The document provides an introduction to Islamic microfinance. It discusses the differences between Islamic and conventional microfinance, highlighting that Islamic microfinance is based on risk-sharing partnerships rather than interest-bearing loans. Various Islamic microfinance products are described, including modes based on trade, partnership, and rental. The progress and growth of Islamic banking internationally and in Pakistan is also summarized.

2. Zubair Mughal Chief Executive Officer AlHuda : Centre of Islamic Banking & Economics Editor in Chief. Islamic Banking and Finance News , True Banking. An Introduction to Islamic Micro Finance Narowal Rural Development Program 8 th August, 09

3. Outline of Presentation Introduction to Islamic Microfinance Riba ( Interest ) Difference between Islamic & Conventional Micro Finance Product of Islamic Micro Finance. Progress of Islamic Banking in Pakistan & Worldwide

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

5. Sources of Fiq’h in Islam (Islamic Finance) Quran Sunnah Ijtehad / Qiyas Ijama’e Ummah

6. Basic Difference between Islamic and Conventional Microfinance Conventional MFI Client Money Money + Money(interest) IMFI Client Islamic Microfinance Goods & Services money

7. Riba in Quran “ ... God has permitted trade and forbidden interest... ” (Sura Al-Baqara 2:275)

8. Murabahah Ijarah Salam & Istisna etc Musharakah Modarabahah Other Products Human Financial Needs Fulfillment of Financial Needs Own Capital Others’ Capital Equity Financing Debt Financing

9. PRODUCT TREE Islamic Microfinance Modes Trade Based Modes Partnership Based Modes Rental Based Modes Musharaka (Joint Venture Profit Sharing ) Mudaraba ( Trustee Profit Sharing) Murabaha (Cost Plus Profit Sale) Musawama (Bargain sale ) Salam (Commodity Sale) Istisna (Sale on Order) Ijarah ( Leasing ) Diminishing Musharaka ( Transfer of Ownership)

10. Industry Progress in Pakistan

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

12. Deal in Zakat ( Non Muslim Countries ) Do Deal in Zakat It gives due importance to the public interest, its ultimate aim is to ensure growth with equity Very often it results in the banks own interest becoming prominent. it makes no effort to ensure growth with equity Islamic banks have no provision to charge any extra money from the defaulters It can charge additional money in case of defaulters No right of profit if there is no risk involved. The profit and loss sharing depositor may lose money in case of loss. It is almost risk free banking and depositor has no risk of losing its money because interest is guaranteed. Islamic Micro Finance Conventional Micro Finance

13. ONUS SHIFTS!! Customer to Halal Restaurant Owner Halal Restaurant Owner to Halal Meat Supplier Halal Meat Supplier to Halal Abattoir / Butcher Customer to Islamic Banker Islamic Banker to Shariah Scholars

14. Industry Progress in Pakistan 6 Full fledge Banks having 239 and 12 Conventional Banks have 167 SAIBBS and 10 Sub Branches till 31 st Dec, 08 Total IB Branches = 519 Year 2001 Meezan Bank Al Baraka Meezan Bank Al Baraka MCB Alfalah SCB Bank AlHabib Habib AG Zur. Metropolitan Bank of Khyber Soneri Bank 2002 2003 Meezan Bank Al Baraka MCB Meezan Bank Al Baraka MCB Alfalah 2 10 2008 - 09 Meezan Bank (161) Al Baraka (30) MCB (8) Alfalah(40) SCB (11) Bank AlHabib(4 ) HMB(4) Bank of Khyber(16) Soneri Bank ( 5) HBL(1) Bank Islami(102) DIB (25) EGIBL (40) Dawood(21) NBP(5) RBS (3) Askari(18) UBL (5) 2004 - 05 18 4 3

15. Islamic products and services offered by Financial Institutions around the world . United States: 20 - Al Manzil Financial Services - American Finance House - Failaka Investments - HSBC - Ameen Housing Cooperative Germany:4 - Bank Sepah - Commerz Bank - Deutsche Bank Switzerland: 6 UK: 26 - HSBC Amanah Finance - Al Baraka International Ltd - Takafol UK Ltd - The Halal Mutual Investment Company - J Aron & Co Ltd (Goldman Sachs) Bahrain: 26 - Bahrain Islamic Bank - Al Baraka - ABC Islamic Bank - CitiIslamic Investment Bank Malaysia: 49 2 - Pure Islamic Banks (Bank Islam, Bank Muamalat) Rest - conventional banks Saudi Arabia: 17 - Al Rajhi - SAMBA - Saudi Hollandi - Riyadh Bank UAE: 13 - Dubai Islamic Bank - Abu Dhabi Islamic Bank - HSBC Amanah Qatar: 4 - Qatar Islamic Bank - Qatar International Islamic Kuwait: 9 - Kuwait Finance House Iran: 8 Egypt: 12 - Alwatany Bank of Egypt - Egyptian Saudi Finance Indonesia: 4 Sudan: 9 Pakistan: 21 India: 3 Bangladesh:9 Turkey: 7 - Faisal Finance Institution - Ihlas Finance House Yemen: 5

16. International Overview The size of Islamic Financial Industry has reached US$ 300 Bln. and its growing annually @ 15% per anum. 51 countries have Islamic Banking Institutions 27 Muslim countries including Bahrain, UAE, Saudi Arabia, Malaysia, Brunei and Pakistan 24 non-Muslim countries including USA, UK, Canada, Switzerland, South Africa and Australia

17. International Overview Leading foreign Banks have opened Islamic Banking windows or subsidiaries such as: Standard Chartered Bank Citibank HSBC ABN AMRO UBS

18. International Overview In Feb 1999, Dow Jones introduced the Dow Jones Islamic Market Index (DJIM) of 600 companies world wide whose business complies with Islamic Shariah laws At present there are more than 105 Islamic Funds operational through out the world with a total fund base of over USD 3.50 billion

19. International Overview Governments of Bahrain ,Malaysia and now Pakistan have issued Islamic Bonds (Sukuk) in order to facilitate Islamic Banks in managing their liquidity. Issuance of these bonds has also paved the way for Shariah compliant Government borrowings

20. International Overview Institutions like Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) and Islamic Finance Services Board (IFSB) have been formed. These institutions are playing a key role in setting up and standardizing Shariah , Financial and Accounting standards for Islamic Financial Institutions. Due to these collective efforts Islamic banking is now recognized by IMF, World Bank and Basel Committee.

21. Thank You.