Presentation on theme: "Akbar Peer Bhoy College Of Management"— Presentation transcript:
1 Akbar Peer Bhoy College Of Management MICRO FINANCING AS A TOOL OF POVERTY ALLEVIATION IN ISLAMIC PERSPECTIVEAusaf AhmadPresentation atAkbar Peer Bhoy College Of ManagementMumbaiAugust 28, 2008
2 In the name of Allah, The Most beneficent, The Most Merciful.
3 AN IRONYIt is estimated that it would require US $21 billions to provide micro finance to world’s poorest 100 million families. Ironically, only if worlds seven richest family got together, they could wipe out global poverty from their combined wealth.Alas, the world does not go by Charity alone.
4 Wealth of an Arab Prince A Car Mercedes SL 600 studded with diamonds, worth 4.5 million $A ship worth 500 million dollarsA personal Boeing 747A palace worth 100 million dollars with 317 rooms and five kitchens.Four kitchens specializing in Arab, Lebanese, Continental and Asian cuisine
5 A world of Contradictions Appalling oceans of poverty along with the islands of prosperity.Two billion people do not have access to clean and safe drinking water.Two billion people do not have access to electricity and drainage facilities.
6 WHY MICRO FINANCING?Financial intermediation between savers and investors.Mismatch between the preferences of savers and investors.Problems of Moral HazardsProblems of Adverse SelectionProblems of collateral and enough returnSolutions: Specialized agenciesMicro Financing
7 WHAT IS MICRO FINANCING? Micro financing is a term used for providing financial services such as micro credit, micro saving and micro insurance to Poor people.Credit worthiness, Profitability and Bankable projects? [ Poor people do not have collaterals].Poor people could be relied to repay the loansMarket mechanism could be used productively to improve the economic conditions of the poor.
8 Two billion people do not have access to electricity and drainage system Two billion people do not have access to clean drinking water
9 A SHORT HISTORY1864 Wilhelm Raiffeisen’s German Village Experiment, Rural financing.1900 Alphonse Desjardin, Quebec experiment.1963 Mitghamr project1970s Grameen Bank, BangladeshInternational Institutions, NGOs, Multinational Banks.
10 What is an NGO?A non governmental organization (NGO) is a legally constituted organization created by private persons or organizations with no participation or representation of any government. In the cases, in which NGOs are funded totally or partially by governments, NGOs maintain their non governmental status so far it excludes government representatives.
11 GRAMEEN BANK Owned by the poor borrowers Esablished in 1976 in Jobra, BangladeshIncorporated in 1983 by Special lawNo collateral, No Legal instruments, Only group or joint Liability.Responsibility of repayment with the individual borrower. 97% women borrowers.
12 GRAMEEN BANK23000 branches, works in 75,000 villages, Total staff over 21,000Total loans disbursement TK 310 billion. Repaid TK 277 billion, 33 billion outstanding. Recovery Rate 98.5 per cent.100 percent loans financed from own deposits.Group of Five. All are denied credit if one defaults.
13 GRAMEEN BANK Interest Rates: Fixed for Micro credit programs 11% Income generating loans 20%Housing loans 8%Student loans 5%Struggling Members Zero %Deposit rates – 12%
14 GRAMEEN BANKHousing loans, Micro enterprises loans, scholarships, Higher education loans,17 companies in Grameen Network e.g. Grameen Phone, Telecom, communication, Cybernet, Software, IT Park, Information Highways, Udog, Knitwear, Textiles, Shiksha, Bayopar Vikas, Grameen Trust etc.
15 CRITIQUE OF GRAMEEN MODEL Usurious : high interest ratesExploitativeBenefits large corporation
16 NEEDS FOR MICRO FINANCE IN INDIA With branches of commercial banks, branches of regional rural banks and 100,000 branches of cooperative banks, banking is out of reach for millions.75 million household depend on money lenders.90 percent in Rural India have no access to institutional credit.Micro credit can change lives.
17 Limitations Of The Corporate Sector to Provide Islamic Finance The organized corporate sector REQUIRES:Large CapitalLarge size of MarketFavorable Political ClimateInstitutional and Legal FrameworkNegative Mental block against Islamic banking is a big barrier against it in the Muslim Minority countries.
18 INTEREST FREE FINANCIAL INSTITUTIONS IN INDIA More than 200 institutions, mostly loan societies and investment companies.Operating in the unorganized sectorMisnomer to describe them as Islamic BanksSocieties registered under Societies Act. Many remain unregistered.Different sources of fundsLack control and regulation due to absence of legal framework.Non Banking Financial Companies and Islamic Investment Companies.
19 Interest Free Financial Institution in India Interest Free Credit AssociationsInterest Free Financial CompaniesInvestment Funds
20 Interest Free Credit Associations Mostly established in late 70 and 80s. Coincides with employment upsurge in the GulfConcentrated in South India: Karnataka, kerala, AP and Chinnai.Motivation: Avoid RibaRegistration: Charitable Societies or unregistered.
21 Interest Free Credit Associations II Sources of Funds: Different for Charitable Societies, Cooperative Societies,Size of Capital involved: Difficult to tellBusiness Practices:- Deposit taking- Providing Loans- Leasing?
22 SWOT ANALYSIS OF IFCAs Strength: Grass Root organizations Micro FinancingWeakness:Unorganized SectorLack of professionalismLack of regulation (security)Opportunity:Mobilization of hidden resourcesThreat:Disintegration, competition, liquidation on legal grounds
23 Islamic Financial Companies Al Ameen (Bangalore)Al Falah (Delhi)Al Mizan (Chinnai)Al Najeeb, (Bijnor, U.P.), Muslim FundAl Idafa (Mumbai)First three have been closed by the RBI for non compliance
24 SPIRIT OF COOPERATION Democratic Participation One person One vote Open membershipCooperative EducationCooperate with other organizations.
25 REMEDIES Require Legal Framework Professionalism Transparency AccountabilityProductivity and Efficiency.Needs to be organized