2. Shariah Foundation and Applications of Islamic Microfinance By: Abdul Samad AlHuda Centre of Islamic Banking & Economics (CIBE) What is Microfinance?

3. Microfinance is usually defined as the provision of financial services and products to those whose low economic standing excludes them from conventional financial institutions. Microfinance is usually defined as the provision of financial services and products to those whose low economic standing excludes them from conventional financial institutions. Micro-finance offer of financial services Micro-finance offer of financial services such as loans, savings, insurance, and training to people living in poverty. such as loans, savings, insurance, and training to people living in poverty.loanssavingsinsurancetrainingloanssavingsinsurancetraining

4. Structure of Microfinance Institutions

5. The Aim of Microfinance Institutions To focus on people who generally did not have the means to Fund To focus on people who generally did not have the means to Fund For example, a farmer needing seeds to plant for produce was given a loan for cash at interest rates For example, a farmer needing seeds to plant for produce was given a loan for cash at interest rates New Business New Business The people who want to be self sufficient but do not have a ready business idea or skill. This effort gave individuals and families the financial fuel they needed to stand on their own feet. The people who want to be self sufficient but do not have a ready business idea or skill. This effort gave individuals and families the financial fuel they needed to stand on their own feet. Borrowers used loan proceeds to buy raw materials to manufacture products for sale in the market; purchase livestock to sell milk/eggs; or open small shops. Borrowers used loan proceeds to buy raw materials to manufacture products for sale in the market; purchase livestock to sell milk/eggs; or open small shops.

6. Some Very Important Shariah Principle About Islamic Finance Money is not an asset by itself and can increase in value only if it joins other resources to undertake productive activity. Money is not an asset by itself and can increase in value only if it joins other resources to undertake productive activity. Fund providers must share the business risk. Fund providers must share the business risk. Assets must back the transactions and investments may be made only in real, durable assets. Assets must back the transactions and investments may be made only in real, durable assets. Islamic funds cannot finance activities deemed inconsistence with Shariah such as, business related to alcohol, gambling, any sort of trading of pork etc. Islamic funds cannot finance activities deemed inconsistence with Shariah such as, business related to alcohol, gambling, any sort of trading of pork etc. Islamic finance contracts required for mutual agreement and stipulates exact terms and conditions. Islamic finance contracts required for mutual agreement and stipulates exact terms and conditions.

7. Tools of Islamic Microfinance Charity Charity Islamic jurists have unanimously held the view that it is the collective obligation (fard kifayah) of a Muslim society to take care of the basic needs of the poor. Islamic jurists have unanimously held the view that it is the collective obligation (fard kifayah) of a Muslim society to take care of the basic needs of the poor. Charity occupies a central position in the Islamic scheme of poverty alleviation. Charity occupies a central position in the Islamic scheme of poverty alleviation. When compulsorily mandated on an eligible Muslim, sadaqa is called zakah. When compulsorily mandated on an eligible Muslim, sadaqa is called zakah. Zakah is the third among five pillars of Islam and payment of zakah is an obligation on the wealth of every Muslim based on clear-cut criteria. Zakah is the third among five pillars of Islam and payment of zakah is an obligation on the wealth of every Muslim based on clear-cut criteria. These funds are meant mostly for the extremely poor and function as a safety net for meeting their immediate and basic needs These funds are meant mostly for the extremely poor and function as a safety net for meeting their immediate and basic needs In flow of benefits that are expected to be stable and permanent (such as, through endowment of a physical property), it is called sadaqa jariya or waqf. In flow of benefits that are expected to be stable and permanent (such as, through endowment of a physical property), it is called sadaqa jariya or waqf.

8. Economic Empowerment Islam strongly encourages charity from the giver’s point of view, it seeks to minimize dependence on charity from the beneficiary’s point of view. Islam strongly encourages charity from the giver’s point of view, it seeks to minimize dependence on charity from the beneficiary’s point of view. A man of the Ansar community came to the Prophet (peace be upon A man of the Ansar community came to the Prophet (peace be upon him) and begged from him. (#1) him) and begged from him. (#1) He (the Prophet) asked: Have you nothing in your house? He (the man) replied: Yes, a piece of cloth, which we wear, or which we spread (on the ground), and a wooden bowl from which we drink water. (#2) He (the Prophet) asked: Have you nothing in your house? He (the man) replied: Yes, a piece of cloth, which we wear, or which we spread (on the ground), and a wooden bowl from which we drink water. (#2)

9. Economic Empowerment He (the Prophet) said: Bring them to me. He (the man) then brought these articles to him and he (the Prophet) took them in his hands and asked to the assembly of people: Who will buy these? A man said: I shall buy them for one dirham. He (the Prophet) asked twice or thrice: Who will offer more than one dirham? Another man said: I shall buy them for two dirhams. (#3) He (the Prophet) said: Bring them to me. He (the man) then brought these articles to him and he (the Prophet) took them in his hands and asked to the assembly of people: Who will buy these? A man said: I shall buy them for one dirham. He (the Prophet) asked twice or thrice: Who will offer more than one dirham? Another man said: I shall buy them for two dirhams. (#3) He (the Prophet) gave these to him and took the two dirhams and, giving them to the man of the Ansar, he said: Buy food with one of them and hand it to your family, and buy an axe and bring it to me. (#4) He (the Prophet) gave these to him and took the two dirhams and, giving them to the man of the Ansar, he said: Buy food with one of them and hand it to your family, and buy an axe and bring it to me. (#4) He then brought it to him. The Prophet (peace be upon him) fixed a handle on it with his own hands (#5) and said: Go, gather firewood and sell it, and do not let me see you for a fortnight. (#6) He then brought it to him. The Prophet (peace be upon him) fixed a handle on it with his own hands (#5) and said: Go, gather firewood and sell it, and do not let me see you for a fortnight. (#6) The man went away and gathered firewood and sold it. When he had earned ten dirhams, he came to him and bought a garment with some of them and food with the others. (#7) The man went away and gathered firewood and sold it. When he had earned ten dirhams, he came to him and bought a garment with some of them and food with the others. (#7) The Prophet (peace be upon him) then said: This is better for you than that begging should come as a spot on your face on the Day of Judgment. The Prophet (peace be upon him) then said: This is better for you than that begging should come as a spot on your face on the Day of Judgment. Begging is right only for three people: one who is in grinding poverty, one who is seriously in debt, or one who is responsible for compensation and finds it difficult to pay. (#8) Begging is right only for three people: one who is in grinding poverty, one who is seriously in debt, or one who is responsible for compensation and finds it difficult to pay. (#8)

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