Conventional MF fails to reach the ultra poor<br />Microfinance has reached 150 million people but one billion people are living below the poverty line <br /><ul><li>Earn less than $1 / day (often less than $0.50 / day), and income very irregular - Income usually derived from manual labour or begging;
School-aged children working manual labour jobs instead of attending classes;
Severe malnutrition (i.e., access to only one meal per day);
Highly vulnerable to natural disasters and health catastrophes</li></li></ul><li>Without help for the poor there is no Islam<br />Have you seen him who denies Our religion? It is he who harshly repels the orphan and does not urge others to feed the needy. Woe to those who pray but are heedless of their prayers; who put on a show of piety but refuse to give even the smallest help to others.<br />The surah starts with a question as to who is the disbeliever<br /><ul><li>“It is he who harshly repels the orphan and does not urge others to feed the needy.”
They pray but “refuse to give even the smallest help to others,”.
Allah wishes human life to be elevated, happy, based on pure motives and characterized by mutual compassion, brotherhood and purity of hearts and behaviour. </li></li></ul><li>Pakistan the lowest-performing South Asian country in reducing poverty <br />
Weaknesses of Conventional Micro-finance<br /><ul><li>Loans used for consumption
Assumption that the poor can be good entrepreneurs given access to credit
Different countries and different regions different approaches <br />Indonesia <br />Yogyakarta profit sharing with the ultra poor<br />Aceh – group system with women entrepreneurs<br />Bangladesh – group system 20% ultra poor no charge, 60% moderate poor 7.5% service charge with any excess returned to borrowers 20% mini entrepreneurs with Islamic financing modes<br />Pakistan individual system using Islamic financing modes<br />
11<br />Heterogeneity<br />The idea of heterogeneity and exclusion from/by existing models [non deliberate, via design and logic, unassailable] have been powerful concepts to draw policy attention and create urgency for action<br />Microfinance discourse <br /> [‘poorest of the poor’ as landless, non agriculture, women]<br />The hard core poor/ ultra poor <br /> [microfinance left outs, and throw outs. Not only poorer than the poor but differently so] <br />
What about heterogeneity among the poorest?<br />Work harder, especially women<br />Earn less<br />Weak asset base<br />12<br />
What about heterogeneity among the poorest? <br />Informal safety nets as important as formal ones<br />The poorest lose out even in informal safety nets<br />13<br />
14<br />Education and housing situation of the ultra-poor<br />What about heterogeneity among the poorest? <br />The education opportunity divide<br />The living environment divide<br />
Is there a spatial heterogeneity? <br />Vulnerable labour market engagement<br />Weak asset base<br />15<br />
16<br />The poorest are heterogeneous<br /><ul><li>The bottom 10% are much worse off
The poorest living in the poorest areas are particularly vulnerable. </li></li></ul><li>17<br />Graduation<br /><ul><li>Mainstream poverty alleviation interventions by and large leave out the poorest
Safety net interventions are not designed to help the poorest graduate
Design Safety nets as stimulus package: interventions combining and sequencing safety nets and poverty alleviation instruments for graduation outcomes for a large majority of the poorest:</li></li></ul><li>18<br />Graduation Framework<br />
BRAC two-step model<br />In 1985 BRAC realised its microfinance programmes were unlikely to meet the needs of the ultra poor.<br />Food donations provided a ‘breathing space’ for the poorest these would not remove chronic poverty. <br />Attempt to combine food relief with skills training program, to create a basis for enhanced household income in the future. <br />Regular compulsory savings of a few cents during the period of their food relief to build up a lump sum for investment.<br />Training on poultry and vegetable production for female VGF cardholders was given and they were able to access microcredit <br />At the end of the 24-month programme the ultra poor were eligible for microcredit<br />
Poverty reduction as a 'two-step' process of livelihood protection and promotion<br />
Results mixed<br />About 80% of the IGVGD beneficiaries joined BRAC’s regular microfinance programme<br />But only 70% continued beyond three years i.e. over 40% of the IGVGD beneficiaries fail to start the process of graduation. <br />Those who dropped had fragile socio-demographic structures – the female headed households who do not having a working adult male in the household and/or suffer from chronic illness, etc<br />21<br />
Need to look at <br /><ul><li>Tackling the social and attitudinal constraints which reproduces a non-enabling environment for the ultra poor.
Dealing with local elites</li></li></ul><li>23<br />Islamic MFIs<br />Social Development Program<br />behavioral, ethical, and social aspects in light of Islamic teachings<br />Targeting the family through women<br />Spouse co-signs the contract<br />dealing with women more efficient and convenient<br />Women disseminate knowledge to children<br />Dealing with Arrears/Default<br />Less aggressive and use Islamic teachings to recover loans<br />
24<br />Problems facing Islamic MFIs <br />1. Dilution in the Application of Islamic Modes of Financing<br />Main mode- murabahah or bai-muajjal. <br />It is difficult to go out with the clients and buy the goods/assets from faraway markets<br />IMFIs delegates someone else (and inspects later)<br />Alternative is to use Profit-sharing modes <br />Problem is the moral hazard problem--No book-keeping and difficult to monitor <br />
Conclusion<br />There are strong economic reasons for establishing Islamic alternatives to poverty-focused micro financing.<br />Traditional institutions of waqf, zakat, and qardhassan are important means of financing IMFIs<br />25<br />
Thank You<br />CENTER OF ISLAMIC BANKING & ECNOMICS<br />Head Office: 192- Ahmad Block, New Garden Town , Lahore, Pakistan Ph: +92-42-35913096-8, 35858990, 38407850 Fax: +92 -42-35913056E-mail : email@example.com<br />Web: http://www.alhudacibe.com<br />
A particular slide catching your eye?
Clipping is a handy way to collect important slides you want to go back to later.