2. Meeting Demand For Islamic Microfinance (20-98%)
Mainstreaming Islamic Microfinance – An Inclusive Approach A recently conducted survey in Azad Kashmir exhibits 99% demand (4 Districts) 49% Indonesia (East Java) Bank Indonesia 2000 43-46% Syria IFC 2007 40% Yemen IFC sponsored Study 20.7% Algeria Frankfurt School of Fin & Mgmt 06 32% Jordan IFC/FINCA 06 24.9% Jordan USAID 02 35% - 60 % West Bank and Gaza PlaNet Finance 07 20 - 40% Jordan, Algeria, and Syria CGAP 08 Respondents preference (%) Surveyed Countries Survey
Diversification of approach and products includes self-excluded
Zakat and sadaqat – divine tools of grant – enables poorest of the poor to benefit from microfinance – systematic approach meeting consumption and then production needs
Mainstreaming Islamic Microfinance – An Inclusive Approach Working capital Capital investment Development of entrepreneurship Basic need fulfillment Islamic finance (Murabaha) Zakat and Sadaqaat Transformation of hard core poor
Liquidity requirements (hiring of tractor & implements, sowing, purchase of water, hiring of labour, etc.)
Input requirements (seed, fertilizer, pesticides)
Advantages: Meeting total needs, lower credit risk
Mainstreaming Islamic Microfinance – An Inclusive Approach Some Innovations: Murabaha & Salam – Agricultural Financing Liquidity Hiring for land prep. Inputs in kind Sale of fertilizers, seed, pesticides Liquidity Need Hiring for Harvest + Marketing Exp. S A L A M S A L A M M U R A B Liquidity Need Hiring for land prep. Inputs in kind Delivery Payment Delivery N O V A P R N O V J U N
Some Innovations: I stijrar: [Taking from supplies bit by bit]
Repeated Sale Contract: An agreement between a buyer and a seller that the buyer will take from seller the goods he needs with or without fixing the price and without explicit offer and acceptance at each time. This has been agreed by majority of schools from the viewpoint of Istehsan.
Need for the Instrument: In case of daily or weekly supplies, it is not practicable to execute Murabahah each and every time.
1. The price is paid after a predetermined period
2. MFI leaves some money with the buyer and he uses this money for purchase of goods whenever needed but in a predetermined period
What is Required: Product Development Effort
Mainstreaming Islamic Microfinance – An Inclusive Approach