This presentation is about Introduction of Islamic Microfinance, its models and institutions is Pakistan.

1. PRESENTATAION OF ISLAMIC
MICROFINANCE

2. ISLAMIC MICROFINANCE MANAGEMENT AND ITS
IMPLICATIONS ON POVERTY
A CLIENT ORIENTED APPROACH FROM PAKISTAN
Presented by:
Kinza Khaliq
Muhammad Musa
MuhammadWaqas Jamil
Presented to:
Dr. Hassan Shakeel Shah
Associate director of Institute of Islamic Banking
University of Management andTechnology, Lahore

3. INTRODUCTION OF MICROFINANCE
Micro finance is recognized as an effective tool to fight poverty by
providing financial services to those who do not have access to or are
neglected by the commercial banks and financial institutions.
It is a big terminology which is used to provide the financial services to
the poor people of 3rd world, in form of individual loan, group loans,
micro leasing, micro loans, micro insurance and the fund transfer to
develop their business and assist them for exceptional emergencies.

4. FIVE MAJOR NECESSITIES PROVIDED BY
MICROFINANCE IN ORDERTO LOW POVERTY
LINE
Microfinance programs provide essentials such as food, shelter, and
needed objects to poorest customers to alleviate poverty.
Microfinance programs provide financial facilities, such as loans, deposits
and remittances.
Microfinance programs not only provide financial services but also
empowers women.They provide women small loans without collateral to
start up and build self confidence in them.

5. CONTI……
Education is an extremely important factor for the improvements of
livelihoods and the advancement of human being.The microfinance
programs also positively affect school enrollment.
Health is a major factor in assessing the welfare conditions of the poor
and is a one of major dimensions of poverty. In this case microfinance
programs improve poor peoples access to healthcare services and make
health-related precautionary measures more affordable.

6. MICROFINANCETARGETSTO ACHIEVE,
IN POVERTY ALLEVIATION
Lift up poor community
Increase in employment
Rise in income levels
Increase in training and education
Increase in savings
Improvements in living standards
Increase in consumptions of goods and services
Enhancing economy growth oppoetunities

7. POVERTY IN ISLAMIC PERSPECTIVE
Poverty, in Islamic perspective, is viewed not just from material side but also moral side,
as well being has two sides: material and spiritual, which include mental peace, happiness
and social harmony, then to realize it, it imposes justice and human brotherhood, without
looking at gender, race, age etc.
The Islamic concept in economic (muamalah) highlights justice as one main point (Qur’an
verse 57:25), it strongly emphasizes the importance of ‘socio economic justice’ and
economic system which contain ‘moral values’ and ‘moral filter.
Islam promotes economic empowerment, includes but not limited, by giving access to
what the poor’s needs, transformation of idle assets become income generating assets,
capacity building, and transparent performance report.

8. ISLAMIC MICROFINANCE
Islamic micro finance refers to financial services delivered among low
income/destitute people based on Islamic Shariah.
Islamic microfinance is offered as an alternative among religious poor
people for poverty alleviation by employing both charity and profit based
unique models.
Like Islamic banking, Islamic microfinance operates its programs following
the principles of Islamic Shariah which includes prohibition of interest, risk
sharing, and avoidance of gharar or ambiguity and ensuring falah (welfare)
for all member of the society.

9. DIFFERENCES BETWEEN CONVENTIONAL
AND ISLAMIC MICROFINANCE
Particulars Conventional MF Islamic MF
Target Group Women Family
Objective of Targeting Empowerment of Women Ease of Availability
Pricing of financial products Interest based Profit-loss, mark-up and
rental based
Sources of Fund Foreign donors, multilateral and
national agencies, government,
central banks, savings of clients
Religious institutions,
Islamic charitable sources,
savings of clients, foreign
donors, national agencies,
private sector
Serving hardcore poor Bypassing Successful in serving
Funds transfer Cash Goods

10. CONTI….
Particulars Conventional MF Islamic MF
Liability of the Loan
(Which given toWomen)
Recipient Recipient and Spouse
Work Incentive of
Employees
Monetary Monetary and Religious
Dealing with Default Group/Center pressure and
threat
G r o u p / C e n t e r / S p o
u s e
Guarantee, and Islamic Ethic

11. MODELS OF ISLAMIC MICRO FINANCE
Basically there are two types of models in microfinance:
1) Charity based models for poverty alleviation such as zakat, sadqat,
waqaf, qard-e-hassana
2) Profit based models
In this, three types of modes are used.
Trade based mode such as musawamah, murabahah, salam, istisnah.
Partnership mode, such as musharakah, mudarabah
Rental based mode such as diminishing musharakah, ijarah

12. CONTI……

13. ISLAMIC MICROFINANCE PRODUCTS
According to GIFR (2012) as reported by Usman,A. S., & Tasmin, R. (2016) the Islamic
micro-finance products can be divided into three classes.
1) Micro-credit
2) Micro-equity
3) Charity
The micro-credit entails the usage of business asset based on loan or lease that eases the
lack of capital in the face of a business opportunity.
Micro-equity establishes a business relationship between provider of capital and the
entrepreneur who manages the business. Under micro-equity, factors of production are
brought together while profit/loss is shared in line with agreed upon formulae.
The charity type of Islamic micro-finance serves as a source of additional empowerment
in the form of safety nets and for sustainability motives.

14. THE STANDARD ROLE OF MICROCREDIT IN
POVERTY ALLEVIATION
Microcredit can be known as:
Money, says the proverb, makes money.When you have got a little, it is
often easy to
get more.The great difficulty is to get that little
(Adam smith)
Microcredit helps in reducing poverty by providing the poor with credit facility to start a
small business.
It gives most short credit loans to their poor customers.
It is most easily assessable to poor.

15. CONTI……
It even start up to gives loan from the amount of 5000 to 20,000.
It gives the time for returning of loan start from period of one year.
It does not insist on any special requirements or information.
It mostly focuses on the nature of business, that it will be profitable or
not then gives top customers loan.
Normally 15 to 20 days are taken to process the loan.
Do not stressed up their poor customers through collateral.

16. SHARIAH COMPLIANT INSTRUMENTS
Shariah Instrument Forms
Fund accumulation a) charity (zakah, sadaqah, awkaf, gift that include
hiba and tabarru)
b) deposits (wadiah, qard hasan and mudarabah),
c) equity (musharakah)
Financing a) profit and loss sharing (PLS) (e.g. mudarabah,
musyarakah),
b) sale based mode (murabahah),
c) lease-based modes (ijarah),
d) caring loans (qarn hasan).
Risk a) guarantee (kafalah), applied in group financing,
b) collateral (daman) for individual financing and
micro-takaful.

17. CURRENT STATE OF ISLAMIC MICROFINANCE IN
PAKISTAN
According to the State Bank of Pakistan (SBP) guidelines for setting up Islamic Microfinance
institutions, following are the possible modes of organizing Islamic Microfinance operations:
 Establishing Full-fledged Islamic Microfinance Banks (IMFBs)
1) Nationwide
2) Province wide
3) Region wide
 Islamic Microfinance Services by Full-fledged Islamic Banks
Mode 1- Islamic Microfinance Counters at Existing Branches
Mode II- Standalone Islamic Microfinance Branches & Mobile Banking
Mode III- Establishing Independent IMFBs as Subsidiaries of Banks
Mode IV- Developing Linkages with Islamic MFBs/MFIs

18. CONTI….
Islamic Microfinance Services by Conventional Banks
Mode 1- Islamic Microfinance Counters at Existing Branches
Mode II- Standalone Islamic Microfinance Branches & Mobile Banking
Mode III- Establishing Independent IMFBs as Subsidiaries of Banks
Mode IV- Developing Linkages with Islamic MFBs/MFIs
Islamic Microfinance Services by Conventional Microfinance Banks (MFBs)
Currently, there is no Islamic Microfinance bank in Pakistan at the moment.Akhuwat,Wasil,
Farz Foundation and Naymet are the major institutions offering Islamic Microfinance
through Qarz-e-Hasan and Islamic modes of financing which mostly include Murabaha,
Ijarah and Salam.

19. AKHUWAT OPERATIONS AND FUNCTIONS:
AN OVERVIEW
Akhuwat was established in 2001 with the objective of providing interest
free micro credit to the poor so as to enhance their standard of living.
Akhuwat is dedicated to improving the lives of the poor; those who are
financially abused, abandoned and disregarded by society.
Akhuwat has developed a unique mosque-centered structure.
Islamic microfinance is dispensed by small interest-free charitable loans
(qard al-hasan) with an administration fee of 5 per cent in a spirit of
Islamic brotherhood.
There is no funding from international donors or financial institutions.

20. CONTI….
All activities revolve around the mosques and involve close interaction with the
community.There are no independent officers and loans are disbursed and recovered in
the mosque.
It uses collateral-free group and individual financing based on mutual guarantees.
 Anecdotal evidence suggests that the fact that loans are disbursed in a mosque, also
attaches a religious sanctity to the oath of returning it on time.
There are some dimensions of sustainability where AKHUWAT is performing better.
These different dimensions of sustainability are:
1) Microfinance services for all living below the poverty line including the “extreme
poor”.
2) Interest free loans as a powerful tool against poverty.
3) The role of AKHUWAT is extending the helping hand and not doing business with
poor.

21. CONCLUSION
Islamic micro-finance is an important component in poverty alleviation strategies.While
conventional microfinance products have been successful in Muslim majority countries,
these products do not fulfill the needs of all Muslim clients. Combining the Islamic social
principle of caring for the less fortunate with microfinance’s power to provide financial
access to the poor has the potential to reach out to millions more people, many of whom
say they would prefer Islamic products over conventional microfinance products.This
challenge could be overcome by integrating Islamic microfinance with NGOs, NPOs (non-
profit organizations), Zakah,Awqaf and withTakaful as well as with professional training and
capacity building institutions in Pakistan to provide Islamic microfinanicial services to the
poorest of the poor under one roof. It will help to uplift the living standard of people and
ultimately contribute towards the economic development and enriched prosperity of the
country.

22. THANKYOU