microfinance policy in asia – emerging trends of … · microfinance policy in asia – emerging...

MICROFINANCE POLICY IN ASIA – EMERGINGTRENDS OF ISLAMIC MICROFINANCE

Muhammad Zubair MughalAlHuda Centre of Islamic Banking and

IRAQ MICROFINANCE POLICY FORUMin collaboration with USAID-Tijara and CGAP

11-12 April, 2012Erbil International Hotel

Erbil, Iraq

Iraq

www.alhudacibe.com

Contents

Microfinance Policies in Asia� Glimpse of Poverty in Asia� Policy, Legal, and Regulatory Frameworks for Microfinance

in Asian Countries ( 5 Selected countries )� Poverty Alleviation Strategies in Asia

Emerging Trends of Islamic Microfinance� Basic Principle of Shariah Based Microfinance.� Need Assessment of Islamic Microfinance in Asia� Opportunity, Challenges & Case Study.

Glimpse of Asia

The world's largest and most populous continentwith 52 countries. It covers 30%of theEarth's total Land area It has a populationof >4.2 Billion people Asia has the secondlargest nominal GDP Poverty headcount ratioat $2 a day (PPP) (% of population)

� East Asia & Pacific 33.2%

Poverty in AsiaCountry Population Nominal GDP (Current

USD)Population living belownational Poverty line (%)*

Afghanistan 34,385,068 $17,243,112,604 42%

Bangladesh 148,692,131 $100,357,022,444 49.8%

Bhutan 725,940 $1,516,078,205 23.2%

Brunei 398,920 $10,732,435,034 --

Cambodia 14,138,255 $11,242,266,334 35%

India 1,170,938 $1,727,111,096,363 37.2%

Kuwait 2,736,732 $109,462,798,286 --

Syria 20,446,609 $59,147,033,452 11.9%

Japan 127,450,459 $5,458,836,663,871 15.7%

Indonesia 239,870,937 $706,558,240,892 13.3%

Malaysia $237,796,914,597 $237,796,914,597 3.8%

Saudi Arabia 27,448,086 434,666,133,333 --

Poverty in Asia (Cont’d)Country Population Nominal GDP (Million of


Maldives 315,885 $1,908,460,938 16%

Lebanon 4,227,597 $39,006,223,284 28%

U.A.E. 7,511,690 $297,648,476,848 12.5%

Pakistan 173,593,383 $176,869,569,654 32.6%

Philippines 93,260,798 $199,589,447,424 26.5%

Singapore 5,076,700 $208,765,019,308 --

Sri Lanka 20,859,949 $49,551,751,283 8.9%

Thailand 69,122,234 $318,522,264,429 8.1%

Vietnam 86,936,464 $106,426,845,157 14.5%

Jordan 6,047 $27,573,536 13.3%

Israel 7,624,600 $217,332,709,281 23.6%

Poverty in Asia (Cont’d)Country Population Nominal GDP (Million of


Thailand 69,122,234 $318,522,264,429 8.1%

Vietnam 86,936,464 $106,426,845,157 14.5%

Oman 2,782,435 $46,866,060,196 --

Yemen 24,052,514 $26,365,156,990 34.8%

Mongolia 2,756,001 $6,200,357,070 35.2%

Kazakhstan 16,316,050 $149,058,911,551 8.2%

Tajikistan 6,878,637 $5,640,410,959 46.7%

Turkmenistan 5,041,995 $20,701,754 30%

Uzbekistan 28,160,361 $38,981,605,338 26%

Azerbaijan 9,047,932 $51,774,221,669 15.8%

Qatar 1,758,793 $98,313,183,980 --

Poverty in Asia (Cont’d)

Country Population Nominal GDP (Million ofUSD)

Population living belownational Poverty line(%)*

China 1,338,299,512 $5,926,612,009,750 2.8%

Bahrain 1,261,835 $20,594,899,946 --

Georgia 4,452,800 $11,667,377,224 24.7%

Iran 73,973,630 $331,014,973,186 18%

Iraq 32,030,823 $82,150,312,821 22.9%

*Sources, CIA world fact book & UNDP*world bank (2010 – 2011 est.)*Vikipedia

Countries Characteristics

Policy/Legal Basis RegulatoryAgency

SupervisoryApproach

Minimum Capitalof RegulatedMFIs

Pakistan

The MicrofinanceOrdinance of 2001, MFILicensing Rules, SocietiesRegistration Act of1860,

State Bank ofPakistan. Section 42 -SECP

Traditional Required forMFB’s , but thereis no requirementfor SocialRegistration Act orSECP section 42.

Regulated MF Providers Non-regulatedMF Providers

Functions ofRegulated MFIs

Interest Rates

Small Business FinanceCorporation; KhushhaliBank; FirstMicrofinance Bank; Kash,NRSPTameer etc.

BRAC, ASA,ASASAH etc.NGOs, MFI’s

Provide loans;accept deposits,Micro insurance,RemittancesNo-RegulatedNGO/MFI’sOnly provideloans

Market-oriented ,Differ from area toarea and institutionto institution.Qarz-Hassan &without interestprograms

Policy, Legal, and Regulatory Frameworks forMicrofinance in Asian Countries



SupervisoryApproach


Bangladesh

Societies Registration Actof 1860, the CompaniesAct of1913, the CooperativeSocieties Act of 1984, theCharitable and ReligiousTrust Act of 1920, theTrust Act of 1882,

In 2000Bangladesh Bankset up a“MicrofinanceResearch andReference Unit. MicrofinanceRegulatoryAuthority (MRA)

Traditional No specificregulation onminimum capitalrequirement ofMFIs (NGOs). Butfor MFB’s thereare certainrequirements



Interest Rates

Grameen Bank, IslamicBank Bangladesh etc.

MFI’s, NGOs Provide loans;accept deposits,Micro Insurance,

Market determined;subsidized in somegovernment-funded




SupervisoryApproach


Philippines

The General Banking Actof 2000, Executive OrderNo. 138, Agriculture andFisheries ModernizationAct; Social Reform andPoverty Alleviation Act

Bangko Sentralfor rural banks,CooperativeDevelopmentAuthorityfor cooperatives

Risk-basedsupervision ofbanks; co-opsnot adequatelysupervised

Required



Interest Rates

Rural banks, cooperatives NGOs Rural banks—lending; depositmobilizationfrom public;coops—lending; deposittaking frommembers only

Market-oriented




SupervisoryApproach


Nepal

Nepal Rastra Bank Act of1955; FinancialIntermediary Act of 1998;Comprehensive Bank andFinancial Act of 2004; Society Registration Actof 1978, Cooperative Actof 1991.

Nepal RastraBank

Traditional Required


Functions ofregulated MFIs

Interest Rates

Commercial Banks;Regional, MF’is, RuralDevelopment Banks;MFB’s Cooperatives;Licensed NGOs

NGOs Provide loans;accept deposits

De-regulated butcentral bank haspower to control



Policy/legal Basis RegulatoryAgency

SupervisoryApproach


Sri Lanka

Banking Law Act of1988, CooperativeSocieties Lawof 1972, Companies Actof 1972, the SocietiesOrdinance of 1891

Central Bank Traditional Required



Interest Rates

Microfinance Bank NGOs,communityorganizations

Provide loans;accept deposits

Market-oriented


Some Poverty Alleviation Programmes & Strategies inAsia

Country Programmes

Pakistan Pakistan’s national poverty reduction strategy, Vision 2030, Poverty Reduction StrategyPaper II, Pakistan Poverty Alleviation Fund (PPAF)

India The National Rural Employment Guarantee Scheme (NREGS), (SGSY), (SJSRJ), NationalRural Livelihoods Mission (NRLM)

Afghanistan Afghanistan National Development Strategy , MISFA

Azerbaijan State Programme for Poverty Reduction and Sustainable Development (SPPRSD)

Bangladesh poverty reduction strategy paper (PRSP)

Bhutan Tenth Five Year Plan 2008-2013

Cambodia National Poverty Reduction Strategy, National Strategic Development Strategy Plan, Socio-economic Development Plan

China China's 8-7 National Poverty Reduction strategy

Jordan Jordan Poverty Alleviation Strategy, The National Strategy for Microfinance

Kyrgyzstan Comprehensive Development Framework for the Kyrgyz Republic, The National Strategy forSustainable Human Development

Laos National Socio-Economic Development Plan (NSEDP)

Some Poverty Alleviation Policies & Strategies in Asia (Cont’d)

Country Programmes

Lebanon Social Action Plan, Five-Year Programme of Work

Maldives country’s Seventh National Development Plan, Agricultural Development Master Plan 2006-2020 (ADMP),

Mongolia Poverty Alleviation Programme, Rural development strategy

Nepal 20-year Agricultural Perspective Plan (APP), Poverty Reduction Strategy Paper (PRSP) ,

Indonesia National Medium-Term Development Plan (RPJMN) for 2010-2014

Philippines Medium-Term Development Plan 2004-2010 (MTDP), National Economic and DevelopmentAuthority (NEDA),

Sri Lanka 10-year Mahinda Chintana – Idiri Dekma, or Vision for the Future,

Syria Tenth Five-Year Plan 2006-2010,

Tajikistan National Development Strategy for 2006–2015, Poverty Reduction Strategy for 2010-2012

Turkey Long-Term Strategy 2001-2023, Agriculture Strategy 2006-2010,

Yemen Government of Yemen’s Strategic Vision 2025, Yemen’s poverty reduction strategy paper,five-year development plans

MICROFINANCE POLICY IN ASIA –EMERGING TRENDS OF ISLAMIC

MICROFINANCE

Prohibition of Interest. Islamic Micro finance is a sub-set of Islamic Economic&

Financial System Care for the poor is a religious

obligation in Islamic Law. Asset Based Financing Risk Sharing Sanctity of contracts Financing in Halal/Shariah Complaint Activities. Prohibition of speculative behaviour ( Gharar ) Micro Takaful ( Islamic Micro Insurance)

“Assisting the poor is a pillar of Islam”

Basic Principle of Shariah Based Microfinance

Source of Islamic Microfinance

•• Quran•• Sunnah•• Ijma’a (jurist

consensus)•• Ijtihad & Qiyas

(analogy)

Sources of IslamicMicrofinance

Islamic Microfinance ProductsMechanism

- The Products in Islamic Microfinance

Contd…

The Products in Islamic Microfinance

Trainings &Quality HR

Shariah ComplaintsFunds

Free fromGharar

Micro Takaful

Free fromInterest

Financing

Shariah VettedProducts

ShariahComplaintsInvestments

Moral Ethical SocialPoverty AlleviationElement

and more….

A Misconceptionremoved

Islamic Microfinanceis a system not theReligion, it can be

utilized & operatedby both Muslims and

Non-MuslimCommunities for

Poverty Alleviation,Social & Economic

Development.

IslamicMicroFinance

Ensure ShariahCompliance

Factors to be considered while doing IMFs

Grameen Model: Amna Iftikhar – Malaysia, Islami Bank

Bangladesh Limited etc.

Village Bank Model: Sanadiq program -Jabal al-Hoss, Syria, FINCA - Afghanistan etc.

Credit Union Model: Muslim Credit Union (Tobago), The Amwal Credit Union etc.

Cooperative Model: AlBaraka MPCS – Mauritius, Al-Khair Coop. – India, Muslim Community Coop.– Australia, KarakorumCooperative Bank – Pakistan.

Self-Help Group: Aameen Society - India For Profit Banks/MFIs : Faimly Bank – Bahrain, Al-Amal bank –

Yemen, Ghana Islamic Microfinance Banks – Ghana, HSBC Amanah –U.K, Bank Islami - Pakistan

Compatibility IMF Products with MF Models

South Asia

* According to 2010-11 & .Figure in Million

Countries

MuslimPopulation

%

MuslimPopulation

Bangladesh90% 147.96

Bhutan 5 % 0.035

India 20 % 248.26

Maldives 100 % 0.30

Nepal 8 % 2.44

Pakistan 97 % 179.26

Sri Lanka 10 % 2.07

Afghanistan 100 % 32.4

Aggregate 36.57% 612.73M

South East Asia

Countries

MuslimPopulation

%

MuslimPopula

tion

Brunei 67 % 0.268

Burma 3.8 1.9

Cambodia 7 % 1.029

East Timor - -

Indonesia 88.2 % 210.09

Malaysia 61.4 % 17.7446

Philippines 10 % 9.57

Singapore 16 % 0.832

Thailand 98 % 7.35

Vietnam 1 % 0.879

Aggregate47.24

249M

(Contd…)

Need Assessment of IslamicMicrofinance Asia

Need Assessment of Islamic Microfinance for Asia

West AsiaEast Asia

Countries

MuslimPopulation

%

Muslim

Population

China 10 % 134.59

Japan 0.14 % 0.17934

Mongolia 120 4.4

Korea (North) 3 < 0.1

Korea (South) 0.9 0.44

Macau < 1 < 0.1

Hong Kong

1.4 % 0.094

Taiwan 0.25 % 0.058

Aggregate 8.7% 135M

Countries %* Muslim

Population

Azerbaijan 99.2 8,795

Bahrain 81.2 655

Georgia 9.9 423

Iran 99.6 74,819

Iraq 98.9 31,108

Jordan 98.8 6,397

Israel - -

Kuwait 86.4 2,636

Lebanon 59.7 2,542

Libya 96.6 6,325

Morocco 99.9 32,381

Oman 87.7 2,547

Qatar 77.5 1,168

Saudi Arabia 97.1 25,493

Syria 92.8 20,895

Tunisia 99.8 10,349

UAE 76.0 3,577

Yemen 99.0 24,023

Aggregate 95.65% 254,234* According to 2010-11 & . figure in 000

Need

North/Central Asia

Countries %

*MuslimPopulati

on

Kazakhstan 56.4 8,887

Kyrgyzstan 88.8 4,927

Tajikistan 99.0 7,006

Turkmenistan 93.3 4,830

Uzbekistan 96.5 26,833

Aggregate85.5% 52,483

Need Assessment of Islamic Microfinance for Asia

FINDINGS Total Population of Asia are 4239.1M out of them 1356.28 M are

Muslims which are 36.57% of the total Population, these figurereflect a big Demand of Islamic Microfinance Products becauseMuslim are reluctant to move Interest based MF System, as interest isstrictly prohibited in Islam.

IMF is beneficial for Muslim as well as for Non-Muslims.

According to World bank* report, South Asia is home to half theworld's poor, where Muslim population is 33.2% of total population,which shows immediate need of Islamic Microfinance there.

* Source World Bank – South Asia

Need Assessment of Islamic Microfinance forCentral Asia, the Caucasus, and South Asia

Assessment of Islamic Microfinance for Asia

Survey by

Surveyed Countries

RespondentsPreference (%)

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 ofFin & Mgmt 06

Algeria 20.7%

IFC sponsored Study Yemen

40%

IFC 2007 Syria 43%-46%

Demand for Islamic Micro Finance in Arab Region

Some Islamic Microfinance Institutions in Asia

Countries Islamic Microfinance InstitutionsIndonesia BPRS, Islamic Financial Cooperatives referred as bait Maal wat Tamwil

(BMT)

Bangladesh Islamic Bank Bangladesh, Social and Investment Bank,Al-Fallahand Rescue

Afghanistan FINCA (Qard Hasan), WOCCU, Ariana Financial Services , IFIC, etc.Pakistan Akhuwat , Farz Foundation, ASASAH, Muslim Aid, Islamic Relief,

CWCD, ,HHRD , NRSP, NRDP, Naymet etc.Malaysia Amina Iftikhar, Tabung Haji etcIndia AICMEU, BASIX, Sahulat, Bait-un-Nasr , Al-Khair Co-operative,

Marwar Shariah CreditAzerbaijan Bait –un NasrEgypt Mit Ghamar ProjectSyria Sanadiq project Jabal al HossLebanon Mu’assat Bayat Al-MalYeman Hodeidah Microfinance Program, Al-Amal Microfinance BankJordan Jordan Islamic Bank

International Islamic Microfinance Network (IMFN) for aneffective interface and Coordination among IMFI’s

Expansion of Market where the Conventional MFI’s facelimitations especially in Muslim Majority Countries

AlHuda Islamic Microfinance Help Desk is offering allIslamic Microfinance Solution.

Islamic Banking and Finance is emerging in South Asia,Central Asia & MENA region which will strengthened theIslamic Microfinance effectively.

Non - Availability of Donor/Shariah Compliant Sources ofFunds

Lack of Quality HR in Islamic Microfinance Sector. Reluctance in Research & Implementation of new Products,

as only (Murabahah) is serving almost 80% of IslamicMicrofinance

Opportunities & Challenges

Established: 2001 Model: Qarz-e- Hassan Number of Browers: 125,886 Families Loans Utilized by Males Entrepreneurs : 85,642 Loans Utilized by Female Entrepreneurs : 40,244 Amount Disbursed: PKR 1,534,880,742

Recovery Rate: 99.85% Average Loan. : 25,000 PKR Products Range:

Family Enterprise Loan, Education Loan, LiberationLoan, Marriage, Emergency Loan, Housing Loan.

Number of Branches: 63 (in 38 Cities )

* Data upto. 30th January, 2012

A Case Study from Pakistan

AKHUWAT - Pakistan

JazzakAllah

Thank you for listening with patience

Muhammad Zubair Mughal

Chief Executive OfficerAlHuda Centre of Islamic Banking and Economics

[email protected]

www.alhudacibe.com

microfinance policy in asia – emerging trends of … · microfinance policy in asia – emerging...

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