International Conference onIslamic Microfinance

CENTER OF ISLAMIC BANKING & ECNOMICS

Organized By :

Held At:

Mr. Mamode Raffick Nabee MohomedFounder/SecretaryAl Barakah MCSL

ISLAMIC MICROFINANCE ISLAMIC MICROFINANCE THE CO-OPERATIVE MODELTHE CO-OPERATIVE MODEL

Case Study Of: Al Barakah Multi-purpose Co-

operative Society LimitedAn Islamic Microfinance Co-operative in Mauritius

Conceptual FrameworkMindset for Islamic Micro Finance

“ …this day have I perfected your religion for you, completed My favour upon you, and have chosen for you Islam as your religion…” (Maida- 5:3)“

Purpose of Creation of man

Wa maa khalatul jinna wal insaa illaa liya buduun(51:56)

PRAISE TO ALLAHSabbaha lillaahi maa fissammaawaati wa maa fil-’arz:wa Huwal- ‘Aziizul- hakiim(59:1)Tout dans bannes le ciel et la terre faire louanges Allah. C’est Li le puissant, Le sage.

Tabaarakallazii bi yadihil-Mulk; wa Huwa alaa kulli shay-in-Qadiir

Allazii khalaqal –mawta wal Hayaata li-yabluwakum ayyukum ahsanu amalaa: wa Huwal- ‘Aziizul- Gafuur(67:1 & 2)

Louanges a Celui, qui L’autorite dans So la main.Li enan pouvoir lor tout quique chose.

C’est Li qui fine creer la mort et la vie, pou tester ou et trouver qui cene la faire meilleur travail. Li puissant et pardonneur aussi.

OWNERSHIPLillaahi maa fissamaawaati wa maa fil ard.(2:286)

Tout ce qui lor banne le ciel et la terre pou Allah.ACCOUNTABILITY

Wa tabarakallazii lahuu mulkus-samaawaati wal-’ardi wa maa baynahumaa: wa ‘indahuu ilmus-Sa a’ah: wa ilayhi turja’uun( 43 : 85)

Louange a Celui qui possede banne le ciel et la terre, et tout ce qui exister entre les deux, et aussi la connaissance de l’Heure. C’est divant Li qui pou faire ou retourner.

Wa innaaa ilaa Rabbinaa lamunqalibuun( 43: 14) Nou sur pou retourner vers nous Maitre.

Fana+Retour +…….Hisab/Accountable?

Worldviews ?What is worldview? It is not just your view of the globe/universe but

fundamental convictions and assumptions about - the meaning of life - The nature of good and evil, - Your view of humankind - Your values - Overall life perspective

Several explanations of the universe ,nature and meaning of human life have been given.

Differences in views leads to differences in conclusions

Role of worldview!Every society/system is determined by its own Wv Based on a set of assumptions - About the origin of the universe - The nature of human life.The Wv performs the same function as the

foundation does for a building.The society is a logical result of this Wv. ( Wv of Capitalist, communist,socialist societies

)

Secularist & Islamic Worldview

Secularism

- Man-made system- Nature- Values change- No politics in religion

- No continuity of life after death- Ownership & objective of the

resources(Private, freedom of activity etc.

- Secularism emphasises on Individuality

- Zulumaat

Islamic - Allah’s system- Creation of Allah- Values remain same- Programme for Islamic government- Life after death- Absolute ownership for Allah (Man

has right to benefit from these resources- not totally free, moral limits, general framework. Accountable for its use).

- Islam emphasises on collectivity( Jama’ah)

- Noor

Mankind & Leadership of the West ?During past centuries – Main economic ideologies :

F+C+C+S+WColonisation- Mixture of Eco & political expansion and

military and cultural invasionThroughout the ages , human beings have the visions

of a better life for mankind as a whole.Vision of economic & social justice * Founders & propagators of the 15th -18th century… Socialism-T.M,C.Hri,Cl.Fourier, R.Ow, K.MX, Lenin

etc *All based on that Religion & morality are not

relevant to the solution of man’s economic problems.

Results- Despite achievements in certain fields, these economic ideologies have failed to resolve the major economic problems of mankind.

* Fall down – of F,Cm,S & Cap ..Crash…….

ECONOMIC IDEOLOGIES/SYSTEMS

Capitalism

Feudalism

Socialism

Welfare state

EconomicSystems

AL ISLAM- A Complete practical way of Life 1. Balance : Spiritual & Material

2. Wordly affairs must be guided by spiritual aspirations.

3. Allah provides: Man through his mental & physical efforts must utilise justly the resources of Allah

4. Muslims must strive for livelihood – Work & means must be in accordance with shariah.

5. This Code/way of life is preserved in the Islamic Law- Sharia

Islamic Worldview & StrategyTawhid- Khilafah- Adalah

UNIVERSAL WvUNIVERSAL Wv

Khilafah(Vicegerency)

Adalah(Justice)

Tawhid(Unity)

Oneness of God

INTEGRATED APPROACH OF ISLAMIC SCHEME OF LIFEISLAM

Faith & Belief(Aqidah Islamia)

Practices & Activities(Shariah)

Ethics & Moralities(Akhlak)

Man to man relationship/ activities (Muamalat)

Man to God worship(Ibaadat)

Social Activities/Mu’aasharat

Economic Activities

PoliticalActivities/Siyasa

Economics, Banking, Finance & Insurance

ISLAMIC ECONOMIC SYSTEM –Iqtisad IslamiaBased on concepts – Tawhid

Khilafa Adalah TazkiyahPrinciples derived from: Quran , Sunnah, Islamic Law, History of

Islam data relating to

economic life.Islamic Eco system –Islamic Economics

Finance Banking Insurance

CONCERN FOR COMMUNITY-UMMAHSaying of the Prophet (SAW ):1.“It is narrated by Huzaifah that the Apostle of

God said: Whoever does not take an interest in the affairs and problems of Muslims is not of them…” Tabrani

2. It is related by Anas that the Apostle of God said: ‘By the Holy Being in whose power is my life, none of you can be a true believer unless he desires for his brother what he desires for himself.’ B & M

.Concept of Ummah/Community Status - Wasat,khair Role - To counsel others to do good, to forbid evil(3:104,110) - Do it on the basis of brotherhood/ukhouwat ( 3:103,49:13)

. All share equally & equitably the responsibilities enthrusted to the Ummah.

. Context : Mission of establishing Islamic Microfinance is the concern of everyone. (Fard Kifaya)

Severity of Riba/Interest in Islam Assaba al MoubiqatIt is related by Abu Huraira (RA ) that the Apostle of God (SAW ) said: “ Keep

(strictly) away from the seven mortal sins.” “ What are the seven sins?” the companions asked.

1. To join anyone with God( in worship, in His attributes and in His functions)

- Shirk

2. To practice sorcery - Sorcery

3. To kill a person unlawfully - Killing

4. To lend money on usurious terms - Riba/interest?

5. To eat of the property of the orphan - orphan

6. To desert the Muslim army and run away from-jehad( for fear of life )

7. To accuse falsely pious and innocent bondswomen of the Lord of

adultery ,the Prophet replied. – slander

WAR ON RIBA

from Allah & His Prophet (saw)… ( 2:279)

Microfinance ?Microfinance means “programme that extend

small loans to very poor people for self employment projects that generate income in allowing them to take care of themselves and their families” (Micro credit Summit, 1997).

The World Bank has recognized microfinance programme as an approach to address income inequalities and poverty.

Microfinance programmes and scheme has been proven to be successful in many countries in addressing the problems of poverty

The World Bank had also declared 2005 as the year of microfinance with the aim to expand their poverty eradication campaign.

Why MicroFinance?Conventional commercial banks have not considered poor

people to be a viable market.MF is an alternative for the poor and micro entrepreneurs

who are normally not eligible or bankable to receive loans from commercial banks.

Small loan is given for the purpose of existing/new income generating project or business expansion.

• Terms and conditions of the loan are normally easy to understand and flexible. It is provided for short term financing and repayments can be made on a weekly or longer basis.

• Procedures and processes of loan disbursements are normally fast and easy.

• In order to facilitate loan process for the poor, loan is given without collateral or guarantor, and normally is based on trust.

• MF is one of the most popular instruments employed for poverty reduction strategy.

Why MicroFinance?Microfinance offers poor people access to basic

financial services such as loans, savings, money transfer services and micro-insurance. (Poor like everyone else, need a diverse range of financial services…).

Believed that charity will not be effective in eradicating poverty as it will lead to dependency and lack of initiative among the poor.

The primary mission of microfinance is, therefore, to help poor people in assisting themselves to become economically independent

Microfinance grew out of experiments in Latin America and South Asia, but the best known start was in Bangladesh in 1976, following the wide-spread famine in 1974.

Models of MicroFinanceGrameen Bank model -The model that has popularized

collateral-free micro finance and has been replicated in many countries in a wide variety of settings. The model requires careful targeting of the poor through means tests comprising mostly women groups.

Village Bank model - A second model that has been widely replicated mainly in Latin America and Africa, but with substantially less total outreach than the many Grameen Bank replications is the Village Bank model.

SHGs - The list of models would be incomplete without mentioning the Self-Help Groups (SHGs) model Originating in India.Under this model each SHG is formed with about ten-fifteen members who are relatively homogeneous in terms of income. An SHG essentially pools together its members’ savings and uses it for lending.

The Credit Union Model (CU). It is in the nature of non-profit financial cooperative owned and controlled by its members. A couple of Islamic cooperative models are at work in many parts of the world.

The Cooperative Ideology/ Movement

Concept of cooperative: - From the beginning of human society, cooperation has

always been a vital factor in human development. - As a social creature, it is the natural urge of man to

cooperate with each other. - Cooperation conveys the idea of helping each other

and making joint efforts to achieve a common goal.The Cooperative Movement emerged in the middle of

the 19th century by the Rochdale Pioneers. On the 24th October 1844, in Rochdale, Lancashire England, a group of people faced with economic exploitation and deprivation set up a cooperative store, based on the principles of self-help and mutual help. They defined a set of principles which became the basis for the cooperative ideology which has spread all over the world be it a capitalist, socialist or Muslim society.

What is a Co-operative ?

A cooperative is an autonomous association of persons united voluntarily to meet their common economic, social and cultural needs and aspirations through a jointly owned and democratically controlled enterprise. (www.ica.coop)

7 principles of cooperatives:1. Voluntary and open membership (VoM) 2. Democratic member control (DmC)3. Member economic control (MeC)4. Autonomy and independence (A&I)5. Education, training and information (EtI)6. Co-operation among co-operatives (CaC)7. Concern for community (CfC)

Class of co-operative societiesSectors of the economy-PMT

Class of Co-op societies - Consumer Co-op, Producers, Marketing, Housing,

Catering, Financial Co-operatives/Credit unions, Multi-purpose Co-operatives etc.

What is a Credit union? - A credit union is a financial cooperative that may accept

savings, deposits, provide credit and other financial services to its members.

- Credit Unions are financial cooperatives which are in effect community banks.

- Membership: people from all walks of life - Common bond - Owned & controlled by shareholders/members - Capital: mobilising from shares ,savings & deposits from

members - Financing/not for profit maximisation - Surplus-back to shareholders

Islamic MicroFinance Co-operatives Generally Conventional co-operatives/credit unions

are interest-based Credit unions called by different names: - In Africa-Savings And Credit Cooperative Societies

(SACCOS) which emphasise on savings before credit.

- In Afghanistan-(IIFC) Islamic Investment and Finance Cooperatives which comply with sharia.

IFC are institutions based on the principles of Islamic Finance.

Efforts over the past 30 years to set up IFC Community-based and providing Islamic financial

services to the community Islamic Micro Finance Co-operatives around the

globe (Trinidad & Tobago, Canada, Malaysia, Thailand, Indonesia, USA, Australia, India, Singapore, Afghanistan…)

Islamic Micro Finance Cooperatives

Why IFC?1. Conceptual framework “Cooperate with all in what is good and pious and do

not cooperate in what is sinful and wicked….” (Q-5:2)2. Legal framework is less regulated than the corporate

sector (Cooperative Societies Act ,CU Act) – Shari'ah-compliant

3. Values - Islamic Finance–based on Islamic ethics: justice, sharing, cooperation. - Cooperatives based on values: honesty,

equity, equality, solidarity, self-help, etc.4. Easy formation & more elastic5. Small capital requirement6. Community –based & more people-oriented, poor/rich

(IEViews..)7. Spread ownership of business and reduce

concentration of wealth8. Different purposes - open to any type of economic

activity9. Incentives & Benefits –Tax10. Democratic

Financing instruments of IMFC Murabahah Ijarah Mudarabah Musharakah Diminishing Musharaka Istisna Qard-ul-hasanah/IFLSalaam

Al Barakah

Multi-purpose Co-operative

Society Limited

An Islamic Microfinance Cooperative

in

Mauritius

Geographical Background & Muslims in Mauritius

Mauritius-gateway to Africa, South Asia & AsiaMulti-religious society:

Population-1.2+ MHindu : 51%, Christians: 28%,

Muslims : 18%, Chinese : 3%Muslims presence in all walks of life: Islamic

schools, professionals, orphanage, Waqf, business, etc.

Muslims have contributed enormously in the dvp. of the economy

Efforts is done to establish the financial system of Islam.

Islamic Banking & Financial Services in Mauritius ??

Budget Speech 2008/2009 - Minister of FinanceMauritius wants to connect to this sophisticated and

growing global phenomenon that spans banking, non-banking financial services, micro-finance, insurance and capital markets.

We will also set the regulatory framework for leasing companies to market products which are Shari'ah compliant. (60)

And to level the playing field appropriate amendments will be made to the legislation to make normal banking and Islamic banking tax neutral.(62)

WHY AL BARAKAH? Keen desire by Muslims to re-establish their identity. To become part of the Islamic banking & Finance phenomena. Establishing an Islamic bank in Mauritius in 1990’s was a

manifestation of this desire. Concern for community-ummah Preliminary work carried out. Formation of an Islamic Credit Union in the Cooperative sector (AL

BARAKAH) to response to religious as well as economic reasons

Community-based project Provide an alternative to the interest-based financial

institutions. Provide halal/licit investment opportunities and returns. Contribute in a halal/licit way to the overall development of

the economy.

(Registered on 10th June 1998)

Approach of Al Barakah?1. Mission-based - Not for profits modes & Market-

based For profits modes

2. Our Islamic approach to poverty alleviation is a composite of a mission-based and market-based interventions.

All members of AB do not belong to the extremely poor or the destitute category and are in a position to create wealth for themselves, for the Islamic Microfinance Institution (IMFI) and for the society.

For-profit financing provides financial sustainability to Islamic Microfinance Institutions (IsMFI).

Target -The Family, promotes the concept of family empowerment

Islamic Micro Finance through Cooperatives

Operates: Within the Co-operative

Societies Act 2005 Within the framework

of its rules and regulations In accordance with

Islamic Financial Laws.

LEGAL FRAMEWORK

Organisation Structure

Advisors– Dr. Monzer Kahf (USA) Dr. Ashyraf Dusuki(Malaysia) Br. Imtiaz Ali (T&T)

AGM

PRODUCTS & SERVICES BASED ON ISLAMIC FINANCIAL TECHNIQUES

Tailor-made schemes based on Murabahah:

1. Household General Financing 2. Computer Financing 3. Traders Financing 4. Home Financing 5. Air Ticket Financing 6. Motor Vehicle/Cycle Financing 7. Land & Property Financing Istisnaa Financing (Manufacture-Sale) Partnership /JV with shareholders (M&M) Interest-Free Loan (Qard-al-Hasan) Hajj Savings Account

Reserves & FundsStatutory Reserve Profit Equalisation Reserve Dividend Equalisation Fund Micro Takaful Fund

Creating awareness about Islamic Finance.Organizing lectures, seminars, conferences and workshop.Organizing mini trade fair, socio-cultural programme.

COMMUNITY-BASED ACTIVITIES

CHALLENGES1. Individual/organisational/government

level2. Legal Framework3. Public acceptance4. Economic potential5. Human Resource6. Mass Education-Islamic EP7. Competition

Opportunities with Al Barakah for

Islamic Finance Projects in Mauritius

Legal & Regulatory Framework * The Banking Act 2004-Amendments 2007 * The FSDA 2001-(Non-banking activities) * The Cooperative Societies Act 2005 Membership for corporate bodies Projects/Joint ventures etc.

CONCLUSION

1. 13 years of operation2. An eye-opener3. Islamic Finance at different levels4. Well-being of all

Mamode Raffick Nabee MohomedFounder/Secretary Al Barakah M.C.S.LE-mail: albarakahcoop@yahoo.com www.albarakahcoop.orgTel: (230) 6275766

CENTER OF ISLAMIC BANKING & ECNOMICS

Head Office: 192- Ahmad Block, New Garden Town , Lahore, Pakistan Ph: +92-42-35913096-8, 35858990, 38407850 Fax: +92 -42-35913056E-mail : info@alhudacibe.comWeb: http://www.alhudacibe.com