'The challenge of Islamic
microfinance programming for
poverty reduction and
development: The Islamic Relief
experience'
Atallah FitzGibbon
ISLAMIC RELIEF WORLDWIDE
Overview
- Introducing Islamic Relief Worldwide
- Objectives of I-MF for IRW
- The Islamic Relief microfinance
experience
- The challenge for Islamic microfinance
- The Way Forward
Introducing Islamic Relief Worldwide
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Established 1984
Network of 13 national organisations
Field offices in 28 countries
1400 staff worldwide
UK income £64m
Islamic Relief Worldwide
Main Working Sectors
Emergency &
Relief Projects
Development
Projects
Seasonal
Projects
Food
Distribution
Educational
Programmes
Qurbani
Ramadhan
Medical Aid
Tents, Clothes &
Blankets
School Bags
Shelter &
Rehabilitation
Water Supply
Health &
Nutrition
Income
Generation
(IMF)
Water &
Sanitation
Long-term
Reconstruction
Orphans,
Children &
Families
One-to-One
Sponsorship
Child
Rehabilitation
Projects
The Islamic Relief experience
Objectives of Islamic Micro-finance for IRW
- Poverty reduction
- Providing access to ethical finance
- Empowerment
- Sustainable livelihoods
(Core pillar of IRW strategy 2011-2015)
The Islamic Relief experience
Basic features – compared with conventional MF
Retaining the basic operational format of MFIs
Social mobilization (group – individually)
Weekly/Monthly repayments
Coupled often with social development (sustainable livelihoods)
Distinguishing features of IRW I-MF:
Sources of Funds
external sources (IDB, QC, IICO, DfID, Scottish Government etc.)
but also sadaqah, general donations (and awqaf) from the IR family
Use of funds (Mode of Financing)
Qard hasan
Sale based and hiring modes (murabahah)
Profit-sharing modes (Musharakah and mudarabah)
The Islamic Relief experience
Islamic micro-finance rationale for IRW:
Shari’ah compliant: meets with donor, beneficiary and IR ethical
standards
Mitigating Credit Risk
CR mitigated primarily by social collateral and also group savings
Mitigating Moral Hazard
Murabaha: as asset/good given instead of cash, chances of
diversion and default decreases
Mudaraba/Musharaka: monitoring & auditing
Economic Viability
Zero capital costs (donor funding)
Variable administrative costs
Murabaha: high transaction cost
Mudaraba/Musharaka: enterprise support, monitoring &
auditing cost
The Islamic Relief experience
12 years, 3 continents, many delivery
approaches:
Group-based social collateral (Africa,
South-Asia)
Individual entrepreneur micro-financing
(Eastern Europe)
The Islamic Relief experience
CASE STUDY 1: ‘FIRST ISLAMIC’ IN BOSNIA
- IR Bosnia & Herzegovina registered a specialist microfinance
organisation, called First Islamic in early 2001.
- Business, Social and Housing: Musharaka (7.5%)
- Orphan housing and Education: Qurd Hasan (5%)
- 8393 loans delivered (2001-2008)
- Average loan size: €1080
- Collateral: Two guarantors and community reference
- Repayment: Initially 93% , now fluctuating
The Islamic Relief experience
CASE STUDY 2: ISLAMIC MICROFINANCE & ENTERPRISE
DEVELOPMENT IN PAKISTAN
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IR targeted ultra-poor in Balochistan and Kashmir in the beginning
of 2011
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Credit-plus: business start-up loans, vocational training, enterprise
development support
-
167 small enterprises supported thus far
-
15% profit share on murabaha-based sales transactions, PKR 1000
as processing charge for qard hassan
-
Repayment: ongoing
The Islamic Relief experience
CASE STUDY 3: SUDAN ISLAMIC MICROFINANCE PROJECT
- Islamic Relief signed an agreement with the Savings and Social
Development Bank (SSDB) in 2006 to jointly fund a small
business and agriculture loans programme in Sudan
-The scheme targets widows, specifically the mothers of orphans
sponsored by IR
- Murabaha (15%) as Group loan
- Collateral: personal guarantors, group savings accounts, as
well as co-signers and community recommendations
- Repayments are made at SSDB branch offices (repayment: 99%
The Islamic Relief experience
CASE STUDY 4: CREDIT PLUS MICROFINANCE IN BANGLADESH
- IRB has started IMF project for widows as an early exit strategy for 12-1 sponsorship programme in 2006.
- Business, Agriculture, livestock, poultry: Qurd Hasan (4%)
- 603 individual loans delivered (2006-2009), 100% are female
- Average loan size: €200 – €300
- Group formation, Social mobilisation, entrepreneurship training,
business support, technical assistance, marketing support
- Collateral: Individual savings
- Repayment: 100%
Evaluating the Islamic Relief I-MF experience
• Qardh Hasan
• Mudaraba
80%
10%
10%
Micro-financing sustainability: financing model
• Murabaha
• Musharaka
Evaluating the Islamic Relief I-MF experience
Micro-financing sustainability: ‘business’ model
High
• Cost
recovery
plus
suitability for
poverty
reduction
High
Low
• But cost
recovery vs.
rate of
return
suitability for
poverty
reduction
Evaluating the Islamic Relief I-MF experience
Micro-financing sustainability: poverty reduction
Welfarist
High
Low
• Qardh Hasan
• Lacks
sustainability
leading to
the capital
erosion
Mixed
High
• Cost
recovery
plus poverty
reduction
Semi‘Commercial’
Low
• Sustainable
in certain
markets
• But not
suitable for
poorest
market
segment
The challenge for Islamic Relief
General issues
- Limited access to sustainable finance is key constraint
to growth
Using I-MF within a poverty reduction framework reduces
commercial viability
- Over-reliance on murabaha - limiting innovation
- Scalability of existing models?
The challenge for Islamic Relief
-‘Product’ streamlining whilst retaining cultural
appropriateness
- Variance in Shari’ah compliance mechanisms
Fiqhi differences between S-Asia, S-E Asia, MENA and
West Africa
- Different accountancy/Shari’ah audit standards
The challenge for Islamic Relief
The way forward
- R&D (poverty reduction impact assessment)
- Product innovation (where to go from
murabahah)
- exploring alternative delivery strategies (e.g.
sustainability through awqaf?)
THANK
YOU