The document provides an introduction to Islamic microfinance. It discusses key differences between conventional and Islamic microfinance, including the prohibition of interest and emphasis on risk sharing. It outlines various Islamic financing modes used in microfinance like murabahah, ijara, and musharakah. The document also provides examples of Islamic microfinance institutions and their experiences internationally.

2. An Introduction to Islamic Microfinance Muhammad Zubair Mughal Chief Executive Officer , AlHuda: Centre of Islamic Banking and Economics [email_address] www.alhudacibe.com

4. Islam and Shariah Islam Aqidah (Faith & Belief) Shariah (Practices & Activities) Akhlaq (Morality & Ethics) IBADAT (Man to God Worship) Muamalat (Man to Man Activities) Political Activities Economic Activities Social Activities Banking & Financial Activities

7. External (Equity & Debt) Financing Debt Market Equity Market Bai’ al-Istisna’ (Sale on Order) Bai’ al-Salam (Commodity Sale) Al-Ijarah (Leasing) Others Bai’ al-Murabaha (Cost Plus Profit Sale) Al-Musharakah (Joint Venture Profit Sharing) Al-Bai’ Bithaman (Mu)Ajil (Deferred Installment Sale) Al-Mudarabah (Trustee Profit Sharing) Uqud al-Muawadhat (Deferred Contracts of Exchange) Uqud al-Ishtirak (Contracts of Profit Sharing ) Debt Financing Equity Financing

11. Industry Progress in Pakistan

19. Conventional MFI Client money money + money (interest) Difference Between Islamic and Conventional Microfinance

20. Islamic IMFI’S Client Difference Between Islamic and Conventional Microfinance Goods & Services money

21. Modes of Islamic Microfinance

23. Demand of Islamic Micro Finance Survey Surveyed Countries Respondents preference (%) CGAP 08 Jordan, Algeria, and Syria 20 - 40% PlaNet Finance 07 West Bank and Gaza 35% - 60 % USAID 02 Jordan 24.9% IFC/FINCA 06 Jordan 32% Frankfurt School of Fin & Mgmt 06 Algeria 20.7% IFC sponsored Study Yemen 40% IFC 2007 Syria 43-46% Bank Indonesia 2000 Indonesia (East Java) 49% A recently survey Conducted by AlHuda CIBE in Azad Kashmir exhibits 99% demand (4 Districts)

24. International Experience of Islamic Microfinance Institution Mode of Finance 7 Sudanese Islamic Banks Murabaha, mudaraba, musharaka, and saving deposit [SIB – Productive Families] Islamic Cooperatives and Rural Banks of Indonesia Cooperatives – Members’ Musharaka (integrated with Zakat Fund) Rural Banks – Various modes Islami Bank Bangladesh, Social Investment Bank and AlFalah & Rescue IBB – Mostly bai muajjal SIBL - Recourse generation - Cash Waqf and Financing through various modes Jordan Islamic Bank Musharaka and Mudaraba UNCDF Yemen (HMFP) Murabahah and redeemable Mudarabah Sanabel (12 Arab countries, 64 MFIs – meeting 80% of MF needs) Murabaha, mudaraba, musharaka Amana Ikhtiar Malaysia and Islamic Pawn Broking AIM – interest free loan Al Rahnu – short term interest free loan against collateral at market value

25. Pakistan’s Experiences Institution Mode of Finance Akhuwat AIM – interest free loan Qaraz-e-Hasna CWCD Murabahah, Ijarah, Salam & Istisna MicroTakaful NRSP – NWFP Murabahah Mudarabah with BOK for funding Source Khawendo Kor Murabahah but in limited scale Islamic Relief Murabahah and Qarz-e-Hassan KKCB Murabaha and MicroTakaful Helping Hand Muslim Aid Takaful Pakistan Limited Murabahah Murabahah MicroTakaful

26. Products for IMFI’s

28. Ariana Fin. Services FINCA WOCCU IMFI’s in Afghanistan CHF Akhuwat Muslim Aid NRSP Khwendo Kor CWCD IMFI’s in Pak KKCB Donors Islamic Funds PPAF IDB MISFA Kuwait fund Int’l IMFI,s AlBaraka AIM UNCDF FINCA Islamic Bank bd BMT indonesia Islamic Microfinance Updates Helping Hands IR TPL Meezan Bank Islamic Fund UNDP WorldBank USAID

32. Risk Sharing Insure Shariah Compliances Poverty Alleviation Asset Based Financing Micro Takaful Free from Interest Financing Joint Responsibilities Purity of Contracts Islamic MF Islamic Microfinance Deal in

33. Functions and operations are based on fully man made principles Functions and operations are based on Sharia’h principles assured of pre-determined rate of interest Promote risk-sharing between provider of capital (investor) and user of funds (entrepreneurs) Aim at maximising profit without any restrictions Aim at maximising profit but subject to Sharia'h restrictions Creditor-Debtor relationship Partners, investor and traders, buyer or seller relationship Based on money trading. Money is a medium of exchange and not a commodity Encourage asset-based financing and based on commodity trading & Services Conventional Micro Finance Islamic Micro Finance

34. It is almost risk free banking and depositor has no risk of losing its money because interest is guaranteed. No right of profit if there is no risk involved. The profit and loss sharing depositor may lose money in case of loss. It can charge additional money in case of defaulters Islamic banks have no provision to charge any extra money from the defaulters Conventional Micro Finance Islamic Micro Finance