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Zubair MughalChief Executive Officer

AlHuda : Centre of Islamic Banking & Economics

Editor in Chief.Islamic Banking and Finance News , True Banking.

An Introduction to

Islamic Micro Finance

Presented to

Farz Foundation

Outline of Presentation

Introduction to Islamic Microfinance Riba ( Interest ) Difference between Islamic & Conventional Micro

Finance Product of Islamic Micro Finance. Progress of Islamic Banking in Pakistan & Worldwide

Islam

Aqidah(Faith & Belief)

Shariah(Practices & Activities)

Akhlaq(Morality & Ethics)

IBADAT(Man to God Worship)

Muamalat(Man to Man Activities)

Political Activities Economic Activities Social Activities

Banking & Financial Activities

Islam and Shariah

Sources of Fiq’h in Islam (Islamic Finance)

Quran

Sunnah

Ijtehad / Qiyas

Ijama’e Ummah

Basic Difference between Islamic and Conventional Microfinance

ConventionalMFI Client

Money

Money + Money(interest)

IMFI ClientGoods & Services

money

Islamic Microfinance

Riba in Quran

“... God has permitted trade and forbidden interest...”

(Sura Al-Baqara 2:275)

Fulfillment of Financial Needs

Own Capital Others’ Capital

Equity Financing Debt Financing

• Murabahah• Ijarah•Salam & Istisna etc

• Musharakah• Modarabahah• Other Products

Human Financial Needs

PRODUCT TREE

Islamic Microfinance Modes

Trade Based Modes

Partnership Based Modes

Rental Based Modes

Musharaka(Joint Venture Profit Sharing )

Mudaraba( Trustee Profit Sharing)

Murabaha(Cost Plus Profit Sale)

Musawama(Bargain sale )

Salam(Commodity Sale)

Istisna(Sale on Order)

Ijarah ( Leasing )

Diminishing Musharaka( Transfer of Ownership)

Industry Progress in Pakistan

Functions and operations are based on fully man made principles

Functions and operations are based on Sharia’h principles

assured of pre-determined rate of interest

Promote risk-sharing between provider of capital (investor) and user of funds (entrepreneurs)

Aim at maximising profit without any restrictions

Aim at maximising profit but subject to Sharia'h restrictions

Creditor-Debtor relationship Partners, investor and traders, buyer or seller relationship

Based on money trading. Money is a medium of exchange and not a commodity

Encourage asset-based financing and based on commodity trading & Services

Conventional Micro Finance

Islamic Micro Finance

It is almost risk free banking and depositor has no risk of losing its money because interest is guaranteed.

No right of profit if there is no risk involved. The profit and loss sharing depositor may lose money in case of loss.

It can charge additional money in case of defaulters

Islamic banks have no provision to charge any extra money from the defaulters

Very often it results in the banks own interest becoming prominent. it makes no effort to ensure growth with equity

It gives due importance to the public interest, its ultimate aim is to ensure growth with equity

Do Deal in Zakat Deal in Zakat ( Non Muslim Countries )

Conventional Micro Finance

Islamic Micro Finance

ONUS SHIFTS!!

Customer to Halal Restaurant Owner

Halal Restaurant Owner to Halal Meat Supplier

Halal Meat Supplier to Halal Abattoir / Butcher

Customer to Islamic Banker

Islamic Banker to Shariah Scholars

Thank You.