alhdua cibe - presentation on al barakah case study islamic microfinance forum

ISLAMIC ISLAMIC MICROFINANCE MICROFINANCE COOPERATIVESCOOPERATIVESTO MEET THE TO MEET THE

FINANCIAL FINANCIAL NEEDS OF THE NEEDS OF THE COMMUNITYCOMMUNITY

GLOBAL ISLAMIC MICROFINANCE FORUMDecember 08, 2012 – Dubai, UAE

AL BARAKAHMULTI-PURPOSE CO-OPERATIVE SOCIETY LIMITED

MAURITIUS

Agenda

• Microfinance & Models of Microfinance• Evolution of Islamic Banking, Finance & Islamic Microfinance• Global Models of Islamic Microfinance• The Cooperative Movement • Islamic Microfinance Co-operative Model • Case Study of AL BARAKAH Multi-purpose Co-operative

Society Limited• Opportunities with AL BARAKAH MCSL for Projects in

Mauritius• Conclusion

2

Islamic M

icrofinance Cooperatives To M

eet The Financial Needs

Of The C

omm

unity

MicroFinance ?• Financial services to the poor and low-income borrowers : to

start micro-business or expand them • Provide savings facilities, Micro-Insurance, remittances and

stabilize consumption• MF developed out of experiments in Latin America and South

Asia, Bangladesh and has now spread globally

• Global show • Microfinance means “programme that extend small loans to

very poor people for self employment projects that generate income in allowing them to take care of themselves and their families”(Microcredit Summit, 1997).

• WB has recognized microfinance programme as an approach to address income inequalities and poverty.

• WB declared 2005 as the year of microfinance with the aim to expand their poverty eradication campaign

• Promoters of MFI – FINCA , Accion, CGAP,GB

Islamic M



Of The C

omm

unity

3

Models of Micro Finance

• Grameen Bank Model – (GBM- B. Desh) Has popularized collateral-free micro finance Replicated in many countries in a wide variety of settings Targeting of the poor/mostly women groups

• Village Bank Model – VBM widely replicated mainly in Latin America and Africa. Implementing agency establishes a VB with members.

• Self-Help Groups Model (SHGs) – (India), Formed with members who are relatively homogeneous in terms of income. Pools together its members’ savings and uses it for lending

• Credit Union Model (CUM) – (Germany), Financial cooperatives are owned and controlled by its members.

Islamic M



Of The C

omm

unity

4

Why Microfinance?

• CB have not considered poor people to be a viable market, bankable and MF is an alternative for them

• Procedures and processes of disbursements are normally fast and easy

• Terms/ Cdns/collateral – short term, simple & flexible• Trade cycle/additional capital• Repayments - D,W/M or longer basis• Charity will not be effective in eradicating poverty• MF is one of the most popular instruments employed for

poverty reduction• Assist poor people to become economically independent• The microfinance movement has helped to reduce poverty,

increase the income and improve the standard of living of millions of people (both Muslim & Non-Muslims)

Islamic M



Of The C

omm

unity

5

Islamic Microfinance• Islamic Microfinance is to provide financial services to the poor

and low income in a Shari'ah compliant wayWhy Islamic Microfinance?

• Conceptual - Belief & conviction – CMF is based on riba/interest ... IMF is to provide the poor/low income with an Islamic alternative to riba’

• Estimated 72 % of people living in Muslim-majority countries do not use formal financial services (Honohon 2007). -- incompatible with Islamic financial principles.

• It is has an integrated approach: charity-based & profit-based• Main objectives of IMF schemes is to alleviate poverty and to

assist the poor to become economically independent in a Shari'ah-compliant manner

• Since IB have not addressed the needs of financing the poor ,low income, micro entrepreneurs, IMF is missing in IBF

• As IB have been away from microfinance, MFIs based on Islamic principles are lagging behind. Hence the need to promote IMF.

Islamic M



Of The C

omm

unity

6

• Over years, CMFI have been offering financial services to the poor at high rates of interest ( High Trans. Costs & monitoring)• IMFIs will assist the poor and low income to business activities. The initiatives to come from them. They should know that if they fail to do so, Allah will not help them to improve their living standard. “Allah does never change the condition of a people until they change in themselves” (Rad 13: 11)• Setting up as many as possible IMFIs would be a conduit to the realization of the Maqasid Al-Shari’ah (Goals of Islamic Law). WL• Equitable distribution of income and wealth. “Wealth does not circulate only among the rich” ( 59: 7)•Distribution of resources/Landholdings .. make full use of all the resources under his/her disposal• Democratisation of the financial system( IFC )• Consider the poor also as vicegerents of Allah who can take care of themselves, if they are provided with appropriate financial access and equitable opportunities for social mobility.

Islamic M



Of The C

omm

unity

7

Evolution of Islamic Banking & Finance• Professor Rodney Wilson “Formal Islamic banking first

emerged in the early 1960’s through credit unions of Muslim landowners in Egypt and Pakistan .…. on a non-interest basis.”

(The evolution of Islamic banking and emerging trends in Islamic Finance)

• Interest Free Financial institutions (IFFI) of India are the forerunners in the history of global Islamic financial movement. Tracing the history of growth of interest free financial institutions ……, it is reported that such organized credit society had shown its presence as early as 1890. such efforts in the organized sector in the style of the Patni Cooperative Credit Society Ltd. was established in 1942…

Study conducted by Bagsiraj (2003) shows that there are institutions that have grown to a size of 14 Islamic Cooperative Credit Society (ICCS) in India. (Dr Rahmatullah-IFFI of India in crisis/Bagsiraj-IFII, published by KAU, Jeddah -2003

Islamic M



Of The C

omm

unity

8

Evolution of Islamic Finance/Micro Finance• “The history of Islamic Financial system in Thailand started

with the establishment of a cooperative society, Pattani Islamic Saving Cooperative that operates based on Shari'ah in 1987… These Islamic cooperative societies have successfully established themselves as viable financial institutions in managing and mobilizing Muslims in this region.” ( Islamic banking in Thailand: prospects and challenges (Sudin Haron & Kumajdi Yamirudeng)

• Inheritance in the economic sphere- F.C.S eco system-riba • Initiatives /Scholars at work -No working model & since 1960’s

IBF started–Mit Ghamr 1963( IMFI/Coop)• Emergence of IFIs since 1960 & growth….• Types of IFI: F-B-T-L-FH• Satisfaction/Criticism/Dominance by ICB( HNW) & neglected

areas like Islamic microfinance & cooperatives

Islamic M



Of The C

omm

unity

9

Global Models of Islamic Microfinance• Islamic microfinance is still in its infancy and business models

are just emerging• Village Banks Model: Jabal Al Hoss in Syria, Hodeidah

Microfinance Program in Yemen, FINCA implementing this model in Afghanistan

• Qard Al-Hasan Model: Mu’assasat Bayt Al-Mal in Lebanon, Ukhuwat-Pakistan.

• Grameen Bank Model: Bangladesh, a Shari’ah-compliant replication has been attempted by Islami Bank Bangladesh Limited.

• RoSCA Model: Rotating Savings and Credit Association, known in Egypt as the gam’iya. (Mahmoud El Gamal & ors-2011).

• Credit Unions: The fifth model that has been making its way since the beginning and receiving attention is the variation of Cooperatives/Credit Unions that are member-based Islamic Microfinance Cooperatives.

Islamic M



Of The C

omm

unity

10

The Cooperative Movement and Credit Union

• Concept of cooperative: - From the beginning of human society, cooperation has

always been a vital factor in human development. - As a social creature, it is the natural urge of man to

cooperate with each other. - Coop conveys the idea of helping each other and making

joint efforts to achieve a common goal.

• The Coop Mvt. emerged in the middle of the 19th century by the Rochdale Pioneers. On the 24th October 1844, in Rochdale, Lancashire, England, a group of people faced with economic exploitation and deprivation set up a cooperative store………

• They defined a set of principles (7) which became the basis for the cooperative ideology which has spread all over the world be it a capitalist, socialist or Muslim society.

Islamic M



Of The C

omm

unity

11

Islamic Microfinance Cooperatives

• A credit union is a financial cooperative that may accept savings, deposits, provide credit and other financial services to its members. Credit Unions are in effect community banks. Credit unions

called by different names: In Africa-Savings And Credit Cooperative Societies

(SACCOS) which emphasize on savings before credit. In Afghanistan-(IIFC) Islamic Investment and Finance

Cooperatives which comply with Shariah. In Indonesia – BMTs

• IMFC are institutions based on the principles of Islamic Finance. • Efforts over the past 30 years to set up Islamic Micro Finance

Co-operatives around the globe

T&T, Canada, Cameroun, Malaysia, Thailand, Indonesia, USA, Australia, India, S.Lanka, Singapore, Afghanistan…

Islamic M



Of The C

omm

unity

12

Islamic Microfinance Cooperative model Why IFC?

1.Conceptual Framework “Cooperate with all in what is good and pious and do not

cooperate in what is sinful and wicked….” (Q-5:2) MDN2.Legal Framework is less regulated than the corporate sector

(Cooperative Societies Act ,CU Act) – Shari'ah-compliant3.Values - IF based on Islamic ethics: justice,

sharing, cooperation - Coop values: honesty, equity, equality , solidarity, self-help, etc.4.Easy formation & more elastic5.Small capital requirement6.Community–based & more people-oriented, poor/rich

(IEViews..), services to the community7.Spread ownership of business and reduce concentration of

wealth8.Different/Multi-purposes - open to any type of economic sector -

P.S.T 9. Incentives & Benefits – Tax10.Democratic

Islamic M



Of The C

omm

unity

13

Al BarakahMulti-purpose

Co-operative Society Limited

An Islamic Microfinance Cooperative in Mauritius

Islamic M



Of The C

omm

unity

14

Mauritius 15

Geographical Background & Muslims in Mauritius

• Mauritius-gateway to Africa, South Asia & Asia• Multi-religious society:

Population-1.3 MHindu :51%, Christians:28%,

Muslims :18%, Chinese :3%

• Muslims presence in all walks of life: Islamic schools, professionals, orphanage, business, etc.

• Muslims have contributed enormously in the dvp. of the economy

• But as a community, little has been done to establish the financial system of Islam.

Islamic M



Of The C

omm

unity

16

Islamic Banking & Financial Services in Mauritius ??

• Mauritius wants to connect to this sophisticated and growing global phenomenon that spans banking, non-banking financial services, micro-finance, insurance and capital markets.

• We will also set the regulatory framework for leasing companies to market products which are Shari'ah compliant. (60)

• And to level the playing field appropriate amendments will be made to the legislation to make normal banking and Islamic banking tax neutral.(62)

Budget speech 2008/2009 - Minister of Finance

Islamic M



Of The C

omm

unity

17

Islamic Finance in Mauritius

• In 1990’s there was a keen desire by Muslims to establish an Islamic bank in Mauritius.

• To become part of the Islamic Finance phenomena.• Preliminary work carried out.• Formation of an Islamic Financial Cooperative/Credit Union in

the Cooperative sector -AL BARAKAH • Legal Framework Operates:

• Within the Co-operative Societies Act 2005 (Registered on 10th June 1998)

• Within the framework of its rules and regulations• In accordance with Islamic Financial principles

Islamic M



Of The C

omm

unity

18

Islamic Micro Finance through Cooperatives

Why Al Barakah?1. To provide an alternative to the interest-based financial

institutions for the community. (Community-based)2. To provide halal investment opportunities and returns.3. To contribute in a halal way to the overall development

of the economy. 4. Mission – based (Not for profits) & Market-based (For

profits) Our approach to poverty alleviation is a composite of a mission-based and market-based interventions

• All members of AB do not belong to the extremely poor or the destitute category and are in a position to create wealth for themselves, for the Islamic Microfinance Institution (IMFI)

• For-profit financing provides financial sustainability to AB

Islamic M



Of The C

omm

unity

19

Organisation Structure

• Shari'ah Advisors:Dr. Monzer Kahf (USA)Dr. Ashyraf Dusuki (Malaysia)Br. Qazi Abdus Samad (Pakistan)Br. Imtiaz Ali (T&T)

Islamic M



Of The C

omm

unity

20

To operate as a financial institution based on Islamic cooperative principles and providing a wide range of services on an interest-free basis

To be a leading Cooperative Society in the field of Islamic Finance for a fair and just society.

VISION

MISSION

GOALS• To present a practical model of Islamic Micro Finance through

the co-operative sector.• To lay the foundation for an alternative financial system to the

Mauritian population at large.

Islamic M



Of The C

omm

unity

21

• To create a source of credit for its members for provident and productive purposes.

• To provide savings facilities to members• To create the framework to enable members to manage their

financial resources for their mutual benefit.• To promote the welfare and economic interest of its members • To promotes the concept of family empowerment

Objectives

Islamic M



Of The C

omm

unity

22

Products & Services Based On Islamic Financial Techniques

Tailor-made schemes based on Murabahah:1. Household General Financing2. Computer Financing3. Traders Financing

4. Home Financing5. Air Ticket Financing6. Motor Vehicle/Cycle Financing7. Real Estate Financing

Istisna Financing Mudharabah & Musharakah with shareholders Interest-Free Loan (Qard-al-Hasanah) - E & M Hajj Savings Account Takaful Ta’awuni Fund ( Cooperative Solidarity Fund)

Islamic M



Of The C

omm

unity

23

Reserves & Funds

• Statutory Reserve (Min. 10 % Coop Act) • Profit Equalisation Reserve • Dividend Equalisation Fund• Takaful Ta’awuni Fund

• Creating awareness about Islamic Finance.• Organizing lectures, training, seminars, conferences, workshop,• trade fair

Islamic M



Of The C

omm

unity

24

Performance1. CAPITAL

Islamic M



Of The C

omm

unity

25

USD 1 ≈ MRU Rs. 30

Performance2. MEMBERSHIP

Islamic M



Of The C

omm

unity

26

Performance3. PROFITABILITY

Islamic M



Of The C

omm

unity

27

Challenges

1. Individual/organisational/government level2. Legal Framework3. Public acceptance4. Economic potential5. Human Resource6. Mass Education-Islamic EP7. Competition

Islamic M



Of The C

omm

unity

28

Opportunities with AL BARAKAH for Projects in Mauritius

• Mauritius International Benchmarks

IndexGlobal Rank (Mauritius)

Africa Rank (Mauritius)

World Bank Ease of Doing Business 201219th out of 185

countries1st

Democracy Index 2010 Full Democracy24th out of 167

1st

Mo Ibrahim Index of African Governance 2012

1st for the 6th consecutive year

Corruption Perceptions Index 2010 (Transparency International)

39 out of 178 2nd

International Property Rights Index 2011 38 out of 129 2nd

Islamic M



Of The C

omm

unity

29

30


Islamic M



Of The C

omm

unity

USD 1 ≈ MRU Rs. 30


• Legal & Regulatory Framework: The Banking Act 2004 - Amendments 2007 The FSDA 2001 - (Non-banking activities) The Cooperative Societies Act 2005

Islamic M



Of The C

omm

unity

31

Conclusion

1. 14 years of operation2. An eye-opener3. Well-being of all citizens4. Make use of all the resources and make it a priority

to set up Islamic Microfinance Institutions of mass-outreach for community development.

5. Concurrently, we also have to educate the poor and the community on the concepts, goals and principles of Islamic Microfinance and to live a moderate and balanced material and spiritual lifestyle to attain falah.

6. Thank Allah for choosing us…..

Islamic M



Of The C

omm

unity

32

Mr. Mamode Raffick Nabee MohomedFounder & Secretary AL BARAKAH M.C.S.LE-mail: [email protected]

[email protected]: (230) 6275766, 7781738

Islamic M



Of The C

omm

unity

33