Murabaha Sajid Naveed

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Murabaha Sajid Naveed

  1. 1. MURABAHA MODEL FORISLAMIC MICROFINANCE Presented at NIBAF Islamabad Training on Islamic Microfinance March 07-08, 2008 Presented by Muhammad Sajid Naveed Program Manager Economic Development Human Development Foundation Pakistan
  2. 2. MURABAHA MODEL FOR ISLAMIC MICROFINANCE Objectives To highlight basic difference between conventional micro credit and Murabaha mode of financing To discuss whether Murabaha can be suitable for Microfinance with better results or not?
  3. 3. MURABAHA MODEL FOR ISLAMIC MICROFINANCE • Murabaha is a cost plus sale agreement • It involves physical transfer of goods  Micro Credit is interest base loan  It involves cash disbursement
  4. 4. MURABAHA MODEL FOR ISLAMIC MICROFINANCE Client pays agreed profit amount which remains unchanged in Murabaha Borrower pays interest amount that varies on daily basis in traditional micro credit
  5. 5. MURABAHA MODEL FOR ISLAMIC MICROFINANCE Probability of loan misutilization is low in Murabaha High probability of loan misutilization in Micro Credit
  6. 6. MURABAHA MODEL FOR ISLAMIC MICROFINANCE No benefit to client on early payment and no penalty at late payment in Murabaha There is benefit on early payment and penalty on late payment in micro credit
  7. 7. MURABAHA MODEL FOR ISLAMIC MICROFINANCE The principle amount is recovered first and profit is recovered later Interest amount is recovered first and principal amount is recovered later
  8. 8. MURABAHA MODEL FOR ISLAMIC MICROFINANCE Common Features o Applicable for group based methodology as well as for individuals o Labour intensive o Suitable for working capital and fixed asset financing o Need systematic approach for risk mitigation, economic viability and sustainability o Target poor segment of community o Social collateral o Require vigilance in monitoring & supervision o Exquisite customer service is essential
  9. 9. MURABAHA MODEL FOR ISLAMIC MICROFINANCE Murabaha in Practice • Hodeidah Microfinance Program Yemen • Human Development Foundation Pakistan
  10. 10. MURABAHA MODEL FOR ISLAMIC MICROFINANCE Key Advantage Customer feel comfort in Murabaha because of religious aspect Key Disadvantage Special arrangements & vigilance required for purchase & sale of goods
  11. 11. MURABAHA MODEL FOR ISLAMIC MICROFINANCE THANK YOU

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