1. AMANAH IKHTIAR MALAYSIA
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 : MurabahahCommodity1
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