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Muhammad Zubair MughalChief Executive Officer
Alhuda centre of Islamic banking and economicswww.alhudacibe.com
Experiences in Regulating and Supervising Islamic Microfinance Institutions -
Pakistan as Case StudyAt
Regulatory and Supervisory Framework in Islamic Microfinance
18th – 19th March, 14 - Khartoum – Sudan
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Contents
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.
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Basic Principle of Shariah Based Microfinance
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”
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Islamic finance is the outcome of religion in bankingOverview of Islamic Microfinance Mechanism Source of Islamic Microfinance
• Quran• Sunnah• Ijma’a (jurist
consensus)• Ijtihad &
Qiyas (analogy)
Sources of Islamic Microfinance
Islamic Microfinance Products Mechanism
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Trainings & Quality HR
Shariah Compliant Funds
Free from Gharar
Micro Takaful
Free from Interest
Financing
Shariah Vetted Products
Shariah Compliant
Investments
Moral Ethical SocialPoverty Alleviation Element
and more….
A
Misconception removedIslamic
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.
Factors to be considered while doing IMF
IslamicMicro
Finance
Ensure Shariah Compliance
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Islamic Microfinance Institution Worldwide
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• 300+ Islamic Microfinance Institutions operating in 32 Countries
• USD 1 billion Market Size.
• Indonesia, Bangladesh, Pakistan and Afghanistan have 80% share of Global Islamic Microfinance industry (CGAP)
• 2 Million Active financing Clients.
• Murabahah & Qarz-e-Hasan are the Major Products.
• Share of Islamic Microfinance in Islamic Finance industry & Microfinance Industry is less than 1%
Global - Islamic Microfinance Industry
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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
`
Compatibility IMF Products with MF Models
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and more….
IMF’s Product for all Level of Poverty
10
Qarz-e-Hasan, Murabahah,
Ijarah, Mudarabah
Transitory Vulnerable
Transitory Poor
Chronic Poor
Extremely Poor
Zakat, Sadqa, Ushar
Salam, Istisna and
other products
Non-Poor
Transitory Non-Poor
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The legal and regulatory framework of Islamic micro-finance
Pakistan as Case Study
Legal & Regulatory Framework
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Pakistan
• Population - 180 million
• Muslim population - 97%
• GDP – USD 225.1 billion
• Per Capita Income – USD 1260
• 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)
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14+ Islamic Microfinance Institutions operating in Pakistan
350 + Branches of IMFI’s 500,000+ Active financing Clients.
Murabahah & Qarz-e-Hasan are the Major Products.
Micro Takaful, Micro Saving, Branchless Banking etc.
Pakistan - Islamic Microfinance Industry
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Pakistan - Islamic Microfinance Industry
Institution Islamic Microfinance ProductsAkhuwat 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
NaymetBank Islami, Farz Foundation.BOK, etc.
Qard-e-Hasana, Murabaha, Salam
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Pakistan & Islamic Microfinance Industry
• 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
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MFIs, IMFIs, NGO’s, Rural Support Program: Registered and Supervised by SECP under Companies’ Ordinance 1984 (Section 42)
Trust, Foundations, Waqf, Cooperatives etc: under joint companies ordinance 1861
Microfinance Bank: Regulated by State Bank of Pakistan
Islamic Banks/Banks with having IMF operation: Regulated by SBP
Type of Islamic Microfinance Institutions in Pakistan
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Option 1Establishment of Full-fledged Islamic Microfinance Bank (IMFBs)
Option 2Islamic Microfinance services by Full fledged Islamic banks
Option 3Islamic Microfinance services by conventional banks
Option 4Islamic Microfinance services by conventional microfinance banks (MFBs)
State Bank of Pakistan Guidelines for Islamic Microfinance Business by Financial Institutions
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Option 1Establishment 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.
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Option 2Islamic Microfinance services by full-
fledged Islamic Banks
Mode 1 - Islamic Microfinance counters at existing branches
Mode 2 - Stand alone Islamic Microfinance branches and mobile banking
Mode 3 - Independent IMFBs as subsidiary of MFBs
Mode 4 - Developing linkages with IMFBs and IMFIs
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Option 3Islamic Microfinance services by
Conventional Banks
Mode 1 - Microfinance counters at existing branches Mode 2 - Stand alone Islamic Microfinance branches
and mobile banking
Mode 3 - Establishing Independent Islamic MFBs as Subsidiaries of conventional Banks
Mode 4 - Developing linkages with IMFBs and IMFIs
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Option 4Islamic Microfinance services by Conventional Microfinance Banks
Eligibility Criteria: 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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Establishment of Islamic Microfinance Division (IMFD)
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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Compliance to be ensured by IMFI in: System and Control
Internal Audit
Accounting Records
Utilization of Conventional Branch Network
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Shariah Compliance Shariah Supervisory Board at Central Bank /SECP
Internal Shariah Advisor
Shariah Audit/Shariah Review
Shariah supervision of Islamic Microfinance Network
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AlHuda Center of Islamic Banking and Economics160 B, Ahmad Block, New Garden Town, Lahore - Pakistan.
Ph: (92-42) 35913096 - 98, Fax: (92-42) 35913056Email: [email protected]
www.alhudacibe.com