Experiences in Regulating and Supervising
Islamic Microfinance Institutions Pakistan as Case Study
At
Regulatory and Supervisory Framework in
Islamic Microfinance
18th – 19th March, 14 - Khartoum – Sudan
Muhammad Zubair Mughal
Chief Executive Officer
Alhuda centre of Islamic banking and economics
www.alhudacibe.com
Contents
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Basic Principles of Shariah Based Microfinance.
Source and Mechanism of Islamic MF Products
Type of Islamic Microfinance Institutions in Pakistan
Legal and Regulatory Structure of Islamic MFIs
State Bank of Pakistan Guidelines for Islamic
Microfinance.
Shariah Compliance for Islamic Microfinance
Licensing , Reporting and Operating Criteria.
Basic Principle of Shariah Based Microfinance
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Prohibition of Interest
Care for the poor is a religious obligation in Islam
Asset Based Financing
Risk Sharing
Sanctity of contracts
Financing in Halal/Shariah Compliant Activities.
Micro Takaful ( Islamic Micro Insurance)
Beneficial for both Muslim and non-Muslim
“Assisting the poor is a pillar of Islam”
Overview
Islamic
Microfinance
Mechanism
Sourceofof
Islamic
Microfinance
Islamic finance is the outcome of religion in banking
Sources of Islamic
Microfinance
• Quran
• Sunnah
• Ijma’a (jurist
consensus)
• Ijtihad &
Qiyas
(analogy)
Islamic Microfinance Products
Mechanism
Factors to be considered while doing IMF
Moral
and more….
Poverty Alleviation
Ethical Social Element
A Misconception
Micro Takaful
removed
Free from
Interest
Financing
Ensure Shariah
Compliance
Free from
Gharar
Islamic
Micro
Finance
Shariah
Compliant
Funds
Shariah Vetted
Products
Trainings &
Quality HR
Shariah
Compliant
Investments
Islamic Microfinance is a
system not the Religion,
it can be utilized &
operated by both
Muslims and
Non-Muslim Communities
for Poverty Alleviation,
Social & Economic
Development.
Islamic Microfinance Institution Worldwide
Global - Islamic Microfinance Industry
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300+ Islamic Microfinance Institutions operating in 32 Countries
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USD 1 billion Market Size.
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Indonesia, Bangladesh, Pakistan and Afghanistan have 80% share
of Global Islamic Microfinance industry (CGAP)
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2 Million Active financing Clients.
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Murabahah & Qarz-e-Hasan are the Major Products.
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Share of Islamic Microfinance in Islamic Finance industry &
Microfinance Industry is less than 1%
Compatibility IMF Products with MF Models
Grameen Model:
Amna Iftikhar – Malaysia, Islami Bank
Bangladesh Limited etc.
Village Bank Model: Sanadiq program -Jabal al-Hoss, Syria,
FINCA - Afghanistan etc.
Credit Union Model: Muslim Credit Union (Tobago), The Amwal
Credit Union etc.
Cooperative Model: AlBaraka MPCS – Mauritius, Al-
Khair
Coop. – India, Muslim Community Coop.– Australia, Karakorum
Cooperative Bank – Pakistan.
Self-Help Group:
Aameen Society – India
For Profit Banks/MFIs : Ghana Islamic Microfinance Banks –
Ghana, HSBC Amanah – U.K, Bank Islami - Pakistan
IMF’s Product for all Level of Poverty
and more….
Salam,
Istisna and
other
products
Non-Poor
Transitory Non-Poor
Transitory Vulnerable
Transitory Poor
Chronic Poor
Extremely Poor
10
Qarz-e-Hasan,
Murabahah,
Ijarah,
Mudarabah
Zakat, Sadqa,
Ushar
Legal & Regulatory Framework
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The legal and regulatory framework of
 Islamic micro-finance
Pakistan as Case Study
Pakistan
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Population - 180 million
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Muslim population - 97%
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GDP – USD 225.1 billion
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Per Capita Income – USD 1260
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Category – Lower Middle Income
Poverty Rate – 22.3% (less than USD 1.25/ per day)
Microfinance Industry – Developing
Lack of Funding (Least interest of Donors) in
Islamic microfinance while demand of Islamic
Microfinance is rising
Source: World Bank (website)
Pakistan - Islamic Microfinance Industry
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14+ Islamic Microfinance Institutions operating in
Pakistan
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350 + Branches of IMFI’s
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500,000+ Active financing Clients.
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Murabahah & Qarz-e-Hasan are the Major Products.
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Micro Takaful, Micro Saving, Branchless Banking etc.
Pakistan - Islamic Microfinance Industry
Institution Islamic Microfinance Products
Akhuwat
Qaraz-e-Hasna, MicroTakaful, Grants
Ihsaas Trust
Murabaha, Musharakah, Salam
Asasah
Mudaraba, Musharaka
Muslim AID
Murabaha
Islamic Relief
Murabaha and Qarz-e-Hassan
Wasil Foundation
Murabaha, Ijarah, Salam & Istisna MicroTakaful
HHRD
Murabaha, Mudarabah
NRDP
Qard-e-Hasana, Murabaha
NRSP
Murabaha - Mudarabah with BOK for funding Source
Naymet
Bank Islami, Farz
Foundation.
BOK, etc.
Qard-e-Hasana, Murabaha, Salam
Pakistan & Islamic Microfinance Industry
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Innovation:
• Micro Takaful
• IT Integration (Mobile Banking) in Islamic Microfinance
• Livestock Product with Islamic Microfinance operation
• Micro energy & Micro Saving products
Challenges:
• Unavailability of Shariah Compliant fund
• Reluctance of Donor Agencies for Islamic Microfinance
• Accounting & I.T systems., Rating Agencies.
• Law and order in Northern part of Pakistan
Future Prospects:
• Rapid growth of IMFIs with high acceptability from the
Muslim community.
• Govt. Interest and IDB Support
• AlHuda Centre of Excellence in Islamic Microfinance
Type of Islamic Microfinance Institutions in
Pakistan
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MFIs, IMFIs, NGO’s, Rural Support Program:
Registered and Supervised by SECP under Companies’
Ordinance 1984 (Section 42)
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Trust, Foundations, Waqf, Cooperatives etc: under joint
companies ordinance 1861
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Microfinance Bank: Regulated by State Bank of
Pakistan
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Islamic Banks/Banks with having IMF operation:
Regulated by SBP
State Bank of Pakistan Guidelines for Islamic
Microfinance Business by Financial Institutions
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Option 1
Establishment of Full-fledged Islamic Microfinance
Bank (IMFBs)
Option 2
Islamic Microfinance services by Full fledged Islamic
banks
Option 3
Islamic Microfinance services by conventional banks
Option 4
Islamic Microfinance services by conventional
microfinance banks (MFBs)
Establishment of Full-fledged Islamic
Microfinance Bank (IMFBs)
Licensing
 Nation wide Microfinance Banks;
 Province wide Microfinance Banks;
 Region wise Microfinance Banks;
 District wide Microfinance Bank
Application Compliance with Legal framework and Prudential
regulations
 Bank draft of PKR 500,000 by applicant
 Appointment of Shariah Advisor by applicant according to fit and
proper criteria of SBP.
 Shariah vetted Products along with product structure and its
beneficial use.
 Ensure the Expertise, Shariah Compliance Mechanism, Quality HR,
Policies, Manual, Procedure etc.
Islamic Microfinance services by fullfledged Islamic Banks
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Mode 1 - Islamic Microfinance counters at existing
branches
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Mode 2 - Stand alone Islamic Microfinance branches
and mobile banking
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Mode 3 - Independent IMFBs as subsidiary of MFBs
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Mode 4 - Developing linkages with IMFBs and IMFIs
Islamic Microfinance services by
Conventional Banks
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Mode 1 - Microfinance counters at existing branches
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Mode 2 - Stand alone Islamic Microfinance branches
and mobile banking
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Mode 3 - Establishing Independent Islamic MFBs as
Subsidiaries of conventional Banks
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Mode 4 - Developing linkages with IMFBs and IMFIs
Islamic Microfinance services by
Conventional Microfinance Banks
Eligibility Criteria:
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Shariah Advisors Particulars (SAP) according to the fit
and proper criteria of SBP
Shariah Compliant Deposit and Financing Products.
Infrastructure and Logistic requirements
Required changes in Memorandum and Articles of
Association allowing the acceptance of deposits on
PLS basis
Segregation of Funds (Islamic and conventional)
Set up Separate Islamic Microfinance division (IMD)
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Policies
Procedures/ Practices
Shariah Compliance
Capital Adequacy
Cash Reserves and Statutory Liquidity Requirement
(SLR)
Financing need, source and utilization
Products mechanism
SOPs/ Manuals
Risk management
Compliance with SBP directives,
Role and responsibilities
Human Resource Training periodically
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System and Control
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Internal Audit
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Accounting Records
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Utilization of Conventional Branch Network
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Shariah Supervisory Board at Central Bank /SECP
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Internal Shariah Advisor
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Shariah Audit/Shariah Review
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Shariah supervision of Islamic Microfinance Network
AlHuda Center of Islamic Banking and Economics
160 B, Ahmad Block, New Garden Town, Lahore - Pakistan.
Ph: (92-42) 35913096 - 98, Fax: (92-42) 35913056
Email: info@alhudacibe.com
www.alhudacibe.com