AMANAH IKHTIAR MALAYSIA
The Role of Microfinance in Poverty
Alleviation: AIM’s Experience
ISLAMIC MICROFINANCE
AN INSTRUMENT FOR POVERTY ALLEVIATION
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
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
Microfinance Promoting Balance and Equitable
Growth
Financial
Services
Financial
Inclusion
Access to
financing
Healthcare
Eradicate
poverty
Education
Housing
Basic
Service
Financial Services
Ensure that every
economic activity,
geographical region &
segment of society
has access to financial
services
Access to
financial
services
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
Introduction to Islamic
Microfinance in Malaysia
Evolution of Micro financing in
Malaysia
Amanah Ikhtiar
Malaysia (AIM)
1987
Micro Institutional
Framework
1998
Tabung Ekonomi
Kumpulan Usaha
Niaga (TEKUN)
2006
2009
Central Bank
(Amendment)
Act 2009
Differentiations of Players and
Schemes
Differentiation : Conventional Banks Vs
Microfinance Institutions
Conventional Banks
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
Differentiation : Islamic Vs
Conventional MFI
Islamic MFI
Conventional MFI
Liabilities (Sources of
Funding)
 External Fund
Clients Savings
Islamic Charitable Bodies
 External Fund
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
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
Financial Information
Number of Members
286,105
Number of Groups
58,154
Number of Centers
Total Loan Disbursed
USD
2,109,829,557.7
6,779
Loan Outstanding
USD 404,810,142.6
Number of Branches
114
Quality Portfolio
99.6%
Number of Staff
2040
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
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
The group undergoes compulsory
short-term course to be familiar
with the rules and procedures
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
Past the group recognition test (a brief
test carried out at the end of 5 days
course) and joint a center
Social collateral is introduced by forming
groups since AIM offer small amount of credit
on interest to the poor without any physical
collateral
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.
A center is made up of between 2 to
12 groups with a center chief, deputy
center chief, secretary and treasurer
elected amongst them
Type of Contract – Qard Hasan
Qard
0%
Intensive supervision
Skills Training
Human Capital Development
Consultation
Service
Charge
(Ujrah) 10%
Enhancement in Microfinance
Contract : MurabahahCommodity
Purchasing Commodity (Pool of Suppliers)
AIM
Cash Payment
Selling
Commodity
3
2
Deferred
Payment
6
Selling
Commodity
BURSA SUQ AL-SILA
4
(Trading & Clearing
Engine)
SAHAB
AT
Cash
Payment
5
1
C
o
m
m
o
d
i
t
y
Commodity
Suppliers A
M
a
r
k
e
t
K
OCommodity
Suppliers B
M
Commodity
OSuppliers C
DCommodity
I Suppliers D
TCommodity
Supplier E
I
Impact of Microfinance to Household
Income
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
Enhancement in Microfinance :
(ii) Entrepreneurs Development - Business Development
From Grocery Shop to Mini Market
Make over
Before
After
Enhancement in Microfinance :
(iii) Human Capital Development