Islamic Micro Finance: An Instrument for Poverty Alleviation

1. Islamic Micro Finance: An Instrument for Poverty Alleviation

2. Poverty : Basic IssuesPoverty is misperceived or under perceived by the people who are not poor…Below the Line: Hasnat A. Hye Poverty defined by United Nations • Lack of basic capacity to participate effectively in society • Not having enough to feed and clothe a family • Not having a school or clinic to go to • Not having the land to grow food or a job to earn living • Not having access to credit • Insecurity, powerlessness and exclusion • Susceptibility to violence, living in marginal or fragile environments

3. Poverty : Basic Issues Poverty defined by World Bank • Low income and inability to acquire the basic goods and services: • low levels of health and education, • poor access to clean water and sanitation, • inadequate physical security, • lack of voice, and • insufficient capacity and opportunity to better one’s life.

4. Poverty : Basic Issues(contd.)`Poverty is not created by the poor.` Mohammad Yunus Poverty Dimensions • Shaky livelihoods • Excluded locations • Physical limitations • Gender relationships • Problems in social relationships • Lack of security • Abuse by those in power • Dis-empowering institutions • Limited capabilities • Weak community organizations Source: Voice for the Poor: World Bank

5. Poverty : Basic Issues(contd.)If a free society cannot help the many who are poor, it cannot save the few who are rich. John F. Kennedy Poverty statistics : 925 Million hungry people in 2010 Regions People • Asia and the Pacific - 578 Million • Sub-Saharan Africa - 239 Million • Latin America & Caribbean - 53 Million • Near East and North Africa - 37 Million • Developed Countries -19 Million

6. Poverty Alleviation Initiatives • Banks

7. Approaches to Poverty Alleviation Trickledown Approach Assumptions/Features • Riches are the driving force behind economic growth. • Wealth will naturally trickle down and benefit everyone. • Ensuring the right environment for the rich and the larger companies Strategies : • Market Mechanism • Growth promotion Result : Benefits hardly reached the poor

8. Approaches to Poverty Alleviation (contd.) Cooperative Movement Features : • Persons voluntarily cooperate for mutual social, economic, and cultural benefit • An expansion of decision-making power from a small minority of corporate shareholders to a larger majority of public stakeholders. • Occupied by the well-to-do farmers Result : Failed to benefit the Small Farmers and Landless

9. Approaches to Poverty Alleviation (contd.) Target Group Approach Strategies/Instruments • Microfinance, • Credit Entitlement, • Group replaces collaterals Results/Outcomes: • Could not reach the Extreme Poor • Slow graduation process • High interest rate

10. Limitations to Conventional Approach ParametersStatus • Access to Finance Pricing Basis • Non financial wants Ignored • Repayment Mandatory • Maturity extension Excluded • Fellow feelings No Provisions

11. Poverty: Islamic Viewpoint Islamic principles of poverty alleviation are based on the Islamic views of social justice and the belief in Allah Almighty. Islam defines poverty as a state whereby an individual fails to fulfill any of the five basic human requirements of life: • Faith, • Physical self, • Intellect or Knowledge, • Offspring, and • Wealth.

12. 3. Tahsaniah (Beautification) Poverty Vs Human Need Hierarchy 2. Hajiah (Complementary) Maslow’s Shatibi’s Need Need Hierarchy Pyramid 1. Jaruriah (Essentials)

13. Islamic Finance: Philosophical BasisI was hungry but you didn’t feed me. But how I would be able to feed you as you are ever exalted and the Lord of the worlds! O my servant, if you be at the side of my ailing servant and soothe him, you can reach me there. Hadith al Qudsi. • Universal brotherhood • Distributive justice • Circulation of wealth • Transfer payment • Financial inclusion • Filter mechanism • Fellow feelings

14. Islamic Financing devices to address poverty • Benevolent loan (Qardul Hasan) • Zakah • Awqaf • Fidiyah (Compensation for non fasting) • Mohor (Dowry paid to women while married) • Micro Finance

15. Islamic Microfinance • A tool of satisfying the financial needs of the poor following Shariah principles • A form of socially responsible investment. • A target group approach under Islamic financing modes.

16. Poverty Eradication Scheme of Islam 16

17. Poverty Eradication Scheme of Islam (contd.) 17

18. Poverty Eradication Scheme of Islam (contd.) 18

19. Sustainable Islamic Poverty Alleviation Model 19

20. IBBL Micro Finance Model: RDS Special Features • Shariah based micro-finance • Collateral free • Farming and off-farming activities • Job Creation • Welfare and ethical services • Quard facilitates for sanitation

21. IBBL Micro Finance Model: RDS Target Groups of RDS • Farmers • Sharecroppers • Persons engaged in off-farm activities • Fishermen • Women and distressed people

22. IBBL Micro Finance Model: RDS

23. Concluding Remarks • Introducing Integrated (microfinance, Zakah and Awqaf) model • Targeting the extreme poor • Portfolio diversification