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

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Presentation on theme: "AMANAH IKHTIAR MALAYSIA The Role of Microfinance in Poverty Alleviation: AIM’s Experience ISLAMIC MICROFINANCE AN INSTRUMENT FOR POVERTY ALLEVIATION ISLAMIC."— Presentation transcript:

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

2 Microfinance Definition  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 Definition  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 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 HealthcareEducation Housing Basic Service Eradicate poverty Financial Inclusion Ensure that every economic activity, geographical region & segment of society has access to financial services Ensure all economic sectors, regions an the population at range have access to a broad range of financial products and services Financial Services Access to financial services Access to financial assistance Access to financial information Access to financing

4 Introduction to Islamic Microfinance in Malaysia

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

6 Differentiations of Players and Schemes

7 Differentiation : Conventional Banks Vs Microfinance Institutions

8 Differentiation : Islamic Vs Conventional MFI

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  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

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 Qard Intensive supervision Skills Training Human Capital Development Consultation 0% Service Charge (Ujrah) 10%

12 Enhancement in Microfinance Contract : MurabahahCommodity AIM SAHAB AT Commodity Suppliers A Commodity Suppliers B Commodity Suppliers C Commodity Suppliers D Commodity Supplier E Purchasing Commodity (Pool of Suppliers) Cash Payment Selling Commodity Deferred Payment BURSA SUQ AL-SILA (Trading & Clearing Engine) Selling Commodity Cash Payment

13 Impact of Microfinance to Household Income

14 Enhancement in Microfinance : (i) Entrepreneurs Development Program

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

16 Enhancement in Microfinance : (iii) Human Capital Development


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