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AlHuda CIBE-SHARIA MICROFINANCE PRODUCTS
Religiosity and threshold effect in social and financial performance of microfinance institutions
Mohammad Ashraful Mobin
Exploring the islamic microfinance products
BADRU JAFFAR SWALEH: SHARIA COORDINATOR, DIB BANK LTD (IN FORMATION)
In the name of God, the Most Gracious, the Ever Merciful
“Money is such a companion of yours that it does not benefit you unless it leaves you.” Imam Hasan Al-Basri (d. 694 AD) (A renowned Muslim scholar)
Dar Al Sharia | Dubai Islamic Bank Kenya
Microfinance In Africa
MFI Geographical Map
7 countries hold 50% of continuant's MFIs
Ghana 6 %
Ivory Coast 6 %
Rwanda 6 %
TOGO 6 %
Ethiopia 12 %
Egypt 11 %
Morocco 8 %
5 countries serving 50% of continuant's customers
MFIs are depending strongly on individual finance & solidarity individual –groups finances with one product based on weekly basis repayment structure.
ROA average is -3.5%, & - 2.5% ROE, which is considered a very low percentage.
13% is PAR average which considered too high.
19.8% & 51% are the average of personnel & operation cost respectively.
Empowering The Poor
Doing Business With The Poor
Are individuals & groups financing instruments sufficient for MFI to:
Cover needs of the poor and ensure dignified life?
Run MFIs efficiency & with high profitability ?
Rapidly & efficiently penetrate the market ?
Attract Investors & communities ?
Understanding The Concept
BOP Fortune: for Erick Simons & Stuart Hart “ Colonel University”
If we stop thinking of the poor as victims or as a burden and start recognizing them as resilient and creative entrepreneurs and value-conscious consumers, a whole new world of opportunity will open up.
Thinking of Poor as Partners not only as Customers
Customer Needs Against MFIs’ Products
Are those covered ones (13 M) strongly satisfied ?
Their Personal Needs
Their Technical Knowledge & Service
Personal & Family needs during Production
Production Quantities & Quality
In-Direct & Supportive Investment
Business Management Support
Empowering The Poor Principles
Opportunity of Doing Business with The poor
.... 100 Farmers with 1000 Acres with 1000 ton Yield
The Institutions/Financiers & Partners & Beneficiary’s Community
Comprehensive Engineered Project
Beneficiaries /Co-operative/Group Finance
Application of Innovative & Integrated Islamic Models
Materials, Machineries ..etc
Personal & Family Needs, Operation Expenses
Cooling Storage, Transportation..etc
Empowering The Poor
Empowering the poor= Access to assets + Access to services + Access to Knowledge + access to market = equal wealth distribution.
Building equipped & organized productive co-operatives/groups.
Strongly facilitate market access & export linking.
Facilitate having international certificates for their products
Provide business solutions to problems.
Easy linking with formal private sector & networks memberships.
Open new services to customers.
Effectively cover large number of targeted segment within certain geographical area at one time.
Effectively finance large number of beneficiaries within limited number of operations ( granting finance, monitoring..)
Facilitate having international certificates for their products.
Insuring Production & Market for a customer is insuring customer repayment & profit sharing.
Equal focus on social & commercial aspects
Building more assets ( IMFIs)
ISLAMIC FINANCING PRODUCTS
A CASE FOR MICROFINANCE
INVESTMENT BASED CONTRACTS– 1. MUD HARABA
(Rab Al Maal/
FEATURES & EXAMPLES
Mud haraba Agreement between MFI and Customer.
MFI provides capital to be invested by Customer as Mud h arib in a Sharia compliant manner
Customer as Mud h arib invests the capital as per business plan submitted to the MFI
Return on capital is distributed as per pre agreed ratio either on maturity or periodically (constructive liquidation ).
In case of loss, it is borne by Rab Al Maal, save in case of fraud, negligence or misconduct by Mud harib.
Incentive mechanism could be built in to cap the return for the MFI
Bank is Rab Al Mal and Customer is Mudharib.
Also used for project finance
Mudharib cannot guarantee a return, however it may provide an indication.
INVESTMENT BASED CONTRACTS– 2. MUSHARAKA
Musharaka Agreement between MFI and Customer;
Both provide the capital to be invested;
The Musharaka capital to be provided by the Bank as per agreed business plan
Return on capital is distributed in pre agreed ratio either on maturity or periodically on constructive liquidation.
In case of loss, it is borne pro rata by the parties.
One party , normally Customer, is appointed a s the managing partner under separate agreement.
A partner cannot guarantee return for the other.
Managing partner may be provided a performance Incentive.
Used for most types of financing to MFI’s customers, including project finance.
Hybrid Structures - Musharaka and Lease (or forward lease)
Explanation of Musharaka and Lease (or forward lease)
Customer and MFI enter into a Musharaka Agreement whereby both contribute capital for the purpose of acquiring certain ready asset.
Upon acquiring the asset, the Bank, as Lessor, leases its share of the Musharaka asset to the Customer.
In case the purpose of Musharaka is construction of the asset, forward Ijara is used instead of normal Ijara.
Purchase Undertaking and Sale Undertaking are also in place to facilitate the disposal as required by the situation.
1. MURABAHA (COST PLUS PROFIT) SALE
FARM INPUTS MURABAHA FINANCE
T1 Promise to Purchase
T3 – Murabaha Sale Agreement
T3 – TM Payment of Deferred Price
T3 – Sale of Vehicle
T2 – Delivery of Vehicle
T2 – Purchase of Vehicle
T2 – Payment of Price
2. ISTISNA (SALE OF DESCRIBED ASSET)
T4 – TM Payment of Deferred Price
T1 – Istisna Sale Agreement
T 4 – Delivery of Machinery
T 3 – Delivery of Machinery
T2 – Purchase of Machinery on Parallel Istisna
3. SALAM (SALE OF DESCRIBED FUNGIBLE COMMODITIES)
Payment of Purchase Price at
Salam Agreement at at
Delivery of Described Sale Commodity at at
Spot Sale of Sale Commodity at
Delivery of Sale Commodity at
Payment of Price at
3rd Party Purchaser
3rd Party Seller
Spot Purchase of Sale Commodity at
4. IJARA (LEASING)
IJARA (LEASING) FINANCING
T3 – Service Agency Agreement
T1 – Promise to Lease
T4 – TM Payment of Rentals
(Purchaser and Lessor)
T3 – Lease Agreement
T3 – Lease of Asset
T3 – Sale Undertaking
TM – Sale of Asset
T3 – Purchase Undertaking
T2 – Delivery of Asset
T2 – Purchase of Asset
Badru Jaffar Swaleh
Certified Sharia Advisor & Auditor (AAOIFI)
DIB Bank Kenya Ltd (In – Formation)
Upper Hill – Opposite Hill park Hotel
P.O. Box 6450 – 00200
Nairobi - Kenya
Tel: +254 709 913 117
(A subsidiary of Dubai Islamic Bank PJSC)
AlHuda CIBE FZ LLE - U.A.E
P: + 971 56 9286664, + 971 55 938 99 00
AlHuda Center of Islamic Banking & Economics - Pakistan
Ph: (92-42) 35913096 - 98, Fax: (92-42) 35913056
harib cannot guarantee a return, however it may provide an indication.