become self-employed

and come out of poverty. Buoyed by the success of the first loan, Amjad collected donations from friends and

family and soon their vision of interest-free microfinance started to take informal shape. Akhuwat was born with

these friends forming the first Board of Directors and Saqib serving as the first Executive Director. Ms. Rehana and

Ms. Tabassum were the first employees who were trained by Saqib and the three of them started working in a

poor locality of Lahore.

In the initial years, Akhuwat was a philanthropic exercise to see how interest-free microfinance would fare.

Over time, however, donations increased manifold with the momentum of the movement accelerating far beyond

expectations. By 2003, donations to Akhuwat had reached Rupees 1.5 million ($15000). Consequently, Saqib

decided to formalize the organization and registered Akhuwat under the Societies Registration Act of 1860. The

first branch opened in the industrial area of Township in Lahore and soon operations began to expand.3

Akhuwat: The Context

By mid-2015, Akhuwat had over 350 branches all across Pakistan and had given more than Rupees 13 Billion in

loans (US $ 130 m). It had over four hundred thousand active borrowers and was on track to give out its one

millionth interest-free loan. One of Akhuwat’s notable achievements was the 100 percent loan recovery rate it

had maintained throughout its 14-year operations.

By the end of June 2015, Akhuwat was the third largest provider of micro-credit in Pakistan with 405, 937

active borrowers, which was equivalent to 11.6% of market share. The largest micro-credit providers were the

National Rural Support Program and Khushhali Bank with 589,807 (16.8%) and 492,950 (14.1%) active borrowers

respectively. Among the non-government microfinance providers, Akhuwat was the largest in Pakistan with the

highest number of active borrowers. The Kashf Foundation and Tameer Microfinance Bank Ltd. also had a

significant percentage of market share in terms of active borrowers.4 Akhuwat however was unique as it was the

only organization that did not charge interest.

In the micro-insurance sector, the National Rural Support Program and Khushhali Bank (both started by

government) were the largest providers of micro-insurance with 896,963 and 539,854 policyholders. Akhuwat was

the fifth largest micro-insurance provider with 405,937 policyholders, which was 9.7% of market share in terms of

policyholders.

To date, many other organizations have started following in Akhuwat’s footsteps by providing interest-free

loans but Akhuwat is the pioneer and largest organization that provides completely interest-free microfinance

3 Akhuwat, “What We Do,” www.akhuwat.org.

4 “MicroWATCH: A Quarterly Update on Microfinance Outreach in Pakistan,” Issue 36, Quarter 2, Apr-Jun 2015,

http://www.microfinanceconnect.info/assets/articles/fd610dcd18076c879ec30ddb5c6bced2.pdf.

http://www.akhuwat.org/

http://www.microfinanceconnect.info/assets/articles/fd610dcd18076c879ec30ddb5c6bced2.pdf


loans to consumers. (A list of some loan products of the two largest microfinance providers is provided in Exhibit

1.)

Dr. Amjad Saqib: The Story of a National Hero

Saqib was a medical graduate from King Edward Medical College, one of Pakistan’s most prestigious medical

colleges. He entered the highly selective and prestigious Civil Service of Pakistan in 1985 and quickly rose to senior

positions. Nearly 18 years later, in 2003 Saqib resigned, with the intent of dedicating himself to becoming a social

entrepreneur and making a positive impact through Akhuwat–which had already been launched in 2001. His

resignation sent ripples in the civil service community as such a decision had been unheard of. Saqib, however, was

not afraid of taking such a drastic step in his professional career. For him, “it was all a part of a universal grand

design that guided me towards the right decision.”

The salient feature of Saqib’s public service career–one that perhaps changed the course of his life–was his

last assignment, a five-year stint as general manager of the Punjab Rural Support Program (PRSP) from 1998 to

2003. It is there that he had the opportunity to closely examine the various initiatives of poverty alleviation,

education management, participatory development and conventional microfinance. And this made him realize that

“something different had to be done.” The desire to do something more effective for the poor spurred him to

conceive and introduce an interest-free microfinance model based on the idea of “Mwakhat” or brotherhood.

Saqib became a published author of six books including the “Journey of Akhuwat,” a memoir of his

experiences through the different stages of Akhuwat’s development. An inspiring public speaker, Saqib has often

appeared on television shows, seminars and has held a strong social media presence. Due to his charismatic

personality and eloquence of speech, he has often been called in as a guest speaker to address large audiences. He

was also appointed as Vice Chairman for Punjab Educational Endowment Fund (PEEF) by the Chief Minister of

Punjab. PEEF is the largest fund created by Government ever to provide free education to poor students. In 2010,

he was awarded the Sitara-e-Imtiaz (one of the three highest civilian awards) by the President of Pakistan on

account of contributions made for social development and poverty alleviation in Pakistan.

Pakistan

Pakistan gained independence from British India in 1947. In 2014, as the sixth most populous country in the

world, Pakistan was home to nearly 200 million people.5 An overwhelming majority of the population was Muslim

(97%) followed by Hindus and Christians. Pakistan’s economy was mostly agrarian with a majority of the

population living in rural areas. In its 68-year history, Pakistan saw multiple martial laws and dictatorships with the

first civilian democratic government transition occurring in 2012. With weak infrastructure and lack of social safety

nets, most low-income individuals turned to informal—and often exploitative—lenders during financial

emergencies.

5 United States Census Bureau, U.S. and World Population Clock, http://www.census.gov/popclock/.

http://www.census.gov/popclock/


According to the Qur’an,6 charging interest on any loan transaction is forbidden. And according to most

Muslim scholars, any premium on a loan is classified as interest regardless of the amount. The Qur’an describes a

loan as a Qard-e-Hasan or the “beautiful loan” which means that a loan can only be given without interest. In

essence, a loan cannot be used as an instrument to earn profit by the lender. There are other equity-based

instruments available that can be used if someone wants to earn profit. Despite this Qur’anic injunction, most

banks both at the state and the private sector in Pakistan charge and receive interest on loans. More recently,

there has been a rise in “Islamic Banks” not only in Pakistan but other Islamic countries that offer equity-based

financing such as Musharika (joint venture financing), Mudhariba (venture capital financing) and sukuk (Islamic

bonds). (For a summary of major Islamic finance products, see Exhibit 10.)

In 2013, almost 12.5 percent of Pakistan’s population lived below the $1.25 per day poverty line and

according the UNDP Multidimensional Poverty Index, 45.6 percent of the population was living in multi-

dimensional poverty.7 With more than 40 percent of the population above the age of 10 and illiterate as of 2013,

8

access to consumer loans was limited due to inability to open bank accounts and fulfill all legal requirements.

Without a basic education, it was difficult for citizens to complete the necessary steps such as writing their name

and signatures in order to open a bank account. In the absence of formal access to consumer credit, many

individuals turned to private lenders who charged exorbitant interest rates. Unscrupulous lenders severely abused

individuals who failed to pay back loans. There were numerous documented incidents of abuse, violence, and

harassment including forced sex, child labor and physical torture by lenders in instances of failure to pay back the

loans.9 According to a report by the 2014 World Slavery Index, there were as many as 2 million enslaved individuals

in Pakistan. Most of this enslavement was in the form of bonded labor, which occurred when debtors were unable

to pay their loans, and thus forced to do work for the lender. With weak law enforcement many of these crimes

went unchecked. (For a map of Pakistan, see Exhibit 12.)

Akhuwat: The Idea

Saqib had seen first-hand the causes and consequences of poverty in Pakistan. Having worked for public and

private sectors and having closely observed the lifestyle and social dynamics surrounding poverty, he concluded

that being poor was not only limited to having a low or no income. “Poverty is not just the name of one thing,”

Saqib said. “Poverty is much more pervasive and devastating. Economic poverty is when you do not have money.

Social poverty is that you do not have friends and status. Political or moral poverty is that you do not have political

rights and you cannot go to court. People also have spiritual poverty, which is a lack of good character. The

Akhuwat model aims to alleviate all forms of poverty. By giving loans, we get rid of economic poverty. By making

people sit together in all the important stages of the loan process, we alleviate social poverty. By giving them

guidance we make them aware of their political rights, and coming into the mosque gives people spiritual

enrichment and fulfillment.”

6 The Qur’an is the most sacred text for Muslims, which they believe to be the word of God revealed to Prophet Muhammad.

7 United Nations Development Programme, Human Development Reports, http://hdr.undp.org/en/countries/profiles/PAK.

8 Pakistan Social and Living Standards Measurement (PSLM) Survey 2012-13.

9 For instance see: Taha Siddiqui, “Extortion: Swimming with the Loan Sharks,” The Express Tribune, February 16, 2012,

http://tribune.com.pk/story/337187/extortion-swimming-with-the-loan-sharks/.

http://hdr.undp.org/en/countries/profiles/PAK

http://tribune.com.pk/author/2274/taha-siddiqui/

http://tribune.com.pk/story/337187/extortion-swimming-with-the-loan-sharks/


The Akhuwat idea was based on four key principles: 1) Interest-free Loans 2) Use of Religious Places 3) Spirit of

Volunteerism 4) Turning Borrowers into Donors. These four principles did not develop as a result of design or

strategy, but rather through a process of action research, learning and improvement. “We did not design or plan to

adopt these four principles,” Saqib said. “It seems everything was done under a grand universal design. For

example, once it was very hot and we had to go to a woman's house to give her some money but she was not

home. There were some 12-13 women with us who were the loan recipients for that day and we had nowhere to

go. There was a mosque in front of the house and we asked the imam10

if we can sit inside and he said yes. So we

sat inside and distributed the loans. That experience was very valuable, as we not only found a communal place to

organize our meetings and disbursements; it was also completely free with a tinge of sacredness! Since then the

use of religious places such as a mosque or a church became vital to our operations.”

Saqib’s ability to draw together people and inspire them towards the cause of Akhuwat has proved to be vital

in helping Akhuwat develop into what it is today.

Use of Religious Places

Akhuwat relied heavily on the use of religious places to conduct events such as pre-loan meetings and the

actual loan disbursement process. Loan disbursements at Akhuwat carried the significance of a ritual. Every month

all the borrowers set to receive loans were asked to gather inside a mosque or a church. When the majority of the

recipients were Muslim this event was conducted in a mosque and when the majority were Christian, in a church.

(Exhibit 2 shows a typical disbursement event with Saqib leading the proceedings.) This event does not only act as

social collateral but also gives an air of sanctity and spirituality to the whole process. Borrowers believed it their

responsibility to work hard and return loan installments on time. According to Saqib this created other positive

outcomes as well, “Sometimes we had problems when some people objected to non-Muslims being admitted into

a Mosque. However, in most cases people were welcoming. We have conducted many disbursements with

Muslims, Christians and people from other religions sitting together in a mosque. This has led to an increase in

inter-faith harmony and fall in sectarianism as people started to know each other’s faith.”

Interest-free Loans

Akhuwat is based on a completely interest-free micro-finance model. This means that borrowers return, in

absolute terms, the same amount of money that they borrowed from the organization. There is an initial

application fee of Rupees 200 ($2) which acts as a screening mechanism to ensure only serious borrowers apply.

This policy of charging no interest was based not only on religious law11

but also to correct deep-rooted inequity in

the existing system. “There are two problems with charging interest,” Saqib said. “The first is religious: Our faith

prohibits us from taking interest especially from a person who is very poor. The second is social justice: someone

who is already rich pays only 10-12 percent to buy a Mercedes car and a person who is only to earn his bread and

set up a food cart has to pay 30 percent at interest. What kind of a world is this?”

10

An Imam is usually the religious head of a mosque. 11

The Qur’an prohibits Muslims from either paying or taking interest on loans. Interest is defined as any pre-determined premium on a loan transaction. Traditionally, Muslims view both high and low interest as prohibited and see no difference between usury and interest.


A loan given on interest is profitable business and not assistance said Saqib: “In Islam it is much more virtuous

to give Qard-e-Hassan (beautiful loan) to someone rather than charity or doles. Charity is rewarded ten times while

giving a loan is rewarded eighteen times as remarked by Prophet Muhammad. When your brother or sister asks

you to help them, you don’t charge them interest for it. You take back what you gave them. This is the spirit of

brotherhood and compassion that embodies Akhuwat.”

Saqib believed that Akhuwat’s success was proof that conventional practices were faulty. By charging no

interest, Akhuwat developed a bond of trust and sincerity with its borrowers. Borrowers did not get trapped in

endless cycles of repaying interest and felt much more confident in returning their loans to Akhuwat. The

organization saw interest as a barrier to widespread proliferation of capital. “Our borrowers are our inspiration,”

Saqib said. “We believe that no one is short of ideas, only short of capital. Our borrowers have initiated more than

150 different kinds of business. These businesses earn a very high rate of profit for our borrowers. The billions of

rupees that we have disbursed to these entrepreneurs has arguably resulted in multifold wealth generation

allowing them to earn a dignified livelihood, send their children to schools, improve their health and live a better

life.” (A list of the types of businesses started by borrowers can be seen in Exhibit 11.)

Spirit of Volunteerism

Akhuwat’s typical employee regularly worked extra hours without claiming extra compensation. Employees

while paid for 40 hours also volunteered another 10-20 hours a week, on average. “This is how employees quench

their thirst for volunteerism,” said Saqib. “This is what gives them strength that they are doing it for the sake of

God.” Saqib himself represented this spirit of volunteerism; despite working full-time for the organization he has

received no remuneration. His dedication and service for the cause of Akhuwat has motivated many people to join

the organization and to dedicate their lives for the cause. “Sometimes we work on weekends, even on Sundays but

we know this is helping us because we are doing something good and noble,” said Ali, an Akhuwat Employee. “We

know that a poor widow will pray for us when we help her. This is also our compensation.”12

Saqib paid careful attention to training Akhuwat employees. Most offices displayed the four principles of

Akhuwat to help employees remember what they were working for. “We tell our employees that their

compensation is not only monetary,” said Saqib. “Wherever you go people treat you with respect. Widows and

orphans give you their prayers. This is also a form of compensation. You are serving the people of God irrespective

of distinction like caste, creed, color or faith. We tell them that every person says that society is becoming corrupt.

So there should be someone who stands up and says ‘I am going to put an end to this.’ Someone has to make the

sacrifice. If a generation sacrifices only then will they progress forward. This is not only a job, it is a responsibility

and a way how we all can make this world a happy place to live in.”

According to Saqib, the spirit of volunteerism in employees is one of Akhuwat’s greatest assets. “If someone

were to give us millions of Rupees and asked us to take out this spirit of volunteerism and turn Akhuwat into a

12 Author interview with Akhuwat employee Ali conducted in July 2015 in Lahore. Unless noted, subsequent quotations from and attributions to Ali come from this interview.


corporate business, we would simply say no. The spirit of giving and serving has no parallel. This cannot be traded

against money.”

Turning Borrowers into Donors

Interestingly, Akhuwat turned its borrowers into donors. Even though no interest was charged on loans,

Akhuwat encouraged borrowers to give something back to the organization. Giving back was strictly voluntary. If

borrowers did not give anything back, it did not hinder their chances of securing other loans in the future.

Borrowers were told to give as much as they were willing to help others in need. For example, once there was a

local mechanic who had lost his property in a flood. He applied for and successfully secured a loan from Akhuwat

with which he was able to restore his business. Later, he got a job in Dubai and moved there. He then donated a

substantial amount to Akhuwat from his foreign earnings so that he could pay back the organization that helped

him during his time of need. “Seventy percent of our borrowers are now our donors; they give something back to

the organization so that they can help others too,” Saqib said. “Microfinance is not an end; it is a tool, a means

towards an end. The end is a society that has brotherhood and solidarity between the haves and the have-nots.

One section of society that has, helps the one, that does not.”

In this way the local branches of Akhuwat slowly started helping others. Local small business owners who did

not need Akhuwat’s loans also began making contributions. According to Malcolm Harper, Emeritus Professor at

the Cranfield School of Management UK, who studied Akhuwat’s model, borrowers, donors, volunteers and the

paid staff at Akhuwat felt they were all equal. Although the loans were only made possible by the generosity of

donors, there was no sense of obligation; all the stakeholders shared a common purpose.13

Loan Products

Akhuwat offered a broad range of loan products. The majority of loans were Family Enterprise or Business

Loans, which accounted for 85 percent of all loans. Other forms of loans included the Liberation Loan for people

already under debt and being exploited by loan sharks. Other loan products included Housing Loan, Education

Loan, Marriage Loan, Emergency Health Loan and others. (A detailed breakdown of all nine types of loan products,

their description, and features is presented in Exhibit 3.) For many people, Liberation Loan, is very unique and Lend

with Care, a subsidiary of Care International, a UK based Charity already a partner of Akhuwat, is thinking to

support its expansion.

Borrower Profile

Sixty percent of all borrowers were male while forty percent, female. This went against conventional micro-

finance practice, which operated under the belief that women were typically more responsible borrowers than

men. There was some evidence from countries such as Bangladesh, however, that lending to women rather than

men led to a rise in domestic conflict as the men in the household felt threatened when the women took control of

the financial affairs of the family. Akhuwat avoided this problem altogether by lending to an entire household.

According to Malcolm Harper, “wives and husbands are required to sign loan agreements, or mothers and sons, or

13

Malcolm Harper, “Akhuwat: A Case Study,” http://www.akhuwat.org.pk/akhuwatcaseStudy.asp.

http://www.akhuwat.org.pk/akhuwatcaseStudy.asp


fathers and daughters, and the loans are known as family loans. Every member of the family knows that they have

taken a loan, and this creates a sense of unity in the household and avoids conflict and duplication of loans in the

same family.”14

Loan Process

The loan process at Akhuwat included the following steps:

1. The applicant approached the nearest branch. He or she filled the application in the Branch Office in

front of the Unit Manager. Most loans were given in the form of groups, however, individual loans

were also given in exceptional circumstances.

2. The Loan Officer visited the applicants at home and conducted a comprehensive appraisal which

included both social and financial appraisal as well as interview of personal guarantees.

3. The Unit Manager prepared the case. The Branch Manager reviewed it and visited the residence or

business place of applicant. The case was then submitted for approval to the Loan Approval

Committee (LAC). The LAC had the authority to approve the loan

4. After approval of the loan, the Accountant in the Area Office prepared the checks. Two authorized

signatories signed the check.

5. Signed checks were sent to the respective Branch Office, where the checks were handed over to the

member in a religious place i.e. a mosque or a church. This event was arranged and used as an

opportunity to build capacity and provide social guidance to the borrowers.

6. Borrowers paid monthly installments at their local branch office.

All applicants paid a mandatory Rupees 200 ($2) loan fee which amounted to 1% of the average loan size.

Borrowers were also given the option of signing up for an optional Mutual Support Fund Contribution, which was

also 1% of the loan amount. This Fund was used to write off the outstanding loan in case the borrower died and

the family of the deceased was given Rupees 5000 ($50) to cover the cost of funeral and burial.

Organizational Structure and Set-up

Akhuwat, currently, is based in the historical city of Lahore, which is the cultural hub of Pakistan. A board of 9

members consisting of philanthropists, civil servants and prominent businessmen governs it. The head office is

responsible for managing, planning and organizing different activities and projects of the entire organization

divided into three national regions: North, Central and South. The Chief Credit Officer leads a team of three

regional managers who are responsible for their respective regions. A Regional Manager leads 7-10 Area Managers

who in turn are in charge of 5-7 Branch Managers. A typical Branch Manager is then responsible for 4-6 Unit

Managers. Some Areas have a steering committee, consisting of 8-10 prominent individuals living in that area and

two representatives from Akhuwat, generally the Area and the Branch Managers. The job of the committee is to

oversee all the functions of the branch and also to mobilize funds in their respective areas. (The organogram can

be found in Exhibit 4.)

14

Ibid.


The Board of Directors, including Saqib, charges no remuneration. The organization does not own vehicles and

staff are expected to use local transport or their own vehicles, for which they are reimbursed. Akhuwat offices are

small and simple. A typical office has no chairs or office desks. Employees and customers both sit on the floor,

often on ordinary cushions or pillows facing a low-rise wooden platform, which is used as a desk. Often desks are

shared by more than one employee. (See a typical office space in Exhibit 5.) Since most activities such as pre-

disbursement meetings and actual disbursement ceremonies are carried out in mosques or churches, the

organization has had no additional costs in conducting these regular activities.

Working with the Government

Saqib spent nearly two decades as a civil servant with the Punjab Government. During this time he built a

strong network of friends and admirers who would later play an important role in Akhuwat’s success. In the mid-

1990s, Saqib was appointed as the Deputy Secretary to Shahbaz Sharif, the Chief Minister for Punjab–the most

populous and most prosperous province in Pakistan. Saqib’s hard work and dedication left a deep impression on

the Chief Minister. Soon after in 1999, however, PMLN was overthrown in a military coup in which General Pervez

Musharraf declared martial law in Pakistan. Shahbaz Sharif was thrown into exile and Saqib, soon after, took leave

from office to work with the Punjab Rural Support Program (PRSP). “In 2000, when I went to England I met

Shahbaz Sharif when he was in exile. He remembered who I was and we spent some time together. We talked

nothing but poverty. How can we help the poor and build Pakistan? He told me that when he came back to

Pakistan, he would like us to work together.”

True to his promise, when Shahbaz Sharif returned to Pakistan in 2007 and became the Chief Minister of

Punjab again, he asked Saqib to lead a program in Education. Saqib conceived the Punjab Education Endowment

Fund (PEEF) and was appointed its vice chairman. PEEF was Pakistan's largest education program with funding

amounting to $170 million. This organization has supported more than 100,000 poor but talented students to

complete their education in best institutions of the country. His association with PEEF was also on volunteer basis.

Later in 2009, Saqib presented the idea of Akhuwat to Sharif who agreed to make a revolving fund solely for

the purpose of giving out interest-free loans. This fund would belong to the government but Akhuwat was chosen

as the service provider. In November 2011, Saqib’s efforts bore fruit and the Government of Punjab, through the

Punjab Small Industries Corporation, set-up a revolving fund for Rs 5 Billion ($50 million). His next project was to

get a similar initiative approved by the Government of Gilgit-Baltistan, a province in the north of Pakistan. Under

this initiative, the government of Gilgit-Baltistan agreed to give out Rupees 210 million ($2.1 million) in May 2013.

Saqib then convinced the federal government of Pakistan to setup a similar revolving fund after meeting the

Prime Minister, Nawaz Sharif the elder brother of Shahbaz Sharif. The federal government started a similar

program and promised Rupees 336 million ($3.36 million). But instead of making Akhuwat the sole service

provider, Saqib convinced the federal government to hire multiple service providers. He helped select twenty-six

more organizations that would act as service providers for this program. (A breakdown of Akhuwat’s initiatives

with the government can be seen in Exhibit 6.)


Putting It All together

Saqib was disappointed with the management expert’s less than optimistic view of the idea to double the

number of Akhuwat branches, but he knew that the time had come to test the true impact of the philosophy of

Mwakhat. “We told the management guru that the philosophy of our organization is mwakhat. This mwakhat will

also be our growth strategy. Mwakhat means that one person adopts another person, one family adopts another

family, and gives them the feeling of companionship and brotherhood rather than making them dependents and

beggars.”

The plan was set in motion. Every existing branch was designated as the “ansaar” or helper branch and was

assigned the task of making another branch just like itself, which would be called the “muhajir” or “emigrant”

branch. Each existing branch was also made responsible for making a new branch in a new city or an uncovered

part of the same city. Branch managers were tasked with hiring 5-7 new employees and training them for one

month. These new employees were then brought to the head office and further trained for one month. Next, they

were told to return to their new “muhajir” branches and their respective “ansaar” branch was tasked with assisting

them in operations. Each branch had the target of setting up and starting operations for another branch over a

period of three months. Saqib believed this task could not have been led from the head office.

If we did this from the head office, this would have meant a tremendous strain on our

resources,” Saqib said. “But for one branch to make another branch utilize local resource and

knowledge is not something difficult. The old branch acted as an incubator for the new branch

for one year and would be responsible for all operational and motivational issues. This is how in

three months we moved from 70 branches to 150 branches. To monitor, supervise and fill the

gaps (in this growth), volunteers from the head office staff independently visited each branch

and provided assistance in training wherever it was needed. We set up an independent body of

volunteers who appraised the capacity and quality of new branches. So in just three months we

doubled our program without any fall in our performance, loan recovery rate or any important

indicator...

Between 2011 -2015, Akhuwat was able to achieve a seven-fold increase in the amounts of loans disbursed

per year. Most of this growth came from its strategic partnerships with the provincial and federal governments of

Pakistan. Akhuwat has also now moved from 150 to 495 branches using a similar growth and expansion plan. (For

a detailed overview of Akhuwat’s growth, see Exhibit 7.)

Moving Forward

In December 2015, Akhuwat had 495 branches all over Pakistan and had disbursed a total of $208 million. It

had a total of nearly 400,000 active borrowers and had reached a total of 1.1 million borrowers. Saqib envisioned

reaching 3 million borrowers in the next five years. When asked how long it would take Akhuwat to reach this

target, he responded:


We made a strategic plan by hiring PwC Pakistan. The targets that they predicted we would

achieve in 2017, we achieved those in 2014. They often tell us that we cannot make any strategic

plan for you. You break every rule. When God is helping then there is no end in sight. In the first

seven years, we gave out a total of $5 million. Now every month we give out that much. We

gave out $90 million in 14 years and $80 billion in one year alone. I can't tell you why we want to

reach out to 3 million borrowers; it can be 5 million, but there should be some substantial

difference.

In the past several years, Akhuwat branched out into many different areas of social impact including opening a

business incubator, offering scholarships to 1,000 students, offering free healthcare and helping Internally

Displaced Persons after the devastating floods in Pakistan made millions of people homeless. (A complete list of

Akhuwat’s initiatives can be found in Exhibit 8 and Akhuwat’s progress indicators to date can be seen in Exhibit 9.)

Akhuwat was also working on building Akhuwat University which aims to provide interest-free education

loans. According to Saqib, there are two types of strategies for poverty alleviation: short-term and long-term. He

believed that although short-term poverty could be alleviated by giving small loans, long-term poverty could only

be alleviated by educating people.

Microfinance is a tool and not the goal,” said Saqib. “If you give $200 to someone right now, he

will be saved from hunger. In the long term, people can be empowered only through education.

We want to build a college and a university and make it the best university in the region. If a loan

can be without interest then education can be without fees as well. This is long-term Qarz-e-

Hasan. If someone wants to get education and they don’t have resources, they can study at our

university on interest-free student loans and return the money whenever they start earning.

Through Akhuwat University Saqib also wants to create the next generation of leaders for Akhuwat. He is a

firm believer that those people who Akhuwat will help, will come back and serve the organization:

Those people who are in the streets and we adopt, help, and educate will come back to lead the

organization. This is our succession plan. At the moment we have sponsored one thousand

students who are studying in different universities. This is what we inculcate in them, that we are

investing in you so that you can lead this organization in the future. God chooses people to serve

His people. I don't know if my son will do it or not as this is not in blood necessarily. If you are

more passionate than I am, then I am already waiting for you to come and get my place in the

organization. Leadership is like a relay race. We will, one day, handover the light to someone

ready to take it and fade away in the mist of past. We are preparing ten thousand people as our

successors who will lead the organization tomorrow.


Exhibit 1: List of Loan Products

Source: Khushhali Bank Website, https://www.khushhalibank.com.pk/About-Khushhali-Bank; National Rural Support Programme Website, http://nrsp.org.pk/.

Exhibit 2: Saqib Addressing People in a Mosque at a Loan Disbursement Event

Source: Permission courtesy of Akhuwat.

https://www.khushhalibank.com.pk/About-Khushhali-Bank

http://nrsp.org.pk/


Exhibit 3: Nine Types of Loan Products

Products % Description Product Features

1. Family Enterprise Loan 80 These constitute the majority of loans offered by Akhuwat and are given for the establishment of a new business or the expansion of an existing one.

Range: From $ 100 to $ 500 Duration: 10 - 24 months Profit Rate: 0% Initial Application fee: Up to $2 Post Approval Application fee: None Mutual Support Fund Contribution: Optional 1% of loan amount

2. Liberation Loan

2 These loans are given to the persons who have taken loans from exploitative money lenders to save them from undue interest rates. Akhuwat pays off the balance amount to the money lenders in one go and in return borrower pays back the principal amount to Akhuwat in easy installments.

Range: From $ 100 to $.1000 Duration: 10-36 months Profit Rate: 0% Initial Application fee: Up to $2 Post Approval Application fee: None Mutual Support Fund Contribution: Optional 1% of loan amount

3. Housing Loan

2 The purpose of the housing loan is to provide financing facility for renovation of houses, construction of rooms, roofs, walls, etc. These are given to those poor families who occupy a single room and their family size goes up to 8 or above.

Range: From $ 300 to $ 1000 Duration: Up to 36 months Profit Rate: 0% Initial Application fee: Up to $2 Post Approval Application fee: None Mutual Support Fund Contribution: Optional 1% of loan amount

4. Education Loan

5 This loan is targeted towards families who are unable to send their children to school without receiving at least a partial subsidy for their education expenses and are utilized for paying school fees or purchasing books and other materials.

Education Level: Post Matriculation up to Masters Range: From $100 to $500 Duration: 10 - 24 months Profit Rate: 0% Initial Application fee: Up to $2 Post Approval Application fee: None Mutual Support Fund Contribution: Optional 1% of loan amount

5. Health Loan

2 Health loans are given to poor people suffering from serious illnesses and ailments and who do not have contingency savings.

Range: From $100 to $500 Duration: 10 - 24 months Profit Rate: 0% Initial Application fee: Up to $2 Post Approval Application fee: None Mutual Support Fund Contribution: Optional 1% of loan amount

6. Marriage Loan

2 Marriage loans are for parents who face difficulty in arranging the necessary funds for the marriage ceremonies and dowries of their daughters.

Range: From $100 to $500 Duration: 10 - 24 months Profit Rate: 0% Initial Application fee: Up to $2 Post Approval Application fee: None


Mutual Support Fund Contribution: Optional 1% of loan amount

7. Emergency Loan

2 This product is for poor families who face unfortunate events and emergencies, e.g. sudden losses in business, etc.

Range: From $100 to $500 Duration: 10 - 24 months Profit Rate: 0% Initial Application fee: Up to Rs, 200 Post Approval Application fee: None Mutual Support Fund Contribution: Optional 1% of loan amount

8. Education Assistance

Program

2 The objective of the Akhuwat Education Assistance Program is to extend interest free loans to highly deserving candidates who have exhibited excellent academic results, belong to a low-income background and are unable to pay for post-secondary education. This program aims at inculcating social responsibility in the lives of these students.

Education Level: Post graduation to Professional Education Range: Up to $1000 per year (depends upon the fee). Duration: Post Qualification (grace period till individual gets employment) Profit Rate: 0% Initial Application fee: None Post Approval Application fee: None Mutual Support Fund Contribution: Optional 1% of loan amount

9. Equip and Build the

School

3 This product is a loan targeted at existing low-income private schools. In order to equip these schools with basic amenities, Qard-e-Hasan will be provided for the following: Furniture and fixtures Provision for construction Provision of clean drinking

water Provision of toilets Provision of renovations of

school premises, etc.

Range: From $250 to $1500 Duration: Up to 36 months Profit Rate: 0% Initial Application fee: Up to $5 Post Approval Application fee: None Mutual Support Fund Contribution: Optional 1% of loan amount

Source: Akhuwat Company Documents.


Exhibit 4: Akhuwat’s Organogram



Exhibit 5: A Typical Akhuwat Office

Source: Permission Courtesy of Akhuwat.


Exhibit 6: Public-Private Partnerships

The Chief Minister’s Self-Employment Scheme – Punjab November, 2011 By providing access to financial services, the CMSES seeks to empower low-income families to make their own choices and construct their way out of poverty in a sustained and self-determined manner. To this end, the Government of Punjab through the Punjab Small Industries Corporation has partnered with Akhuwat. Until November 2015, the initial grant of $50 million had been translated to over $150 million disbursed in 802, 969 interest-free loans. The Chief Minister’s Self-Employment Scheme - Gilgit Baltistan, April 2013 The CMSES-GB has served over twenty-four thousand families with interest-free loans worth $ 5.5 million by November 2015. The CMSES-GB was launched in partnership with Ministry of Youth Affairs through a grant of $ 2.1 million given to Akhuwat. The Prime Minister’s Interest-Free Loan Scheme, August 2014 The federal government has awarded $ 3.3 million to the Pakistan Poverty Alleviation Fund (PPAF) that in turn will work through partner organizations to provide interest-free microfinance to small entrepreneurs all over Pakistan. Akhuwat is one of the partners under the PM-IFL and has received $ 4.46 million. The Governor of Khyber Pakhtunkhwa’s Interest-Free Loan Scheme for FATA October 2015 Under the leadership of the Governor of Khyber Pakhtunkhwa (KPK) an interest-free microfinance scheme was launched in the Federally Administered Tribal Areas (FATA) through a partnership with Akhuwat. It is the first microfinance program of this nature to be launched in the region. TEVTA Interest-Free Loan Scheme October 2015 Recently the Technical Training and Vocational Training Authority (TEVTA) has partnered with Akhuwat to create a credit pool of $5 million that would offer interest-free loans exclusively to TEVTA graduates. The TEVTA Interest-Free Loan Scheme is being administered from all branches of Akhuwat in Punjab and offers interest-free loans ranging from $100 to $1000. Source: Akhuwat Company Documents.


Exhibit 7: Growth of Akhuwat

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

Nu

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of

Lo

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Growth in Number of Loans disbursed per year

Number of Loans

0

10,000,000

20,000,000

30,000,000

40,000,000

50,000,000

60,000,000

70,000,000

80,000,000

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

Va

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of

Lo

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s ($

)

Growth in Value ($) of Loans disbursed per year

Value of Loans ($)



1 2 4 7 11 18 20 22 36

77

153

254

289

495

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Nu

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Growth in Number of Branches

Number of Branches


Exhibit 8: List of Initiatives Sponsored by Akhuwat

Program Name Description

1 Akhuwat University Akhuwat Faisalabad Institute of Research, Science and Technology (FIRST). Program in biotechnology based completely on need-based scholarships.

2 Internship and Leadership Program

Program for providing internship opportunities in multiple organizations in the development sector.

3 Volunteer Services Program for involving student and professional volunteers in Akhuwat’s operations.

4 Cloth Bank Program for collecting and distributing used clothes to poor individuals.

5 Akhuwat My Biz Incubator Center Business incubator for start-up companies.

6 Health Services Akhuwat subsidiary that provides affordable, efficient and effective health care services such as diabetes and gynecology clinics.

7 Khwajasira Support Program Program for empowering socially disadvantaged transgendered individuals.

8 AISEM Customized training and capacity-building facility.


Exhibit 9: Progress Indicators


PROGRESS INDICATORS (2015) TOTAL

Total Benefiting Families 1,137,043 Total loans disbursed to Males (60%) 679,287 Total loans disbursed to Females (40%) 457,758 Amount Disbursed $ 208 m Percentage Recovery 99.92% Active Loans 469,017 Outstanding Loan Portfolio $ 57 m Number of Branches 495 Number of Cities and Towns in Pakistan 276


Exhibit 10: Summary of Major Islamic Banking and Finance Products Hibah: This is a token given voluntarily by a debtor to a debtor in return for a loan. Hibah usually arises in practice

when Islamic banks voluntarily pay their customers a 'gift' on savings account balances, representing a portion of

the profit made by using those savings account balances in other activities.

Ijarah: Ijarah means lease, rent or wage. Generally, the Ijarah concept refers to selling the benefit of use or service

for a fixed price or wage. Under this concept, the bank makes available to the customer the use of service of assets

/equipment such as plant, office automation, or motor vehicle for a fixed period and price.

Istisna: In an Istisna sale, the buyer asks the manufacturer to create a specific commodity with material from the

manufacturer. The price is fixed after all parties give their consent and agree on all the necessary specifications of

the commodity.

Murabaha: Murabaha is a sale with an agreed-upon profit margin.

Mudharabah: In Mudharabah, the customer provides funds to the bank, which then invests the funds into various

investment schemes and financing.

Musharakah (Investments): Musharakah means “to share.” In a banking context, it indicates that all profits or

losses are shared equally.

Qard: Qard transactions are loans without profit. The borrower is required to repay only the principal amount

borrowed but may pay an extra amount as a token of appreciation at the borrower’s absolute discretion. Qard

contracts can also be used to support current accounts, in which customers lend the money to the bank. The bank

generates profit on this loan and returns the capital and some of the profit it has obtained.

Salam: Salam is a sale in which the seller supplies specific goods to the buyer at a future date in exchange for a

price fully paid in advance. It is typically used to finance agriculture. The bank must take delivery of the commodity

on maturity and it can enter into a parallel contract of Salam with another party to sell the commodity on the

future date. (It is prohibited to sell the commodity to the original party.)

Takaful (Islamic Insurance): Takaful is an alternative form of cover that a Muslim can avail himself against the risk

of loss due to misfortunes. Takaful is based on the idea that what is uncertain with respect to an individual may

cease to be uncertain with respect to a very large number of similar individuals.

Tawarruq: Tawarruq is a finance method with which one can raise loan financing through buying installments in a

local commodity owned by the bank. Applicants then authorize the bank to sell their share in this commodity, on

their behalf, to a third party for cash and then deposit the proceeds into his account.

Sukuks: Sukuks are Islamic bonds that must be linked to an underlying asset. Banks cannot raise funds by issuing

generic fixed or floating coupon-bearing bonds. Banks can securitize a stream of cash flows from Ijarahs or

Murabahas and then issue Sukuks. The coupon cash flow for these Sukuks can be the cash flow from the

underlying Ijarahs or Murabahas, for example.


Wadiah: In Wadiah, a bank is deemed as a keeper and trustee of funds. A person deposits funds in the bank and

the bank guarantees refund of the entire amount of the deposit, or any part of the outstanding amount, when the

depositor demands it. The depositor, at the bank's discretion, may be rewarded with Hibah as a form of

appreciation for the use of funds by the bank.

Source: Islamic Banking Products and Processes-Key Regional Variations,

http://www.oracle.com/us/industries/financial-services/islamic-banking-process-wp-1898554.pdf.

http://www.oracle.com/us/industries/financial-services/islamic-banking-process-wp-1898554.pdf


Exhibit 11: Major Categories of Businesses Started by Akhuwat Borrowers

Serial No. Categories of Business

1 Agriculture Inputs

2 Artificial Jewelry

3 Auto Workshop

4 Beauty Salon & Cosmetics

5 Butcher Shop

6 Clinics

7 Construction & Material

8 Crockery Business

9 Cycle Works

10 Dairy Industry

11 Decoration & Gift Item

12 Electronic & Services

13 Embroidery

14 Food Stuff

15 Furniture

16 Garments

17 Handicrafts

18 Home Appliances & Services

19 Home Industry

20 Leather Industry

21 Livestock

22 Lubricant Business

23 Mechanical & Engineering Works

24 Music & Instruments

25 Plastic Molding

26 Poultry Business

27 Scrap & Recycling Work

28 Sports Industry

29 Stamp Paper & Composing

30 Stationery & Printing

31 Transportation

32 Tuition Centre

33 Vendor


Exhibit 12: Map of Pakistan

Source: The University of Texas at Austin, Perry-Castañeda Library Map Collection, http://www.lib.utexas.edu/maps/middle_east_and_asia/pakistan_admin-2010.jpg.

Exhibit 13: Akhuwat Logo

Source: Courtesy of Akhuwat.

http://www.lib.utexas.edu/maps/middle_east_and_asia/pakistan_admin-2010.jpg