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Presentation on theme: "AMANAH IKHTIAR MALAYSIA"— Presentation transcript:

The Role of Microfinance in Poverty Alleviation: AIM’s Experience ISLAMIC MICROFINANCE AN INSTRUMENT FOR POVERTY ALLEVIATION

2 Microfinance Definition Objectives
Microfinance is the provision of financial services to low-income clients in solidarity lending groups including consumers and the self-employed, who traditionally lack access to banking and related services Microfinance is a broad category of services, which includes microcredit Objectives To eradicate poverty amongst the poor and achieve sustainable independence to bring lower income groups and micro enterprise into the mainstream To enable poor segments of the population and microenterprises to participate in income generating economic activities, thereby equalizing opportunities and reducing inequalities Microfinance is a broad category of services, which includes microcredit

3 Microfinance Promoting Balance and Equitable Growth
Financial Services Financial Inclusion Financial Services Healthcare Education Housing Basic Service Access to financing Ensure that every economic activity, geographical region & segment of society has access to financial services Access to financial services Eradicate poverty Access to financial assistance Access to financial information Ensure all economic sectors, regions an the population at range have access to a broad range of financial products and services

4 Introduction to Islamic Microfinance in Malaysia

5 Evolution of Micro financing in Malaysia
1987 1998 2006 2009 Micro Institutional Framework Amanah Ikhtiar Malaysia (AIM) Central Bank (Amendment) Act 2009 Tabung Ekonomi Kumpulan Usaha Niaga (TEKUN)

6 Differentiations of Players and Schemes

7 Differentiation : Conventional Banks Vs Microfinance Institutions
Objective Profit-maximization Non-profit governance / Non government organizations Type of Service Provider Financial Intermediary between saver and investor in the economy Fund from external sources Liabilities Deposit forms and the bulk of the liability Saving (forced) of the client only deposit Additional Scope Does not include social / educational programs Include social / educational programs Collateral Physical Collateral required to get funds Social collateral through group and centre formation Customer Demographic Clients are relatively well off Clients are poor Modus Operandi Clients come to the bank MFI goes to the people Facility Quantum Amount of loan in large Amount of loan is small Mode of Servicing Capital and interest usually paid at the maturity of the contract Capital and interest paid in weekly/monthly instalments over a year Gender Demographic Most clients are men Most clients are women

8 Differentiation : Islamic Vs Conventional MFI
Islamic MFI Conventional MFI Liabilities (Sources of Funding) External Fund Clients Savings Islamic Charitable Bodies Clients saving Assets (Mode of Financing) Islamic Financing Interest Base Funds Transfer Goods Transferred Cash given Financing the Poorest Poorest can be included by integrating with Microfinance Poorest are left out Deduction at Contract Inception No deduction at inception Part of funds deducted in inception Target Group Family Women Objective of Targeting Women Ease of availability Empowerment of women Deal with default Group / centre / spouse guarantee and Islamic ethics Group / centre pressure and threat Social Development Program Religious (include behavior, ethics and social) Secular (non – Islamic) behavioral. Ethical and social development

9 Case Study : Amanah Ikhtiar Malaysia (AIM)
Largest microcredit organization in Malaysia – established in 1987 Objectives – Reducing poverty in Malaysia through disbursement of loans to poor households to finance income generating activities Practice Islamic microfinance scheme – instead of paying interest rates, members pay “service charge” Since inception, more than RM 6.4 billion or USD 2.0 billion has been disbursed to about 280,000 borrowers Basic Information Number of Members 286,105 Number of Groups 58,154 Number of Centers 6,779 Number of Branches 114 Number of Staff 2040 Financial Information Total Loan Disbursed USD 2,109,829,557.7 Loan Outstanding USD 404,810,142.6 Quality Portfolio 99.6%

10 Business Process Flow Set a group comprising 5 persons of the same gender without close family relationship, in mutual trust among each other and responsible with similar socio economic status to obtain credit The group undergoes compulsory short-term course to be familiar with the rules and procedures Past the group recognition test (a brief test carried out at the end of 5 days course) and joint a center A center is made up of between 2 to 12 groups with a center chief, deputy center chief, secretary and treasurer elected amongst them Weekly meeting of the center are held at a convenient place in the locality. All members (i.e beneficiaries) of the center are required to attend these meetings. AIM’s staff attends the meet to conduct the transactions, perform weekly reviews of performance etc. Social collateral is introduced by forming groups since AIM offer small amount of credit on interest to the poor without any physical collateral Loan repayment by individual member of the group is the collective responsibility of all the members in the group and default by a member disqualifies all members to get new loans Members in group monitor the activities of each other and peer preassure induces the repayment of the loan. This format of peer monitoring mitigates the problem of asymmetric information and reduces transaction cost

11 Type of Contract – Qard Hasan
Intensive supervision Skills Training Human Capital Development Consultation Qard 0% Service Charge (Ujrah) 10%

12 Enhancement in Microfinance Contract : MurabahahCommodity
1 Commodity Market KOMODITI Purchasing Commodity (Pool of Suppliers) AIM Commodity Suppliers A Cash Payment 2 Commodity Suppliers B Deferred Payment Selling Commodity Commodity Suppliers C BURSA SUQ AL-SILA (Trading & Clearing Engine) 3 6 Selling Commodity Commodity Suppliers D SAHABAT 4 Commodity Supplier E 5 Cash Payment

13 Impact of Microfinance to Household Income

14 Enhancement in Microfinance : (i) Entrepreneurs Development Program
Service Types of Training / Service Training Developing Entrepreneur Character Basics of Entrepreneurship Basic skills (Technical) Business Enhancement Skill Business Development Business Transformation Human Capital Development Motivational Program Leadership Social Skill

15 Enhancement in Microfinance : (ii) Entrepreneurs Development - Business Development
From Grocery Shop to Mini Market Make over Before After

16 Enhancement in Microfinance : (iii) Human Capital Development


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