MICROFINANCE POLICY IN ASIA – EMERGINGTRENDS OF ISLAMIC MICROFINANCE
Muhammad Zubair MughalAlHuda Centre of Islamic Banking and
IRAQ MICROFINANCE POLICY FORUMin collaboration with USAID-Tijara and CGAP
11-12 April, 2012Erbil International Hotel
Erbil, Iraq
Iraq
www.alhudacibe.com
Contents
Microfinance Policies in Asia� Glimpse of Poverty in Asia� Policy, Legal, and Regulatory Frameworks for Microfinance
in Asian Countries ( 5 Selected countries )� Poverty Alleviation Strategies in Asia
Emerging Trends of Islamic Microfinance� Basic Principle of Shariah Based Microfinance.� Need Assessment of Islamic Microfinance in Asia� Opportunity, Challenges & Case Study.
Glimpse of Asia
The world's largest and most populous continentwith 52 countries. It covers 30%of theEarth's total Land area It has a populationof >4.2 Billion people Asia has the secondlargest nominal GDP Poverty headcount ratioat $2 a day (PPP) (% of population)
� East Asia & Pacific 33.2%
Poverty in AsiaCountry Population Nominal GDP (Current
USD)Population living belownational Poverty line (%)*
Afghanistan 34,385,068 $17,243,112,604 42%
Bangladesh 148,692,131 $100,357,022,444 49.8%
Bhutan 725,940 $1,516,078,205 23.2%
Brunei 398,920 $10,732,435,034 --
Cambodia 14,138,255 $11,242,266,334 35%
India 1,170,938 $1,727,111,096,363 37.2%
Kuwait 2,736,732 $109,462,798,286 --
Syria 20,446,609 $59,147,033,452 11.9%
Japan 127,450,459 $5,458,836,663,871 15.7%
Indonesia 239,870,937 $706,558,240,892 13.3%
Malaysia $237,796,914,597 $237,796,914,597 3.8%
Saudi Arabia 27,448,086 434,666,133,333 --
Poverty in Asia (Cont’d)Country Population Nominal GDP (Million of
USD)Population living belownational Poverty line (%)*
Maldives 315,885 $1,908,460,938 16%
Lebanon 4,227,597 $39,006,223,284 28%
U.A.E. 7,511,690 $297,648,476,848 12.5%
Pakistan 173,593,383 $176,869,569,654 32.6%
Philippines 93,260,798 $199,589,447,424 26.5%
Singapore 5,076,700 $208,765,019,308 --
Sri Lanka 20,859,949 $49,551,751,283 8.9%
Thailand 69,122,234 $318,522,264,429 8.1%
Vietnam 86,936,464 $106,426,845,157 14.5%
Jordan 6,047 $27,573,536 13.3%
Israel 7,624,600 $217,332,709,281 23.6%
Poverty in Asia (Cont’d)Country Population Nominal GDP (Million of
USD)Population living belownational Poverty line (%)*
Thailand 69,122,234 $318,522,264,429 8.1%
Vietnam 86,936,464 $106,426,845,157 14.5%
Oman 2,782,435 $46,866,060,196 --
Yemen 24,052,514 $26,365,156,990 34.8%
Mongolia 2,756,001 $6,200,357,070 35.2%
Kazakhstan 16,316,050 $149,058,911,551 8.2%
Tajikistan 6,878,637 $5,640,410,959 46.7%
Turkmenistan 5,041,995 $20,701,754 30%
Uzbekistan 28,160,361 $38,981,605,338 26%
Azerbaijan 9,047,932 $51,774,221,669 15.8%
Qatar 1,758,793 $98,313,183,980 --
Poverty in Asia (Cont’d)
Country Population Nominal GDP (Million ofUSD)
Population living belownational Poverty line(%)*
China 1,338,299,512 $5,926,612,009,750 2.8%
Bahrain 1,261,835 $20,594,899,946 --
Georgia 4,452,800 $11,667,377,224 24.7%
Iran 73,973,630 $331,014,973,186 18%
Iraq 32,030,823 $82,150,312,821 22.9%
*Sources, CIA world fact book & UNDP*world bank (2010 – 2011 est.)*Vikipedia
Countries Characteristics
Policy/Legal Basis RegulatoryAgency
SupervisoryApproach
Minimum Capitalof RegulatedMFIs
Pakistan
The MicrofinanceOrdinance of 2001, MFILicensing Rules, SocietiesRegistration Act of1860,
State Bank ofPakistan. Section 42 -SECP
Traditional Required forMFB’s , but thereis no requirementfor SocialRegistration Act orSECP section 42.
Regulated MF Providers Non-regulatedMF Providers
Functions ofRegulated MFIs
Interest Rates
Small Business FinanceCorporation; KhushhaliBank; FirstMicrofinance Bank; Kash,NRSPTameer etc.
BRAC, ASA,ASASAH etc.NGOs, MFI’s
Provide loans;accept deposits,Micro insurance,RemittancesNo-RegulatedNGO/MFI’sOnly provideloans
Market-oriented ,Differ from area toarea and institutionto institution.Qarz-Hassan &without interestprograms
Policy, Legal, and Regulatory Frameworks forMicrofinance in Asian Countries
Countries Characteristics
Policy/Legal Basis RegulatoryAgency
SupervisoryApproach
Minimum Capitalof RegulatedMFIs
Bangladesh
Societies Registration Actof 1860, the CompaniesAct of1913, the CooperativeSocieties Act of 1984, theCharitable and ReligiousTrust Act of 1920, theTrust Act of 1882,
In 2000Bangladesh Bankset up a“MicrofinanceResearch andReference Unit. MicrofinanceRegulatoryAuthority (MRA)
Traditional No specificregulation onminimum capitalrequirement ofMFIs (NGOs). Butfor MFB’s thereare certainrequirements
Regulated MF Providers Non-regulatedMF Providers
Functions ofRegulated MFIs
Interest Rates
Grameen Bank, IslamicBank Bangladesh etc.
MFI’s, NGOs Provide loans;accept deposits,Micro Insurance,
Market determined;subsidized in somegovernment-funded
Policy, Legal, and Regulatory Frameworks forMicrofinance in Asian Countries
Countries Characteristics
Policy/Legal Basis RegulatoryAgency
SupervisoryApproach
Minimum Capitalof RegulatedMFIs
Philippines
The General Banking Actof 2000, Executive OrderNo. 138, Agriculture andFisheries ModernizationAct; Social Reform andPoverty Alleviation Act
Bangko Sentralfor rural banks,CooperativeDevelopmentAuthorityfor cooperatives
Risk-basedsupervision ofbanks; co-opsnot adequatelysupervised
Required
Regulated MF Providers Non-regulatedMF Providers
Functions ofRegulated MFIs
Interest Rates
Rural banks, cooperatives NGOs Rural banks—lending; depositmobilizationfrom public;coops—lending; deposittaking frommembers only
Market-oriented
Policy, Legal, and Regulatory Frameworks forMicrofinance in Asian Countries
Countries Characteristics
Policy/Legal Basis RegulatoryAgency
SupervisoryApproach
Minimum Capitalof RegulatedMFIs
Nepal
Nepal Rastra Bank Act of1955; FinancialIntermediary Act of 1998;Comprehensive Bank andFinancial Act of 2004; Society Registration Actof 1978, Cooperative Actof 1991.
Nepal RastraBank
Traditional Required
Regulated MF Providers Non-regulatedMF Providers
Functions ofregulated MFIs
Interest Rates
Commercial Banks;Regional, MF’is, RuralDevelopment Banks;MFB’s Cooperatives;Licensed NGOs
NGOs Provide loans;accept deposits
De-regulated butcentral bank haspower to control
Policy, Legal, and Regulatory Frameworks forMicrofinance in Asian Countries
Countries Characteristics
Policy/legal Basis RegulatoryAgency
SupervisoryApproach
Minimum Capitalof RegulatedMFIs
Sri Lanka
Banking Law Act of1988, CooperativeSocieties Lawof 1972, Companies Actof 1972, the SocietiesOrdinance of 1891
Central Bank Traditional Required
Regulated MF Providers Non-regulatedMF Providers
Functions ofRegulated MFIs
Interest Rates
Microfinance Bank NGOs,communityorganizations
Provide loans;accept deposits
Market-oriented
Policy, Legal, and Regulatory Frameworks forMicrofinance in Asian Countries
Some Poverty Alleviation Programmes & Strategies inAsia
Country Programmes
Pakistan Pakistan’s national poverty reduction strategy, Vision 2030, Poverty Reduction StrategyPaper II, Pakistan Poverty Alleviation Fund (PPAF)
India The National Rural Employment Guarantee Scheme (NREGS), (SGSY), (SJSRJ), NationalRural Livelihoods Mission (NRLM)
Afghanistan Afghanistan National Development Strategy , MISFA
Azerbaijan State Programme for Poverty Reduction and Sustainable Development (SPPRSD)
Bangladesh poverty reduction strategy paper (PRSP)
Bhutan Tenth Five Year Plan 2008-2013
Cambodia National Poverty Reduction Strategy, National Strategic Development Strategy Plan, Socio-economic Development Plan
China China's 8-7 National Poverty Reduction strategy
Jordan Jordan Poverty Alleviation Strategy, The National Strategy for Microfinance
Kyrgyzstan Comprehensive Development Framework for the Kyrgyz Republic, The National Strategy forSustainable Human Development
Laos National Socio-Economic Development Plan (NSEDP)
Some Poverty Alleviation Policies & Strategies in Asia (Cont’d)
Country Programmes
Lebanon Social Action Plan, Five-Year Programme of Work
Maldives country’s Seventh National Development Plan, Agricultural Development Master Plan 2006-2020 (ADMP),
Mongolia Poverty Alleviation Programme, Rural development strategy
Nepal 20-year Agricultural Perspective Plan (APP), Poverty Reduction Strategy Paper (PRSP) ,
Indonesia National Medium-Term Development Plan (RPJMN) for 2010-2014
Philippines Medium-Term Development Plan 2004-2010 (MTDP), National Economic and DevelopmentAuthority (NEDA),
Sri Lanka 10-year Mahinda Chintana – Idiri Dekma, or Vision for the Future,
Syria Tenth Five-Year Plan 2006-2010,
Tajikistan National Development Strategy for 2006–2015, Poverty Reduction Strategy for 2010-2012
Turkey Long-Term Strategy 2001-2023, Agriculture Strategy 2006-2010,
Yemen Government of Yemen’s Strategic Vision 2025, Yemen’s poverty reduction strategy paper,five-year development plans
MICROFINANCE POLICY IN ASIA –EMERGING TRENDS OF ISLAMIC
MICROFINANCE
Prohibition of Interest. Islamic Micro finance is a sub-set of Islamic Economic&
Financial System Care for the poor is a religious
obligation in Islamic Law. Asset Based Financing Risk Sharing Sanctity of contracts Financing in Halal/Shariah Complaint Activities. Prohibition of speculative behaviour ( Gharar ) Micro Takaful ( Islamic Micro Insurance)
“Assisting the poor is a pillar of Islam”
Basic Principle of Shariah Based Microfinance
Source of Islamic Microfinance
•• Quran•• Sunnah•• Ijma’a (jurist
consensus)•• Ijtihad & Qiyas
(analogy)
Sources of IslamicMicrofinance
Islamic Microfinance ProductsMechanism
- The Products in Islamic Microfinance
Contd…
The Products in Islamic Microfinance
Trainings &Quality HR
Shariah ComplaintsFunds
Free fromGharar
Micro Takaful
Free fromInterest
Financing
Shariah VettedProducts
ShariahComplaintsInvestments
Moral Ethical SocialPoverty AlleviationElement
and more….
A Misconceptionremoved
Islamic Microfinanceis a system not theReligion, it can be
utilized & operatedby both Muslims and
Non-MuslimCommunities for
Poverty Alleviation,Social & Economic
Development.
IslamicMicroFinance
Ensure ShariahCompliance
Factors to be considered while doing IMFs
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, KarakorumCooperative Bank – Pakistan.
Self-Help Group: Aameen Society - India For Profit Banks/MFIs : Faimly Bank – Bahrain, Al-Amal bank –
Yemen, Ghana Islamic Microfinance Banks – Ghana, HSBC Amanah –U.K, Bank Islami - Pakistan
Compatibility IMF Products with MF Models
South Asia
* According to 2010-11 & .Figure in Million
Countries
MuslimPopulation
%
MuslimPopulation
Bangladesh90% 147.96
Bhutan 5 % 0.035
India 20 % 248.26
Maldives 100 % 0.30
Nepal 8 % 2.44
Pakistan 97 % 179.26
Sri Lanka 10 % 2.07
Afghanistan 100 % 32.4
Aggregate 36.57% 612.73M
South East Asia
Countries
MuslimPopulation
%
MuslimPopula
tion
Brunei 67 % 0.268
Burma 3.8 1.9
Cambodia 7 % 1.029
East Timor - -
Indonesia 88.2 % 210.09
Malaysia 61.4 % 17.7446
Philippines 10 % 9.57
Singapore 16 % 0.832
Thailand 98 % 7.35
Vietnam 1 % 0.879
Aggregate47.24
249M
(Contd…)
Need Assessment of IslamicMicrofinance Asia
Need Assessment of Islamic Microfinance for Asia
West AsiaEast Asia
Countries
MuslimPopulation
%
Muslim
Population
China 10 % 134.59
Japan 0.14 % 0.17934
Mongolia 120 4.4
Korea (North) 3 < 0.1
Korea (South) 0.9 0.44
Macau < 1 < 0.1
Hong Kong
1.4 % 0.094
Taiwan 0.25 % 0.058
Aggregate 8.7% 135M
Countries %* Muslim
Population
Azerbaijan 99.2 8,795
Bahrain 81.2 655
Georgia 9.9 423
Iran 99.6 74,819
Iraq 98.9 31,108
Jordan 98.8 6,397
Israel - -
Kuwait 86.4 2,636
Lebanon 59.7 2,542
Libya 96.6 6,325
Morocco 99.9 32,381
Oman 87.7 2,547
Qatar 77.5 1,168
Saudi Arabia 97.1 25,493
Syria 92.8 20,895
Tunisia 99.8 10,349
UAE 76.0 3,577
Yemen 99.0 24,023
Aggregate 95.65% 254,234* According to 2010-11 & . figure in 000
Need
North/Central Asia
Countries %
*MuslimPopulati
on
Kazakhstan 56.4 8,887
Kyrgyzstan 88.8 4,927
Tajikistan 99.0 7,006
Turkmenistan 93.3 4,830
Uzbekistan 96.5 26,833
Aggregate85.5% 52,483
Need Assessment of Islamic Microfinance for Asia
FINDINGS Total Population of Asia are 4239.1M out of them 1356.28 M are
Muslims which are 36.57% of the total Population, these figurereflect a big Demand of Islamic Microfinance Products becauseMuslim are reluctant to move Interest based MF System, as interest isstrictly prohibited in Islam.
IMF is beneficial for Muslim as well as for Non-Muslims.
According to World bank* report, South Asia is home to half theworld's poor, where Muslim population is 33.2% of total population,which shows immediate need of Islamic Microfinance there.
* Source World Bank – South Asia
Need Assessment of Islamic Microfinance forCentral Asia, the Caucasus, and South Asia
Assessment of Islamic Microfinance for Asia
Survey by
Surveyed Countries
RespondentsPreference (%)
CGAP 08 Jordan, Algeria, and Syria 20% - 40%
PlaNet Finance 07 West Bank and Gaza 35% - 60 %
USAID 02 Jordan 24.9%
IFC/FINCA 06 Jordan 32%
Frankfurt School ofFin & Mgmt 06
Algeria 20.7%
IFC sponsored Study Yemen
40%
IFC 2007 Syria 43%-46%
Demand for Islamic Micro Finance in Arab Region
Some Islamic Microfinance Institutions in Asia
Countries Islamic Microfinance InstitutionsIndonesia BPRS, Islamic Financial Cooperatives referred as bait Maal wat Tamwil
(BMT)
Bangladesh Islamic Bank Bangladesh, Social and Investment Bank,Al-Fallahand Rescue
Afghanistan FINCA (Qard Hasan), WOCCU, Ariana Financial Services , IFIC, etc.Pakistan Akhuwat , Farz Foundation, ASASAH, Muslim Aid, Islamic Relief,
CWCD, ,HHRD , NRSP, NRDP, Naymet etc.Malaysia Amina Iftikhar, Tabung Haji etcIndia AICMEU, BASIX, Sahulat, Bait-un-Nasr , Al-Khair Co-operative,
Marwar Shariah CreditAzerbaijan Bait –un NasrEgypt Mit Ghamar ProjectSyria Sanadiq project Jabal al HossLebanon Mu’assat Bayat Al-MalYeman Hodeidah Microfinance Program, Al-Amal Microfinance BankJordan Jordan Islamic Bank
International Islamic Microfinance Network (IMFN) for aneffective interface and Coordination among IMFI’s
Expansion of Market where the Conventional MFI’s facelimitations especially in Muslim Majority Countries
AlHuda Islamic Microfinance Help Desk is offering allIslamic Microfinance Solution.
Islamic Banking and Finance is emerging in South Asia,Central Asia & MENA region which will strengthened theIslamic Microfinance effectively.
Non - Availability of Donor/Shariah Compliant Sources ofFunds
Lack of Quality HR in Islamic Microfinance Sector. Reluctance in Research & Implementation of new Products,
as only (Murabahah) is serving almost 80% of IslamicMicrofinance
Opportunities & Challenges
Established: 2001 Model: Qarz-e- Hassan Number of Browers: 125,886 Families Loans Utilized by Males Entrepreneurs : 85,642 Loans Utilized by Female Entrepreneurs : 40,244 Amount Disbursed: PKR 1,534,880,742
Recovery Rate: 99.85% Average Loan. : 25,000 PKR Products Range:
Family Enterprise Loan, Education Loan, LiberationLoan, Marriage, Emergency Loan, Housing Loan.
Number of Branches: 63 (in 38 Cities )
* Data upto. 30th January, 2012
A Case Study from Pakistan
AKHUWAT - Pakistan
JazzakAllah
Thank you for listening with patience
Muhammad Zubair Mughal
Chief Executive OfficerAlHuda Centre of Islamic Banking and Economics
www.alhudacibe.com