Presentation of Islamic Banking Seminar in Pakistan organized by AlHuda Centre of Islamic banking and Economics

1. An overview of Microfinance
Models :Outreach analysis and a
case study of Islamic
Microfinance
Presentation By :
Dr Shabbir Hussain
4th International ---November 2010
Conference

2. PLAN OF PRESENTATION
PART I : MICROFINANCE MODELS : AN OVERVIEW
PART II : OUTREACH ANALYSIS OF MICROFINANCE
PART III : AN OVERVIEW OF HHRD’s PROGRAMS
PART IV : ISLAMIC MICROFINANCE PROGRAM
OF HHRD AND CHALLENGED

3. PART I
MICROFINANCE MODELS :
AN OVERVIEW

4. “ Credit Plus” includes development and social
services in comparison with “Credit Only”
approach
FINANCIAL INTERMEDIATION
 Working Capital
Minimalist  Fixed Asset Loans Integrated
 Savings
Approach Approach
SOCIAL INTERMEDIATION
 Community Mobilization
Group Formation
 Social Collateral
 Insurance
EDEVELOPMENT SERVICES
Credit Only Entrepreneurship Training Credit +
Production/Skills Training
Marketing (Financial &
Non
SOCIAL SERVICES Financial)
Education
Health & Nutrition
Literacy Training

5. MF Models of Outreach based upon the
integration level of supply chain
Three- Pronged
Approach
Promotion of MED,
training & helping
NGOs as NGOs linkage with banks
Facilitators V/WOs
Specialized
Banks
NGOs Promotion of
NGOs as
MED, training V/WOs
Financial
& providing
Intermediaries Specialized Credit Support
Banks
Promotion of V/WOs
Banks as MFIs Specialized MED, training &
Banks providing Credit

6. OUTREACH ANALYSIS OF SELECTED
INTERNATIONAL MODEL OF MFIs

7. MFI # of Borrowers % Cost per Self
Women Borrower Sufficiency
Ratio
Grameen Bank 6,707,000 96 10 98.80
Bangladesh
BRAC Bangladesh 6,397,635 96 12 106.65
ASA Bangladesh 5,422,787 96 7 187.17
Spondana India 1,188,861 96 8 159.07
Bandhan India 896,698 100 9 133.14
Cashpor India 303,243 100 15 102.00
AML India 565,806 100 14 111.53
Kash Pakistan 295,396 95 23 164.10
Khushali Bank 405,111 48 15 79.70
Pakistan
FMBF Pakistan 229,443 42 23 90.43
WDB Sri Lanka 146,808 100 10 162.44
(Source: www.micromarket.org,
BRAC Sri Lanka 34,550 100 25 48.80

8. Microfinance is fast emerging viable tool to reduce Poverty
Poverty Transition Microfinance %
Burrowers
Very Poor to Moderately Poor 48 38.4
Very Poor to Non Poor 22 17.6
Moderately Poor to Non Poor 26 20.8
No Change 27 21.6
Non Poor to Moderately Poor 1 0.8
Moderately Poor to Very Poor 1 0.8
Totals 125 100
(Source: www.micromarket.org.

9. ISLAMIC MICROFINANCE

10. SOME MODES OF ISLAMIC FINANCE
PARTNERSHIP
TRADE BASED RENTAL BASED
BASED
Mudarba Murabaha
Ijara
Musharka Sal‟m
Diminishin
g Musharka
Istisna

11. Some Islamic Mode of Microfinance
Qard hasan provides cash to borrowers who may use for consumption as
well as productive purposes. The capital is riba-free but not cost-free.
A Sale based and hiring modes (murabahah, salam, ijarah)
B Profit-sharing modes (Musharakah and mudarabah)
Murabaha implies a sale on a cost-plus basis. It is most popular product
among (IsMFI).
Ijara implies leasing or hiring of a physical asset including all kinds of
income-generating equipment or physical asset, such as, tools and machines
to manufacture commodities, rickshaws and taxis to transport people, carts
to sell merchandize, low-cost houses may be financed through this mode for
the poor.
Salam is a deferred delivery contract where delivery occurs at a future date
in exchange for spot payment of price. Under a salam agreement, a farmer
or a trader in need of short-term funds sells
its output or merchandize to the IsMFI on a deferred delivery basis
Partnerships
• Mudaraba : a combination of entrepreneurship and capital
• Musharaka : a joint venture in entrepreneurship and capital.

12. Islamic MFIs-Features (1)
Islamic MFI retains the basic operational format of
MFIs
• Banking with the poor at door steps
• Weekly/Monthly Repayments
• A Social/Development Program (to fulfill the social role
of Islamic finance)
IMFIs have some distinguishing features:
Sources of Funds
• Other than external sources, can also use funds from
zakah, awqaf, and other forms of charities
Use of funds (Mode of Financing)
• Sale based and hiring modes ( murabahah, salam,
ijarah)
• Profit-sharing modes (Musharakah and mudarabah)
Amount transferred to the poorest
• Islamic modes are sale based, the price of the asset is paid

13. Islamic MFIs-Features (2)
Group Dynamics
• Islamic values of brother/sister-hood improves
cooperation among the group members
Financing the poorest
• Zakat and other charities can supplement MFI
activities (non-diversion of funds)
Social Development Program
• behavioral, ethical, and social aspects in light of Islamic
teachings
Targeting the family through women
• Spouse co-signs the contract dealing with women more
efficient and convenient
• Women disseminate knowledge to children
Dealing with Arrears/Default
Less aggressive and use Islamic teachings to recover

14. Egypt Mit Ghamar Project : Modern Islamic banking
 Sanadiq project , Jabal Al-Hoss : Village Banks which can be
Syria replicated. The model is based on : (i) Musharka structure owned
and managed by the poor (ii) financing based on Murabaha which
provides high profit rates shared among members (iii) good
governance through committees with sound election and voting
procedures (iv) project management team responsible training of
committee members (v) Financial management based on
standardized bylaws,”fair “ credit decisions and low transaction costs
(vi) Financially viable operations with 100 % repayment rate (vii) equal
access to both men and women (viii) UNDP provides matching grant
equal to minimum share capital of village fund
 Mu‟assat Bayat Al-Mal : Affliate of Hezbollah comprises qard
Lebanon Al-Hasan financing on profit loss sharing mode. It is run by
volunteers
Yeman  Hodeidah Microfinance Program : Group methodology like
Grameen but it uses Murabaha mode for financing

15. Bangladesh  Islamic Bank Bangladesh
 Social and Investment Bank
 Al-Fallah and Rescue
Pakistan  Akhuwat : Mosque based model re capital of village fund
Qard hasan (Interest free loan)
India  AICMEU
Afghanistan  Bait –un Nasr
FINCA (Qard Hasan) Village Banking methodology with solidarity
Azerbaijan groups
__________  Islamic Banking : Govt agencies „s organizations finances small
Malaysia and medium scale enterprises
 Three Categories : (1) Microfinance Divisions of Islamic banks
Indonesia (Islamic Rural Banks) (2) Islamic Financial Cooperatives referred as
bait Maal wat Tamwil (BMT) ; BMTs are large network of over 2000
institutions serving millions of poor Indonesian Muslims. These are
backed and supported by Zakat, Nahadatul Ulema and Muhamadiyah
that currently have over hundred million members
The products are based on Mudaraba, Murabaha, Musharaka,
Ijara and qard Hasan

16. PART II
OUTREACH ANALYSIS OF
MICROFINANCE IN PAKISTAN

17. Roughly 80% of the current borrowing is from the
non-formal sector in Pakistan
However, the cost of borrowing from the non-formal sector is 4% higher
Borrowings by sources
Borrowing Pattern in
22% Pakistan
Formal
Non Formal
78%
Interest Rates (in %)
Formal vs. Non Formal
Interest Rate 30
20
10
0
Formal Non Formal

18. Approximately 60% of the non-institutional lending is through
money lenders, Shopkeepers, and agriculture input dealers
Informal Lenders
Feed Commission
Dealers Others Agents
12% 2% 12%
Agra Input c
Dealerds Money
22% Lenders
Shopkeeper 37%
15%

19. PPAF Phase I & II :
PPAF begins US$ 300 Million
disbursing PPAF Phase III
microfinance funds
Microfinance
Sector
US$ 150 Million
Development
Programme (ADB)
1.4 million
40 + MFPs
1999 2000 2001 2005
5 Microfinance Banks 2006 2009
PIR: PMN starts Khushhali FMFBL,TM
collecting and Bank FBL,RMFBL
publishing becomes , POMFBL, NMFB.
member MFIs’ operational
BRAC-PAK NRSP, ASA
performance Microfinance
indicator report Ordinance Kashf Bank

20. MFIs  Akhuwat
 Asasah
 Orangi Pilot Project
 Sindh Agriculture & Forestry Workers Cooperative Orgn (SAFWCO)
 Community Support Concern
 Development Action for Mobilization and Emancipation Network (DAMEN)
 Center for Women Cooperative Development (CWCD)
 Kashf Foundation
MFB  Khushhali Bank Ltd
 Network Microfinance Bank Ltd
 Pak Oman Microfinance Bank Ltd
 Rozgar Microfinance Bank Ltd
 Tameer Microfinance Bank Ltd
 First Microfinance Bank Ltd
 Kashf Microfinance Bank Ltd
RSP  NRSP
 PRSP
 SRSP
 TRDP
 Lachi Poverty Reduction Project
 Sungi Development Foundation
 Orix Pakistan
Others  Sindh Rural Support Program
 Taraqi Foundation
 Save the Poor
 Human Development Foundation

22. Only 5 to 10 % of the poor population in need of micro credit is currently covered
Current Outreach Estimated Demand
1.83 million borrowers 27.7 million borrowers
Access Access
Quality Quality
Products Products
Funding Funding
Sustainability Sustainability

23. Outreach of Microfinance Providers in Pakistan
(Geographic Coverage/Number of districts)
20 Distt
9%
25 Distt KB
11% 93 Districts
39%
NRSP
46 Districts
19% FMFBL
Kashf
53 Districts
22%
PRSP
Data Source: Microwatch, PMN, Sep 2009

24. NRSP is leading in Market Share of Microfinance Providers
(Active Borrowers, Gross Loan Portfolio, Active Savers
PRSP
FMFBL
Savers
Kashf
Loan
portfolio
Borrowers
KB
NRSP
0 10 20 30 40 50 60
market share %
Data Source: Microwatch, PMN, Sep 2009

25. Part III
An Overview of HHRD’s Programs
Presentation By : Dr Shabbir
Hussain,

26. Vision:
A world without poverty and injustice in which
every person enjoys life with dignity
Mission:
To work with poor and excluded people to
eradicate poverty and injustice. To strengthen
the bond of humanity by serving all those in
need anywhere all over the world
26

27.  Helping Hand works all over Pakistan and
implements projects in the following sectors:
◦ Health
◦ Physical Rehabilitation
◦ Emergency Response Program
◦ Microfinance Program
◦ Sustainable Livelihood Program
◦ Orphan Support Program
◦ Water, Sanitation and Hygiene
◦ Skill Development Program
◦ Reconstruction and Rehabilitation
◦ Education
◦ Seasonal Program
27

28. 28

29. Activities Clinics
Mobile Clinics
Ambulances
Medical Equipments
Awareness Campaigns
Health Screening for Orphans
Health Services at Government
Facilities
Prevention of Blindness
No. of More than 400,000
Beneficiaries
Budget $ 2,449,528
29

30. Activities Clinical Services
•Physiotherapy
•Occupational Therapy
•Orthotics
•Prosthesis
Educational Services
•Education & Trainings
•Institute of Rehabilitation Sciences in
Mansehra
Development of Physical Structure
•Rehabilitation Centre in Muzaffarabad
•Rehabilitation Centre in Swat
Beneficiaries 78,916
Budget $ 1.8 Million
30

31. Activities •Food
•Shelter
•Camps
•Health Services
•Ambulance
•Transportation
•Funeral
•Civilian Victim Fund e.g. Food, Orphans,
wedding box etc
•Emergency Preparedness i.e. Warehouse,
Tents, Utensils, CGI Sheets, Sheet Bars,
Rescue Kits etc.
Beneficiaries • More than 500,000
Budget $ 676,797
31

32. Activities Microfinance & Economic
Empowerment
Skills Development
Industrial Homes
Agriculture Development
Livestock Development
Beneficiaries More than 1,000 families benefited
Budget $ 562,065
32

33. Activities •Provide long term financial
support to the orphan children
•Career Building and Emotional
Uplift
•Reduce poverty from lives of
orphan children families by
providing education
Beneficiaries More than 3,000 children
sponsored
Budget $ 271,140
33

34. Activities •Construction of Water Wells
•Construction of Tube Wells
•Installation of Hand Pumps
•Installation of Water Tanks
•Construction, rehabilitation & extension of Water
Supply Schemes
•Health and Hygiene Sessions
•Health & Hygiene Kits distribution
Beneficiaries More than 15,000 individuals
Budget $ 165,000
34

35. Activitie •Construction of Shelters &
s Houses
•Construction of Schools/
Youth Hostel
•Pedestal ways i.e. bridges,
retaining walls, roads etc
•Provision of Construction
Materials e.g. Crusher plant,
saw mills etc
Benefici More than 250 families
aries
Budget $ 330,708
35

36. Activities •To provide standard educational facilities to the
poor and most deserved students
•To improve and strengthen education system by
adopting schools, facilitate them by providing
supplies for both schools and students
Beneficiaries More than 12,000 Students benefited
Budget $ 573,125
36

37. Activities Ramadhan Program
Zabiha Program
Distribution of Eid Gifts
Beneficiaries More than 700,000
Budget $ 404,742
37

38. July – September 2010

39. Food Tent
Medical Camp Distribution Distribution
39

40. Province # of # of # of Para # of
camps doctors Medics patients
treated
KPK 301 701 1,272 54,134
Punjab 75 87 161 16,519
Sindh 43 67 68 4,279
Total 419 855 1,501 74,932
40

41. Province No. of Beneficiaries
Food Tent Dist. H&H Kits H&H
Dist. Sessions
KPK 87,192 1,400
Punjab 30,268 700
AJK 13,440 -
Sindh 10,500 - 3,500 350
Gilgit Baltistan 1,400 -
Total 142,800 2,100 3,500 350
41

42. Part IV
ISLAMIC MICROFINANCE PROGRAM
OF HHRD and CHALLENGES
Presentation By : Dr Shabbir
Hussain,

43. To facilitate and support
livelihood opportunities and
microenterprise development for
poverty alleviation through
provision of Islamic Microfinance
and related support services
compliant with Sharia principles
and transparency

44. (i) To select, organize ,facilitate and manage
Qard hasan for consumption and Murabah
/Mudarba for livelihood and Microenterprise
development to potential beneficiaries in
the selected areas.
(ii) To facilitate vertical development for SME
and maximize outreach with horizontal
expansion nationally and internationally
(iii) To develop and upload profiles of potential
entrepreneurs on HHRD Website
connecting international community for
sponsorship of Islamic Microfinance

45. Specific Objectives
1) To identify, organize and mobilize beneficiaries for
individual, family and group based loans (Qard Hasan)
ranging from Rs 15,000 to 30,000 to the selected
beneficiaries in the target communities of earthquake
areas (District Mansehra, AJK) and IDPs (Swat and
Waziristan) over a period of THREE years 2010 to 2013 ;
2) To provide in kind support with required inputs and technical
assistance for productive (livelihood and small &
microenterprise development) and Consumption (health,
education, housing and social events like girls marriages);
3) To increase consistent outreach with vertical development
through multiple/ incremental successive loans and expand
horizontally with replication of HHRD models in new areas to
maximize outreach to the disadvantaged beneficiaries and
communities at large which will have multidimensional
socio-economic impact in the targeted under privileged areas
Presentation By : Dr Shabbir
Hussain,

46. MODES OF ISLAMIC MICROFINANCE
BEING IMPLEMENTED BY HHRD
Qard
Murabaha Mudarba Hasan
Partnership
Trade Based
Based
Consumption
& Social Needs

47. The effectiveness of HHRD approaches
varies across different levels of poverty
Classification Objective Approaches
Growth
At the
Poverty Line
MED HHRD
Mudarba
Livelihood
Below the
IGAs HHRD
Poverty Line
Murabah
Safety Net
Abject Poor
Consu HHRD
mption
Credit
Qard Hasn
Presentation By : Dr
Shabbir Hussain,

48. HHRD Models of Outreach based upon the
integration level of supply chain
Three- Pronged
Approach
Mobilization , Borrowers
Identification /Appraisal
HHRD as HHRD Facilitation and Coordination
Facilitator Loanee
Sponsors
Country Selection
HHRD as Office Appraisal
Financial Credit Loanee
Intermediary HHRD management
USA
Promotion of
HHRD as MFI Country MED, training & Loanee
Level providing Credit Presentation By : Dr
Shabbir Hussain,

49.  Marginalized, poor and vulnerable communities i.e.
elders, women & children
 People affected from natural or manmade disasters
 Female headed households, widows
 Persons with Disabilities
 Needy & unskilled Individual
 Orphan children
49

50. HHRD Implementation Strategy
Expanding
Outreach
Sustainable Institutional
Mechanism
Disbursement and
Repayment
Group dynamics
Community Mobilization
Credit Facilitation Committee
Selection of Beneficiaries
Baseline Survey
Presentation By : Dr Shabbir
Hussain,

51. STAFF TRAINING
 Islamic Mode of Financing
 Enterprise Development
 Financial Management
 Microcredit Methodology
 Communication Skills & Leadership
 Community Mobilization
 Financial Information System
 Social Mobilization
 Monitoring & Evaluation
 Product Development

52. Objectives KPIs Activities/ Assumptions/
Remarks
Objective #1 - 3 products - Model development Necessary support/
To alleviate poverty through of Islamic --Validation from collaboration from
developing and implementing Islamic Microfinance Sharia Advisors stakeholders
Microfinance products
- 11 staff - Appointed/ re- Active and effective
Objective #2 trained in 6 oriented a core team participation and
To build capacity in HHRD by related in HHRD’s Hq 2 + 9 support.
developing dedicated team in Head training staff in 3 branches
office and Branch offices courses - Organize /conduct
training for staff &
other clients
-Forms -Design forms
Implementation with
Objective #3 &formats, &formats
To develop procedures and systems Agreements -Develop related approval of IMF
for implementation of Islamic Modes - SoPs and Manuals
of Microfinance Manuals Committee of HHRD
Objective # 4 -Select sites
To establish and operationalize 3 Branches - Establish offices Availability of office at

53. Objectives KPIs Activities/ Assumptions/
Remarks
Objective # 5 500 loans - Baseline surveys Prevails enabling
To identify/select Beneficiaries for: disbursed for - Loan appraisals environment
Qard-e-Hasana for social needs QH,Murabarb & - Screening approvals
Murabah for Livelihood Mudarbah and disbursements Stable political and
activities/IGAs and Mudarbah for security situation
scaling up micro entrepreneurs
- Every Branch is - Collect updated Positive feed back
Objective # 6 visited once a info on monthly basis from Branches
To ensure 100 % repayment month from Head on specific formats
facilitating/ monitoring field office and critical review
activities and loanees performance
- # of meetings - Attend /hold
Supportive culture
Objective #7 with IMFIs, SBP , seminars, meetings
To uphold Islamic Microfinance IDB and other - Develop/implement from stakeholders and
as a flagship program of HHRD MFIs national collaborative projects
and international - Organize/ IMFIs
-Demonstration of participate in
model at HHRD International

54. Budget for establishment and operation of
One Cluster of 500 Loanees ( in US $)
Loan portfolio 105,882 89%
HR(Field staff) 4,753 4%
Admin,Ops 1,882 2%
Set up cost 882 1%
Program support 5,150 4%
Head office
100
Total $ 118,550
54

55. Budget for Establishment & Operation
of
ONE Area Clusters with 500 Loanees
(2010-11)
Prg
set up cost support
Admin,Ops 1% H/O
2% 4%
HR(Field)
4%
Loan
portfolio
89%
55

56. TIME LINE
(Phase I)
2011
Acc Ben: 2000
Disb :
Rs 23.4 00,000
2010
Acc Ben: 1100
Disb :
RS 15,600,000
2009 Target
Ben: 201 areas:
Disb :
Rs 931,000 Earthquake
Lamia,Shohal, and IDPS
Shamli,Kewai

57. Ongoing Qard Hasan Program
HHRD Initiatives in Earthquake Area
Lamia Khangiri Kewai Shamali Partner Total
Hatian (Manehra) (Mansehra) (Batgram) (RHD)
(AJK)
Started Feb Nov 2008 Nov 2008 Nov 2008
2010
Acc.Loans 33 51 27 17 75 203
Active 13 17 12 16 50 108
Loans Jul 10
Acc. Disb. 540,000 1,415,000 502,000 410,000 1,800,00 4,667,00
0 0
Outstanding 210,000 105,300 212,000 98,000 100,000 635,300
LP (Rs)
# of Market 9 1 5 1 2 18
Committees
57 Economic Development Department

58. Pilot Project Summary
Project Title : Increasing Income through Live stock Farming in
Rural Bhawalpur
Donor : HHRD USA
Mode of Islamic Microfinance : Mudarabah
# of Borrowers/Families : 50
Purpose of Loan : Livestock
Calf Rearing (25), Goat Rearing (15) and Quail Farming
(10)
Target Area : UCs : Goth Mehrab, Sanjjarpur and Jajja Abbasia
(Tehsil
Bhawalpur)
Requested Budget : US $ 26,750
Project Duration Start Date 01/10/2010 End Date 30/09/2011

59. Expansion & Global &
Pilot Project Replication Sustainable
(Year 1 & 2) (Year 4,5
(Year 3)
onwards)
• IDPs; Earthquake • + Pakistan • + International
Outreach Areas Nationwide/MFB
• HHRD program Best practice
Countries • Worldwide
– Livelihood – Livelihood Livelihood
Packages – Consumption – Consumption – Consumption
– MSEs – MSEs
+ Overseas +
Funding – HHRD Seed Money
Sponsors through – CGAP, IDB,ADB
Source – New Initiatives
Web – CSR (MNCs)
– CSR (National) – Donors Projects – web
– CSR (International) – International
– SBP Pilot Project – Fund Raising projects
Funding –Qard Hasan + Sale based & + Profit Sharing:
Mode Hiring : Murabahah, Musharakah and
salam, ijarah) mudarabah)

60. Expansion & Global &
Pilot Project Replication Sustainable
(Year 1 & 2) (Year 3,4,5
(Year 2 &3)
onwards)
• Project Design (LFA) ; • New initiatives • Developing innovative
• HR • Expansion in Punjab model: Branchless
• Office /infrastructure and Sindh and banking
• Surveys/baseline Balochistan • HHRD : IMBank
Major • Local Networking • Developing new • Sharing to promote
packages Islamic mode of
Activities • Development of MIS
• Registration with microfinance
&Manuals/SOPs
• Capacity Building PPAF/SECP • Pilot projects on
• Exposure to other • Linkages with Mudarba , Murabah
models Sponsors from USA and Musharka
• Focus on Earthquake through web • MED
and IDPs areas • Projects with SBP, PMN • Collaboration with
• Developing and other forums CGAP and other
Institutional mechanism • Exploring funding reputed MFIs/Banks
: Credit Facilitation through CSR • Assuring financial,
Loan disbursement/ • Collaboration with and operational
recovery SBP/NGOs/CBOs, sustainability
Donors,UN and
International agencies

61. CHALLENGES
Scale Sustainability
90% Market Unreached Only few sustainable MFI
Scaling Up Islamic Microfinance
Capacity Collaboration
Funds
MFIs, Field Staff MFIs, SBP
Commercial
Donations
Funds
Depth Competition/Others
Bottom Rural Uniformity and Standards
Gender
Poor Access

62.  TJAZAK ALLAH
 Thank You!
Dr Shabbir Hussain
Cell : 03005558307
92-51-8438800
Email : dr.shabbir@hhrd.org
drshabbir@gmail.com
Presentation By : Dr
Shabbir Hussain,