Islamic Microfinancing     Rural Islamic Credit Card – A Shariah Compliant      Rural Micro Financing & Payment Instrument...
Presentation Path                         1-. Conventional Credit Card Overview                         2-. Islamic Credit...
Financial Service in Rural Areas      Microfinance: Financial       services for poor and low-                     FINANC...
Current Scenario       Agriculture Industry is amongst the high priority industry in Malaysia.       Malaysia is recogni...
Financing Need of Agriculture Sector Financing Duration              Short Term , Medium Term and Long Term              ...
Proposed Financial Product                    Shariah                          No Restriction                  Compliance ...
Proposed Shariah Contracts in Rural Islamic Card    Bai Salam (Between Pesawah & Bank)    Al Wadiah (Internal to Bank fo...
Bai Salam Contract         Known as Future Delivery Financing of Forward Sale         Practiced in the agriculture secto...
Rural Islamic Credit Card Life Cycle             Card Issuance to         Usage of Card for        Settlement             ...
Rural Islamic Credit Card Issuance Overview                           1. Submission of Application Form along with        ...
Rural Islamic Credit Card Usage for Purchasing                                 2. Online transaction request to Bank to de...
Settlement for Rural Islamic Credit Card                            1. Farmer Deliver crops to the Bank on Pre-           ...
Advantages to Farmers    Tailored Islamic financing product with assured availability of funds at     any time    A stru...
Advantages to Bank    Banks can leverage on the existing infrastructure (branches/IT     infrastructure/ATM’s/merchant te...
Key Challenges    Awareness program to educate farmers on the usage of electronic forms     of payment    Establishment ...
Summary    Agriculture/Rural Financing is currently under serviced and     Banks need to explore an innovative way of fin...
Thank You                        lokesh@rma.com.myStrictly Confidential       wwww.rma.com.my   © 2012 RM Applications Sdn...
Disclaimer :               The materials presented in the slides are provided voluntarily. The               information i...
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Rural islamic credit card (a shariah compliant rural micro financing & payment instrument)

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Rural Islamic Credit Card is conceptualized to extend financing to farmers in a convenient and cheap manner but in compliance with the Shariah. This is to help farmers in overcoming the financial difficulties to meet their working capital needs. The objective is to leverage on Islamic Banking Principles to provide financing in convenient and interest free manner to establish a just and balanced social order free from exploitation. A salient feature of this proposed product is to provide Shariah compliant financing to farmers to purchase high quality crop inputs with the amount being repaid through the sale of the crop on harvest. But it must be noted here that this proposed product has not obtained approval from the authorities. Readers are invited to give their views on this product.

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Rural islamic credit card (a shariah compliant rural micro financing & payment instrument)

  1. 1. Islamic Microfinancing Rural Islamic Credit Card – A Shariah Compliant Rural Micro Financing & Payment Instrument By Lokesh Gupta Head, Business & Technology Consulting By RM Applications Sdn. Bhd. No.69-1 Medan Setia 1 Bukit Damansara 50490 Kuala Lumpur Tel: +603-20932677 Fax: +603-20932607 Website : www.rma.com.my Email : lokesh@rma.com.my© 2012 RM Applications Sdn. Bhd. (The information contained herein is subject to change without notice)
  2. 2. Presentation Path 1-. Conventional Credit Card Overview 2-. Islamic Credit Card Definition & Evolution 3-. Modus Operandi of Islamic Credit Cards 4-. Islamic Credit Cards Contract 5-. Islamic Credit Card Features 6-. Challenges & the Way AheadStrictly Confidential wwww.rma.com.my © 2012 RM Applications Sdn. Bhd. 2
  3. 3. Financial Service in Rural Areas  Microfinance: Financial services for poor and low- FINANCIAL SECTOR income people RURAL FINANCE  Rural finance: Financial services used in rural areas by people of all AGRICULTURAL FINANCE MICROFINANCE income levels  Agricultural finance: Financing of agriculture- related activities Financial services for the Farmers: Financial services for the Agriculture Segment specially tailored to their needsStrictly Confidential wwww.rma.com.my © 2012 RM Applications Sdn. Bhd. 3
  4. 4. Current Scenario  Agriculture Industry is amongst the high priority industry in Malaysia.  Malaysia is recognized worldwide as a global producer of palm oil, rubber, cocoa, pepper etc.  Despite various initiatives from Govt. the challenges faced by farmers are: • Lack of access to the range of financial service they need • Available Financial services are  Costly or Rigid  Not well-suited to seasonal or longer-term agricultural activities  Not easily Accessible  Various constraints to meet the eligibility criteriaStrictly Confidential wwww.rma.com.my © 2012 RM Applications Sdn. Bhd. 4
  5. 5. Financing Need of Agriculture Sector Financing Duration  Short Term , Medium Term and Long Term  Working capital to service machinery, equipment and to Purpose buy fertilizers, seeds, pesticides and to meet other Incidental expenses etc. Revolving Financing  Financing facilities with unlimited retail purchases, easy Facility cash withdrawals via ATM Repayment Schedule  Flexible schedule based on the production cycle of Crop  Variable demand, uneven cash flow, lag between Seasonality financing disbursal and repayments  Insurance to cover losses due to variable rainfall, pests Risks Coverage and diseases, price fluctuations etc.  Farmers lack in collateral and the preference is for Collateral Free collateral free financing  Restructuring/Rescheduling of financing term in the Finance Restructuring event of natural calamityStrictly Confidential wwww.rma.com.my © 2012 RM Applications Sdn. Bhd. 5
  6. 6. Proposed Financial Product Shariah No Restriction Compliance on Withdrawal & Purchases Convenience & Practical Flexible Payment Rescheduling Services Collateral & Takaful Interest Free Coverage FinancingStrictly Confidential wwww.rma.com.my © 2012 RM Applications Sdn. Bhd. 6
  7. 7. Proposed Shariah Contracts in Rural Islamic Card  Bai Salam (Between Pesawah & Bank)  Al Wadiah (Internal to Bank for Fund Management)  Hiwalah (Between Bank & Supplier)  Musawamah or Parallel Salam or Murabaha (Between Bank & Merchant)  Ijarah (Between Bank & Brand Owners : Transaction based payment to Communication Network – VISA / Master Card to facilitate transaction process)Strictly Confidential wwww.rma.com.my © 2012 RM Applications Sdn. Bhd. 7
  8. 8. Bai Salam Contract  Known as Future Delivery Financing of Forward Sale  Practiced in the agriculture sector since before the life of the Prophet  Salam is a cash sale contract executed for the purchase of goods promised for future delivery 1. Farmer Sells Crops to Bank on forward basis 2. Pre agreed price is paid to the farmer 3. Farmer deliver Crops to Bank on the agreed delivery date 4. Bank Sells crops in the Farmer market at Profit MarketStrictly Confidential wwww.rma.com.my © 2012 RM Applications Sdn. Bhd. 8
  9. 9. Rural Islamic Credit Card Life Cycle Card Issuance to Usage of Card for Settlement Farmers Purchasing Farmer Use the Farmer Use the Card to withdraw Card to withdraw Card Issued by funds or funds or Bank upon signing purchase at purchase at of Bai Salam Merchant outlet Merchant outlet Contract to meet his to meet his farming needs farming needsStrictly Confidential wwww.rma.com.my © 2012 RM Applications Sdn. Bhd. 9
  10. 10. Rural Islamic Credit Card Issuance Overview 1. Submission of Application Form along with the necessary documents 2. Bank will offer Purchase Price based on credit worthiness evaluation, crop quality, delivery date etc. 3. Acceptance of Letter of Offer 7. Card along with 4. Signing of Bai Salam Contract ATM PIN is mailed based on letter of offer between to the Farmer farmer and the Bank 6. Tagging of agreed purchase price as maximum limit to the card Bai Salam 5. Disburses the Contract agreed purchase price into the Farmer’s Wadiah Al-Wadiah Account AccountStrictly Confidential wwww.rma.com.my © 2012 RM Applications Sdn. Bhd. 10
  11. 11. Rural Islamic Credit Card Usage for Purchasing 2. Online transaction request to Bank to debit the Purchase amount 4. Online confirmation on the transaction status based on the availability of funds 6. Bank will do the settlement with Merchant under ‘Hiwalah’contract 1. Use of Card to 3. Bank will check the availability buy agriculture 5. Delivery of of funds and do online debit Supplies at POS Supplies to the Farmer upon successful debit Extra Financing Based Al-Wadiah on Qardh Hassan AccountStrictly Confidential wwww.rma.com.my © 2012 RM Applications Sdn. Bhd. 11
  12. 12. Settlement for Rural Islamic Credit Card 1. Farmer Deliver crops to the Bank on Pre- agreed delivery date 2. Bank will Settle the Qardh Hassan Financing and other Outstanding Payment and get into new contract with Farmer 3. Bank identifies the merchant and sell the crop based 4. Bank receives on Musawamah the Selling price, which is higher then the Purchase PriceStrictly Confidential wwww.rma.com.my © 2012 RM Applications Sdn. Bhd. 12
  13. 13. Advantages to Farmers  Tailored Islamic financing product with assured availability of funds at any time  A structured financing option for farmers  There is no interest burden on farmers as it is considered haram (not permissible) in Islam.  The farmer’s full season credit requirements will be taken care via the rural Islamic credit card.  Flexible repayment schedule based on the harvesting cycle to lessen the burden of debt.  Bonus Point in usage of card  Ease in buying of supplies via cash (ATM withdrawals) and Merchant Terminals (online payment).  Coverage of risk through TakafulStrictly Confidential wwww.rma.com.my © 2012 RM Applications Sdn. Bhd. 13
  14. 14. Advantages to Bank  Banks can leverage on the existing infrastructure (branches/IT infrastructure/ATM’s/merchant terminals) with minimal additional investment in offering Rural Islamic Credit Card  Huge potential as agriculture sector is not been fully explored by commercial banks in Malaysia  Move towards cashless transactions.  Underlying asset in Bai Salam contract assures the better recovery of debts  Crop insurance would further minimize the chances and extend of default.  Banks can cross sell other products and services to farmers  Bank can also get into Parallel Salam to minimize the risk.Strictly Confidential wwww.rma.com.my © 2012 RM Applications Sdn. Bhd. 14
  15. 15. Key Challenges  Awareness program to educate farmers on the usage of electronic forms of payment  Establishment of virtual branches in villages to facilitate easy withdrawal of cash at the farmer’s convenience  Strict monitoring on end use of funds  Arrangement with Courier Service Provider/Post Office for accepting credit card applications, collection of repayment etc.  Lowering of costs is an important step towards increasing the usage of the rural Islamic credit card and Bank might have to opt for Co-Branding strategy.  Strong Initiatives from the Government may be necessary to promote the rural Islamic credit card. This may be in the form of subsidies to banks to allow for waivers or rescheduling of credit in the event farmers have suffered production and/or income lossesStrictly Confidential wwww.rma.com.my © 2012 RM Applications Sdn. Bhd. 15
  16. 16. Summary  Agriculture/Rural Financing is currently under serviced and Banks need to explore an innovative way of financing  The key feature to stress upon is the Collateral Free & Interest Free Financing  ‘Rural Islamic Credit Card’ could be a product to target ‘Agriculture Finance’ segment, which is currently under serviced  There is also a need for Takaful (Islamic Insurance) for crops to mitigate risk of crop loss due to natural calamity have been suggested to protect the interest of banks.  The proposed product is a concept and inputs are welcomed from the readers.Strictly Confidential wwww.rma.com.my © 2012 RM Applications Sdn. Bhd. 16
  17. 17. Thank You lokesh@rma.com.myStrictly Confidential wwww.rma.com.my © 2012 RM Applications Sdn. Bhd. 17
  18. 18. Disclaimer : The materials presented in the slides are provided voluntarily. The information is made available in good faith and is derived from sources believed to be reliable and accurate at the time of release. The user of the slide is responsible for making his or her own decision about the accuracy, reliability and correctness of information found. We do not accept liability for any loss or damage incurred by reliance on the information provided.Strictly Confidential wwww.rma.com.my © 2012 RM Applications Sdn. Bhd.

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