islamic microfinance in different countries by fadlullah wilmot
Post on 23-Jan-2015
668 Views
Preview:
DESCRIPTION
TRANSCRIPT
International Conference on Islamic Microfinance
International Conference on Islamic Microfinance
CENTER OF ISLAMIC BANKING & ECNOMICS
Held At:
Faisal Auditorium Islamabad
Organized By :
ISLAMIC MICROFINANCE IN DIFFERENT COUNTRIESNeed to serve the ultra-poor
ISLAMIC MICROFINANCE IN DIFFERENT COUNTRIESNeed to serve the ultra-poor
Fadlullah Wilmot Country Director
Islamic Relief Pakistan
Fadlullah Wilmot Country Director
Islamic Relief Pakistan
DESIGNING PROGRAMS FOR THE ULTRA POOR
DESIGNING PROGRAMS FOR THE ULTRA POOR
Conventional MF fails to reach the ultra poorConventional MF fails to reach the ultra poor
Microfinance has reached 150 million people but one billion people are living below the poverty line
Earn less than $1 / day (often less than $0.50 / day), and income very irregular - Income usually derived from manual labour or begging;
School-aged children working manual labour jobs instead of attending classes;
Severe malnutrition (i.e., access to only one meal per day);
High incidence of physical handicap;
Own few productive assets;
Frequent migration, transient lifestyles in search of work;
Landless, or own less than 1 acre of cultivable land (including homestead);
Poverty is inter-generational;
Highly vulnerable to natural disasters and health catastrophes
Without help for the poor there is no IslamWithout help for the poor there is no Islam
Have you seen him who denies Our religion? It is he who harshly repels the orphan and does not urge others to feed the needy. Woe to those who pray but are heedless of their prayers; who put on a show of piety but refuse to give even the smallest help to others.
The surah starts with a question as to who is the disbeliever
“It is he who harshly repels the orphan and does not urge others to feed the needy.”
They pray but “refuse to give even the smallest help to others,”.
Allah wishes human life to be elevated, happy, based on pure motives and characterized by mutual compassion, brotherhood and purity of hearts and behaviour.
Pakistan the lowest-performing South Asian country in reducing poverty Pakistan the lowest-performing South Asian country in reducing poverty
Average annual rate of poverty reduction (%)
-6
-4
-2
0
Bangladesh India Nepal Pakistan Sri Lanka
Weaknesses of Conventional Micro-financeWeaknesses of Conventional Micro-finance
Loans used for consumption
Assumption that the poor can be good entrepreneurs given access to credit
Asymmetric Information Problems
Economic Viability of MFIs
Charging Fixed Interest Rates
Higher Interest Rates and focus on short term loans
Low Rate of Return on Investment
High Dropout Rate and Non-Graduation from Poverty
Debt Trap
Non-Conforming to Religious Beliefs
Credit Rationing
Poverty eradication scheme of IslamPoverty eradication scheme of Islam
Poverty eradication scheme of Islam
Positive measures
Income growth
Functional distribution of
income
Equal opportunity
Preventive measuresControl of ownership
Prevention of malpractice
Corrective measures
Compulsory transfer: Zakat
Recommended transfer : Charity
Government responsibility
Islamic Financial ModesIslamic Financial Modes
Participatory MechanismProfit and Loss Sharing
Mudarabah
Musharakah
Musaqat
Muzar'ah
Direct investment
Non Profit and Loss SharingQard al Hasanah
Bai'mua'jjal
Bai'salam
Ijara wa iqtina
Murabaha
Jo'alah
Different countries and different regions different approaches Different countries and different regions different approaches
Indonesia
– Yogyakarta profit sharing with the ultra poor
– Aceh – group system with women entrepreneurs
Bangladesh – group system 20% ultra poor no charge, 60% moderate poor 7.5% service charge with any excess returned to borrowers 20% mini entrepreneurs with Islamic financing modes
Pakistan individual system using Islamic financing modes
11
HeterogeneityHeterogeneity
The idea of heterogeneity and exclusion from/by existing models [non deliberate, via design and logic, unassailable] have been powerful concepts to draw policy attention and create urgency for action
Microfinance discourse
[‘poorest of the poor’ as landless, non agriculture, women]
The hard core poor/ ultra poor
[microfinance left outs, and throw outs. Not only poorer than the poor but differently so]
12
Poorest Decile
2nd poorest decile
t-value
Male labour force participation (% of 15-60 years old)
91 89 1.83*
Female labour force participation (% of 15-60 years old)
15 10 3.40***
Child labour (% of 10-14 years old) 12 10 0.79
Primarily involved in day labour (% of labour force)
61 52 4.20***
Hours worked per day (mean) 6.45 6.49 0.32 Cash wage received per day (mean in Taka) 65 75 6.10*** Received in kind payment (% of day labourer) 6 3 2.38***
Owns cultivable land (% of HHs) 27 32 2.37** Leased in cultivable land (% of HHs) 22 22 0.02 Owns livestock (% of HHs) 67 70 1.05 Own at least one non-agriculture enterprise (% of HHs)
18 21 1.96**
Net annual revenue from the enterprises (mean in Taka)
25,059 28,653 1.69*
Receive remittance from within country (% of HHs) 16 17 0.53 Remittance received in 12 months (mean in taka) 3,959 6,101 1.36
Work harder, especially women
Earn less
Weak asset base
What about heterogeneity among the poorest?What about heterogeneity among the poorest?
13
Informal safety nets as important as formal ones
Poorest 2nd decile
t-value
Participant of social safety net programme (% of HHs)
24 21 1.57
Receive informal charity in cash (% of HHs) 16 14 1.03 Receive informal charity in kind (% of HHs) 28 22 2.77*** Total amount received in informal charity (mean taka)
1,642 2,455 2.95***
The poorest lose out even in informal safety nets
What about heterogeneity among the poorest?
14
Education and housing situation of the ultra-poorEducation and housing situation of the ultra-poor
Poorest 2nd decile t-value
Education Enrolment rate of 6-15 years old boys (%) 55 66 4.24*** Enrolment rate of 6-15 years old girls (%) 65 71 2.24**
Housing Amount of homestead land owned (mean in decimal)
6.15 7.23 2.14**
House wall is made of tin/brick (% HHs) 28 38 4.63*** Value of the house living in (mean in Taka) 21,276 28,380 5.90*** Owns any kind of toilet (% of HHs) 70 81 5.45*** Have electricity connection (% of HHs) 14 23 4.68***
The education opportunity divide
The living environment divide
What about heterogeneity among the poorest?
15
Is there a spatial heterogeneity? Is there a spatial heterogeneity?
Poorest districts
Moderate poor districts
Male labour force participation (% of 15-60 years old)
88 91
Female labour force participation (% of 15-60 years old)
13 11
Child labour (% of 10-14 years old) 13 7
Primarily involved in day labour (% of labour force)
59 51
Hours worked per day (mean) 6.63 6.39 Cash wage received per day (mean in Taka) 64 66
Owns cultivable land (% of HHs) 30 32 Leased in cultivable land (% of HHs) 22 27 Owns livestock (% of HHs) 69 77 Own at least one non-agriculture enterprise (% of HHs)
16 28
Net annual revenue from the enterprises (mean in Taka)
25,449 24,646
Receive remittance from within country (% of HHs)
18 18
Amount of remittance received in 12 months 3,498 4,988
Vulnerable labour market engagement
Weak asset base
16
The poorest are heterogeneousThe poorest are heterogeneous
The bottom 10% are much worse off
The poorest living in the poorest areas are particularly vulnerable.
17
GraduationGraduation
Mainstream poverty alleviation interventions by and large leave out the poorest
Safety net interventions are not designed to help the poorest graduate
Design Safety nets as stimulus package: interventions combining and sequencing safety nets and poverty alleviation instruments for graduation outcomes for a large majority of the poorest:
18
Graduation FrameworkGraduation Framework
BRAC two-step modelBRAC two-step model
1. In 1985 BRAC realised its microfinance programmes were unlikely to meet the needs of the ultra poor.
2. Food donations provided a ‘breathing space’ for the poorest these would not remove chronic poverty.
3. Attempt to combine food relief with skills training program, to create a basis for enhanced household income in the future.
4. Regular compulsory savings of a few cents during the period of their food relief to build up a lump sum for investment.
5. Training on poultry and vegetable production for female VGF cardholders was given and they were able to access microcredit
6. At the end of the 24-month programme the ultra poor were eligible for microcredit
Poverty reduction as a 'two-step' process of livelihood protection and promotionPoverty reduction as a 'two-step' process of livelihood protection and promotion
Results mixedResults mixed
1. About 80% of the IGVGD beneficiaries joined BRAC’s regular microfinance programme
2. But only 70% continued beyond three years i.e. over 40% of the IGVGD beneficiaries fail to start the process of graduation.
3. Those who dropped had fragile socio-demographic structures – the female headed households who do not having a working adult male in the household and/or suffer from chronic illness, etc
21
Need to look at Need to look at
Tackling the social and attitudinal constraints which reproduces a non-enabling environment for the ultra poor.
Asset transfer
Dealing with local elites
23
Islamic MFIsIslamic MFIs
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 loans
24
Problems facing Islamic MFIs Problems facing Islamic MFIs
1. Dilution in the Application of Islamic Modes of Financing
Main mode- murabahah or bai-muajjal.
– It is difficult to go out with the clients and buy the goods/assets from faraway markets
IMFIs delegates someone else (and inspects later)
Alternative is to use Profit-sharing modes
– Problem is the moral hazard problem--No book-keeping and difficult to monitor
25
ConclusionConclusion
There are strong economic reasons for establishing Islamic alternatives to poverty-focused micro financing.
Traditional institutions of waqf, zakat, and qard hassan are important means of financing IMFIs
Thank YouThank You
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.com
Web: http://www.alhudacibe.com
top related