Overview of microfinance by syed mohsin

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  • 1. International Conference on Islamic Microfinance CENTER OF ISLAMIC BANKING & ECNOMICS Held At: Organized By :

2. Overview of Microfinance June 2011 3. Presentation Outline

  • Financial Exclusion
  • The Opportunity
  • Challenges

4. In developing countries financial exclusion is pervasive, Pakistan is no exception 5. Bank Loan per 1,000 adults 6. Deposit Accounts per 1,000 Individuals 7. Insurance density in USD$ Insurance Density: Gross Premium per capita Bangladesh 2.5 India 19.7 Thailand 92.1 USA 3,790.2 Brazil 101.1 UK 4,484.4 Pakistan 4.0 Indonesia 15.8 Kenya 11.1 Sri Lanka 14.2 Malaysia 25.7 Argentina 105.4 8. Bank Branches per 1,000 Adults 9. Access Strand PageThe Formally Served The Informally Served The Financially Excluded The Financial Market Development Frontiers 10. Access Strand by Province PageIn Punjab, Sind, NWFP and AJK, people have access to some form of financial service either formal or informal but the issue of financial exclusion is most severe in Balochistan (84%) followed by NWFP (60%). In Balochistan not only a high percentage of people no access toformal and informal financial service but even the percentage of banked and those with access to informal financial services lags far behind other provinces.The access scenario looks relatively bright in AJK due to the earthquake in October, 2005.In order to receive government subsidies and livelihood support, people are required to have a bank account in which aid money can be deposited.According to one estimate 1.8 out of 3.5 million of Kashmiri population has been affected by the earthquake. 11. Access Strand by Urban/Rural PageInterestingly, the scale of financial exclusion - though high - is quite similar in urban and rural areas as is the scale of the informal financial services.However, the difference lies in the percentage of people who are banked or unbanked.In urban areas 15% people are banked while only 9% people are banked in rural area. 12. Access Strand by Gender PageThe issue of financial exclusion along all parameters i.e. those who are totally excluded from availing any kind of financial services, informal services and the banked is most striking along gender lines.There are wide gaps between men and women who are banked, informally served and the financially excluded 13. Access Strand PageThe Formally Served The Informally Served The Financially Excluded 48% or 12 million people say they would like to have their own bank account 31% or 13 million people say they would like to have their own bank account 25 million non-banked adults say they would like to have their own bank account 14. Reforms that promote access to financial services should be at the core of the development agenda...Better access to finance not only increases economic growth, but also helps fight poverty, and reduces income gaps between rich and poor people.

  • Dr. Asli Demirg-Kunt
  • Senior Research Manager, Finance & Private Sector,
  • The World Bank

15. Relationship between Financial Exclusion and poverty exists. *Source::http://maps.grida.no/go/graphic/poverty-by-country-share-of-population-living-under-usd-2-per-day-2004 16. There is a moderate to strong relationship between GDP per capita and usage of financial services 17. Presentation Outline

  • Financial Exclusion
  • The opportunity
  • Challenges

18. DNA of two paradigms

  • Microfinance
    • Finance/Banking
    • Low income segment
    • Resource Allocation
  • Islamic Finance
    • Finance and Banking
    • Resource allocation
    • Equity

It may be sad but it is a fact that Islamic banking is emerging as a second line of defense for the International Commercial Banking offeringHalal products and bringing in new untapped markets to the fold. Islamicbanking, like its conventional counterpart, is fast becoming banking of the rich, by the rich, for the rich. But what about the egalitarian social and economic objectives of Islam? What about claims of superiority of Islamic model over capitalistic model ongrounds of equity and Justice. What about theMaqasid al Shariah? Are these forgotten in the pomp and show of the world of high finance? Source: International Institute of Islamic Business and Finance, Dr. Mohammed Obaidullah 19. An Excellent Policy Framework

  • Microfinance
  • Islamic Finance
  • Islamic Banking Department in SBP-2003
  • Guidelines for Islamic Financial Products 2003
  • Models for setting up Islamic MF Bank 2006

2000 2009 20. Microfinance Market Source:Hashemi, Syed and Richard Rosenberg.Graduating the Poorest into Microfinance Linking Safety Nets and Financial Services.CGAP, Washington DC. 2006 andHIES, 2004-2005 Microfinance(Credit, Deposit, Insurance and Remittances) Transitory Vulnerable (17.1MM) Transitory Poor (12.4MM) Chronic Poor (4.6MM) Extremely Poor (0.8MM) Safety Net ProgramsTotal29.5 MMAdultsAssuming 50%adult poor require credit services: Microcredit potential is approx. 15MM Non-Poor(21.7MM) Transitory Non-Poor (32.2MM) Micro Credit Current Penetration 11.33% 21. Foot print is spread across Pakistan 22. ...With different institutional Models

  • Industry Players and their
  • market share
  • Infrastructure
  • 8 Microfinance Banks (MFBs)
  • 4 Rural Support Programs (RSPs)
  • 5 Specialized Microfinance Institutions (MFIs)
  • 31 NGOs
  • Staff: 10,700*
  • Outlets: 1,480*

*Source:MicroWATCH (Jan-Mar 2009).Pakistan Microfinance Network, Islamabad. June 2009 23. and diversified portfolio exposure 24. Demand for Islamic MicrofinanceDemand of Islamic Micro Finance Survey 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 of Fin & Mgmt 06 Algeria 20.7% IFC sponsored Study Yemen 40% IFC 2007 Syria 43-46% Bank Indonesia 2000 Indonesia (East Java) 49% A recently survey Conducted by AlHuda CIBE in Azad Kashmir exhibits 99% demand (4 Districts) 25. Pakistans Experiences Islamic Microfinance Presence in Pakistan Institution Mode of Finance Akhuwat AIM interest free loan Qaraz-e-Hasna CWCD Murabahah, Ijarah, Salam & Istisna MicroTakaful NRSP NWFP Murabahah Mudarabah with BOK for funding Source Khawendo Kor Murabahah but in limited scaleIslamic Relief Murabahah and Qarz-e-Hassan KKCB Murabaha and MicroTakaful Helping HandMuslim Aid Naimat Islamic Microfinance Farz Foundation Takaful Pakistan Limited Murabahah Murabahah Murabahah Murabahah - MicroTakaful MicroTakaful 26. Presentation Outline

  • Financial Exclusion
  • The Opportunity
  • Challenges

27. 1 Increasing FinancialPenetration GlobalDemand GlobalOutreach PakistanOutreach IndiaOutreach Bangladesh Outreach South Asia Outreach 28. Equity Rs.52B; Debt Rs.143B; Deposit Rs.105B Incremental Rs. 36B in 4 yearsMeeting FinancingRequirement 2 Incremental264B inanother 6 years 29. Buildingthe Human Resource Base 3 230 4,370 6,899 Senior ManagementMiddle ManagementField StaffProductivity Benchmarks 1% 19% 80% 150 borrowers/staff 3M6M10MSenior400600667Middle6,2009,40012,667Field 13,40030,00053,333 Total 20,00040,00066,667 30. How do we overcome these challenges..

  • Focus on Institutional strengthening
  • Legal framework for MFIs
  • Partnership between SBP, PPAF and PMN can address policy issues
  • Thinking out side the box (BB, the missing middle, deposit mobilization, synergies /partnerships)

31. Head Office: 192- Ahmad Block, New Garden Town, Lahore, Pakistan Ph: +92-42-35913096-8, 35858990, 38407850 Fax: +92 -42-35913056 E-mail : [email_address] Web:http://www.alhudacibe.com CENTER OF ISLAMIC BANKING & ECNOMICS Thank You