the role of islamic microfinance in poverty alleviation karen hunt-ahmed depaul university april 9,...

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The Role of The Role of Islamic Islamic Microfinance in Microfinance in Poverty Poverty Alleviation Alleviation Karen Hunt-Ahmed DePaul University April 9, 2011

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Page 1: The Role of Islamic Microfinance in Poverty Alleviation Karen Hunt-Ahmed DePaul University April 9, 2011

The Role of Islamic The Role of Islamic Microfinance in Microfinance in

Poverty AlleviationPoverty AlleviationKaren Hunt-AhmedDePaul University

April 9, 2011

Page 2: The Role of Islamic Microfinance in Poverty Alleviation Karen Hunt-Ahmed DePaul University April 9, 2011

AssumptionsAssumptions•Poverty alleviation is a worthy goal.•Islamic microfinance can help alleviate poverty.

Page 3: The Role of Islamic Microfinance in Poverty Alleviation Karen Hunt-Ahmed DePaul University April 9, 2011

You may ask…You may ask…• With the Islamic finance industry pushing $1

trillion, why have we not seen larger scale social investment?

• Should Islamic finance “innovation” include innovative ways to alleviate poverty?

• Because an institution is “Islamic” does this mean it has a particular obligation to invest in economic or community development?

• How does the the concept of Islamic microfinance operate to serve the goal of poverty alleviation?

Page 4: The Role of Islamic Microfinance in Poverty Alleviation Karen Hunt-Ahmed DePaul University April 9, 2011

Why now?Why now?With the Islamic finance industry pushing $1 trillion, why have we not seen larger scale social investment?

•Islamic Finance industry development and awareness•Microfinance industry development and awareness•Financial crisis•Attention to business ethics•Attention to human capital•Is available in developing world•Needs support from developed economies

Page 5: The Role of Islamic Microfinance in Poverty Alleviation Karen Hunt-Ahmed DePaul University April 9, 2011

Innovation?Innovation?Should Islamic finance “innovation” include innovative ways to alleviate poverty?

•Entrepreneurship•Distribution of wealth•Social development goals•Financial structures•Repayment incentives•Why not?

Page 6: The Role of Islamic Microfinance in Poverty Alleviation Karen Hunt-Ahmed DePaul University April 9, 2011

Special obligation?Special obligation?Because an institution is “Islamic” does this mean it has a particular obligation to invest in economic or community development?

•Social and human development goals of IF, but…•Corporate social responsibility (Friedman)•Does “Islamic” refer only to financial structures?•Not everyone agrees

Page 7: The Role of Islamic Microfinance in Poverty Alleviation Karen Hunt-Ahmed DePaul University April 9, 2011

Poverty alleviation?Poverty alleviation?How does the the concept of Islamic microfinance operate to serve the goal of poverty alleviation?

“I think that there is a common goal in Islam and microfinance which can be summarized in making people self reliant, enterprising and self respecting. A solution to achieve the target of poverty eradication is by practicing microfinance in an Islamic way.” (DP/BIBF student)

Page 8: The Role of Islamic Microfinance in Poverty Alleviation Karen Hunt-Ahmed DePaul University April 9, 2011

Islamic Finance and Islamic Finance and Microfinance: SimilaritiesMicrofinance: Similarities

•Combine principle of social justice with financial services: worldwide trend•Sensible risk management•Link real economic activity to financing structure.•Emphasize human development as well as profit maximization.•Outcome benefits society.

Page 9: The Role of Islamic Microfinance in Poverty Alleviation Karen Hunt-Ahmed DePaul University April 9, 2011

Challenges to IslMFChallenges to IslMF• Community education• High transaction costs• Funding sources• Legal structures• Asymmetric information• One suggestion…

Page 10: The Role of Islamic Microfinance in Poverty Alleviation Karen Hunt-Ahmed DePaul University April 9, 2011

Chicago Islamic Microfinance Project, NFP

Karen Hunt-Ahmed Cynthia Shawamreh

Page 11: The Role of Islamic Microfinance in Poverty Alleviation Karen Hunt-Ahmed DePaul University April 9, 2011

CIMFP MissionCIMFP Mission• Revitalize economically depressed neighborhoods

in Chicago • Offer Shariah-compliant equity and debt based

microfinance • Promote community health, education and well

being of women and children• Demonstrate the capacity of alternative financing

models to have a positive social and economic impact

• Promote higher education of Islamic finance and Microfinance

Page 12: The Role of Islamic Microfinance in Poverty Alleviation Karen Hunt-Ahmed DePaul University April 9, 2011

Vision: meet Vision: meet challengeschallenges

• Administered by professors and students at a Chicago- based university to maximize transaction cost efficiencies

• Provide students with direct practical training experience in the Islamic finance industry.

• Revolving investment financing fund (the “Fund”)o Individual community memberso Community groupso Foundationso Corporate donations

• Pro bono legal support (SNR Denton; Mayer Brown)• Supportive services to encourage successful business

development and build community and reduce information asymmetry

Page 13: The Role of Islamic Microfinance in Poverty Alleviation Karen Hunt-Ahmed DePaul University April 9, 2011

Islamic VisionIslamic Vision• "Islamic" part of it is related to:

o financing structures, but also to o the idea of building community through

empowering people who don't have access to conventional banking. 

o Customers don't have to be Muslim.  o It is also (we hope) good public relations to

have an "Islamic" organization involved in economic development.

Page 14: The Role of Islamic Microfinance in Poverty Alleviation Karen Hunt-Ahmed DePaul University April 9, 2011

Where?Where?• Currently most Islamic microfinance is located in

the developing world.• We believe that the model should be developed

in the developed world.

Page 15: The Role of Islamic Microfinance in Poverty Alleviation Karen Hunt-Ahmed DePaul University April 9, 2011

Why?Why?• Transaction costs are very high in the US; stricter

regulation will discipline the industry to lower transaction costs; these efficiencies can be transferred to the developing world.

• Donor fatigue: Funding sources available in the developed world through locals concerned with community and economic development.

• Integration and acceptance into US society

Page 16: The Role of Islamic Microfinance in Poverty Alleviation Karen Hunt-Ahmed DePaul University April 9, 2011

In sum…In sum…“If they take money from charity, they use the money to live. Therefore, they will keep on asking for more charities. When small loans are given to them they try to find ways to generate income out of it to solve the actual root of the problem which is income generation.”

(DePaul/BIBF student Jan. 2011)

Page 17: The Role of Islamic Microfinance in Poverty Alleviation Karen Hunt-Ahmed DePaul University April 9, 2011

Thank you!Thank [email protected]@depaul.ed

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