Dr. Shafiq Dhanani, Building a Successful Business Model for Islamic Microfinance


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Dr. Shafiq Dhanani, Building a Successful Business Model for Islamic Microfinance

  1. 1. Mitra Bisnis KeluargaVentura - Indonesia (Family Business Partners) Microcredit Summit, Valladolid, Spain, Nov 2011 Challenges in Syariah Group Lending Shafiq Dhanani
  2. 2. Main Challenges Legal and Regulatory Approvals Modification of MFI Governance Product Design with Syariah Principles Practical Implementation Issues Conclusions: Syariah Group Lending?
  3. 3. Examples of MBK Clients & Houses
  4. 4. Weekly MBK Centre Meeting: 6 Stages Read promise/ 5 main rules Register Attendance Repay instalmentsReceive follow-up working capital Information, Answer questions Read promise/Close meeting
  5. 5. Legal and Regulatory Approvals National Syariah Council: Full Presentation (30 members) -->Recommendation Amendment to Company’s Articles of Association – Ministry of Justice Approval by Regulator – Ministry of Finance, Capital Market and Financial Institutions Supervisory Board Separate Consultations/Endorsement by Ulama Councils at provincial, district, sub-district and village level
  6. 6. Modifications of MFI Governance Syariah Supervisory Council reporting to MFI’s Board of Directors  2 Members recommended by National Syariah Council  Members employed by MFI Functions of Syariah Supervisory Council:  Approve Syariah Product Design  Monitor Implementation of Syariah Product in the field  Report to both MFI and National Syariah Council
  7. 7. Product Design Most common Syariah Product is mark-up on Buying and Selling (Murabahah): one-time purchase More difficult Syariah Product is Profit-Sharing (Mudharabah):  What Profit-sharing Rate?  Different businessmen abilities  Different industries: trade, agriculture, processing, services  different scale of operations and location (urban/rural)  Expected Profit-sharing rate vs. Actual:  difference must be given back to client, or client must pay more, at the end of loan cycle  Separate Accounting for Syariah Product:  Eventually full accounts of Subsidiary Unit  Fines and Penalties  donated to social causes, not included in Company Income
  8. 8. Practical Implementation Issues Data on business profitability & profit-sharing rate?  Complex Field Surveys for different industries and business scale  Regular updating of field surveys findings Clients in same group but different profit-sharing rates? Group Lending MFIs usually have hundreds of thousands or even millions of micro-clients:  How can MFI physically verify every year the profitability of so many clients? Most micro-clients do not keep written accounts, many are illiterate…
  9. 9. Conclusions: Syariah Group Lending? Many regulatory, design and practical challenges Syariah lending Rare in Muslim Bangladesh, Pakistan and Indonesia Syariah Loan Products mainly used for buying/selling Why Syariah Group Lending Product in MBK? Resistance / of local Ulamas in a few areas to:  Conventional loans based on interest rate  Vested Interests  Resistance to fixed profit-sharing rate
  10. 10. Thank YouPT Mitra Bisnis Keluarga Ventura