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WhatisislamicMicrofinance?|MicroWorld

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04.17.2013|JULIETTE|Articles (/en/newsfromthefield/category/article)

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WhatisislamicMicrofinance?
Today,wewillpresentyouanewtrendinmicrofinance:islamicmicrofinance
IslamicMicrofinanceisasectorwithagreatpotentialtoexpand.Itisestimatedthat72%ofthe
populationlivinginpredominantlyMuslimcountriesdonotusefinancialservices,becausetheydo
notfollowthepreceptsofIslam.Muslimsuseconventionalfinancialproducts,butvarioussurveys
showthatiftheyhadthechoicetheywoulduseshariacompliancefinancialproducts.
OneofIslamoobjectivesistosupportthemostvulnerable,whichtallywiththemicrofinance
mission.Today,theIslamicmicrofinanceisconcentratedinthreecountries:Indonesia,Bangladesh
andSudan.AccordingtoCGAPstudy,300,000customerswereconcernedbytheIslamic
microfinancethrough126institutionsoperatingin14countriesandapproximately80,000
customersarelinkedtoanetworkofIndonesiancooperatives.Howerver,inIslamiccountries,
Islamicmicrofinanceisstillatinyshareofmicrofinance.Itoftendevelopsduetogovernmentsupport
asinPakistan,in2007,whereguidelinesweredevelopedtopromotegrowth.

IslamicMicrofinanceisanewmarketinIslamicfinance:Islamicbanksprovidefinancialassistance
topeopleexcludedfromthebankingsystem.Microfinanceasthesameaim.Islamicmicrofinance

http://www.microworld.org/en/newsfromthefield/article/whatislamicmicrofinance

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11/24/2016

WhatisislamicMicrofinance?|MicroWorld

complieswithprinciplesofIslamandtoinvolvesinprojectshalal(allowedbysharia).Projectsmust
becharitableorhelpingtodeveloptheeconomyofacountry.
IslamicMicrofinancewouldhelpthe650millionMuslimslivingwithlessthan$2adayandgive
themaccesstofinancialservices.However,despiteafourfoldincreaseinthenumberof
clients(estimatedat1.28million)andadoublingofthenumberofsuppliers,inrecentyears,the
nascentindustrycontinuestostruggletodevelop.InastudyonMicrofinance,CGAPhasstudiedthe
situationofthesectorandthenidentifiedthemainobstaclestogrowth(Karim,TaraziandReille
2008).IncollaborationwiththeFrenchDevelopmentAgency,CGAPhasalsoconductedasurveyin
2011tobetterunderstandthecurrentsituationofsupplyofIslamicmicrofinance.Despitethe
impressiveincreaseinthenumberofsuppliersandcustomersofIslamicmicrofinancesectorisstill
dominatedbyafewsuppliersinsomecountriesthatrelyprimarilyonjusttwoproducts(Murabaha
andQardHassanseeimage1).Thus,theIslamicmicrofinancesectorneedsaconcertedaction.

Islamicmicrofinanceproducts
saleofIslamicmicrofinanceservicesmurabahaistheShariacompliancecontractthemost
commonlyusedtofinancegoods.Whentheclientrequestsaspecificproduct,thelender
acquiresitdirectlyinthemarketandresellsitafterapplyingafixedmarginpaymentforthe
serviceprovided.
Qardalhassanisaloanextendedonagoodwillbasis,andthedebtorisonlyrequiredtorepay
theamountborrowed.However,thedebtormay,athisorherdiscretion,payanextraamount
beyondtheprincipalamountoftheloan(withoutpromisingit)asatokenofappreciationtothe
creditor.Inthecasethatthedebtordoesnotpayanextraamounttothecreditor,thistransaction
isatrueinterestfreeloan.SomeMuslimsconsiderthistobetheonlytypeofloanthatdoesnot
violatetheprohibitionon'riba,foritaloneisaloanthattrulydoesnotcompensatethecreditorfor
thetimevalueofmoney
Musharakaandmudarabaarecontractswhichsharerisksandbenefits.Musharakaisa
relationshipbetweentwopartiesormorethatcontributecapitaltoabusinessanddividethenet
profitandlossprorata.Thepartiessharetheprofitsorlossesinapredeterminedpercentage.
Thistypeoffinancingcanbeusedfortheassetsorfundsbearing.Mudarabaisatrustee
financinginstrumentinwhichoneisadonorandtheotherbringsmanagementexpertiseinthe
project.
Salamisanadvancepaymentinexchangeofafuturedelivery.Itisoftenusedinagricultural
settings,allowingfarmerstofinanceproductioninexchangeforfuturedeliverycultures.To
respectthesharia,thequantity,thequalityoffuturegoodsandeffectivedateofdeliverymustbe
specifiedexplicitly.
Exchangecontractbetweenasellerandabuyeriscalledistisna`a.TheSellerscaneither
producegoodsthemselvesorbuythemfromathirdparty.Theendcustomercanpaythesale
priceisatoncethecontractissigned,orsubsequentlyatotherstagesofthemanufacturing
process.
Microleasing:TheMFIallowsthecustomertouseanassetthatbelongstohim.Risksremain
withintheMFI,unlikeaconventionalleasing(alldamagescausedbyinvoluntarymeansorin
caseofforcemajeurearesupportedbytheMFI,toavoidleasingasadisguisedsalewith
interest).CashflowsareadjustedsothatcostsandrisksofMFIsarecovered.Thetermsofthe
leasearesetinadvancetoavoidspeculation.
Takafulisamutualinsurance.Eachpersonparticipatesinafundthatisusedtohelpthegroupin
caseofneed,forexample,death,agriculturallosses,accidentsetc...Premiumspaidare
reinvestedtoavoidthemechanismofinterest.
Source:CGAP(http://www.cgap.org/publications/trendsshariacompliantfinancialinclusion),Focusnotetrendsin
Shariacompliantfinancialinclusion(http://www.cgap.org/sites/default/files/FocusNoteTrendsinShariaCompliant
FinanicialInclusionMar2013.PDF)

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