ISLAMIC MICROFINANCE COOPERATIVES TO MEET THE FINANCIAL NEEDS OF THE COMMUNITY

2. AL BARAKAH multi-purpose Co-operative Society Limited MAURITIUS GLOBAL ISLAMIC MICROFINANCE WORKSHOP 7 & 8 October, 2013 – Dubai, UAE ISLAMIC MICROFINANCE COOPERATIVESTO MEET THE FINANCIAL NEEDS OF THE COMMUNITY

3. Microfinance & Models of Microfinance Evolution of Islamic Banking, Finance & Islamic Microfinance Global Models of Islamic Microfinance The Cooperative Movement Islamic Microfinance Co-operative Model Formation ,Development , operation & sustainability of IFC Case Study of AL BARAKAH Multi-purpose Co-operative Society Limited Opportunities with AL BARAKAH MCSL for Projects in Mauritius Conclusion Islamic Microfinance Cooperatives To Meet The Financial Needs Of The Community How to develop, operate and sustain IMFI?Agenda

4. Grameen Bank Model – (GBM-B. Desh) • Has popularized collateral-free micro finance • Replicated in many countries in a wide variety of settings • Targeting of the poor/mostly women groups • Village Bank Model – VBM widely replicated mainly in Latin America and Africa.Implementing agency establishes a VB with members. • Self-Help Groups Model (SHGs) – (India), Formed with members who are relatively homogeneous in terms of income. Pools together its members’ savings and uses it for lending • Credit Union Model (CUM) – (Germany), Financial cooperatives are owned and controlled by its members. Models of Conventional Micro Finance Islamic Microfinance Cooperatives To Meet The Financial Needs Of The Community

5. Islamic Microfinance is to provide financial services to the poor and low income segment of the society in a Shari'ah compliant way What is Islamic Microfinance? Islamic Microfinance Cooperatives To Meet The Financial Needs Of The Community

6. Conceptual: • Belief & conviction – CMF is based on riba/interest ... IMF is to provide the poor/low income with an Islamic alternative to riba’ • Pvt. alleviation is a religious obligation in Islam-ZZFS • Estimated 72 percent of people living in Muslim-majority countries do not use formal financial services (Honohon 2007). -- incompatible with Islamic financial principles. • It is has an integrated approach: charity-based & profit-based • Main objectives of IMF schemes is to alleviate poverty and to assist the poor to become economically independent in a Shari'ah-compliant manner • Since IB have not addressed the needs of financing the poor ,low income, micro entrepreneurs, IMF is missing in IBF Why Islamic Microfinance? Islamic Microfinance Cooperatives To Meet The Financial Needs Of The Community

7. Potential • Current statistical information shows that poverty in the Muslim World is increasing • Current unstable political situation also indicates the trend of poverty in the Muslim/Arab world • Future for IMF is promising • Even with the rapid progress and growth( 15-20 %p.y) of the Islamic Finance industry IBFI have not addressed the needs of financing the poor , low income, micro/medium entrepreneurs • IMF is missing in IBF • As IB have been away from microfinance, MFIs based on Islamic principles are lagging behind. Hence the urgent need to promote IMF. Why IMF ? Islamic Microfinance Cooperatives To Meet The Financial Needs Of The Community

8. Cost - Over years, CMFI have been offering financial services to the poor at high rates of interest ( High Trans. Costs & monitoring) • IMFIs will assist the poor and low income to business activities. Initiatives to come from them. They should know that if they fail to do so, Allah will not help them to improve their living standard. • “Allah does never change the condition of a people until they change in themselves” (Rad 13: 11) • Setting up as many as possible IMFIs would be a conduit to the realization of the Maqasid Al-Shari’ah (Goals of Islamic Law). WL • Equitable distribution of income and wealth. • “Wealth does not circulate only among the rich” ( 59: 7) • Distribution of resources/Landholdings .. make full use of all the resources under his/her disposal- Resources of the Ummah • Democratisation of the financial system( IFC )- Participation • Consider the poor also as vicegerents of Allah who can take care of themselves, if they are provided with appropriate financial access and equitable opportunities for social mobility. Islamic Microfinance Cooperatives To Meet The Financial Needs Of The Community

9. According to Prof. R.Wilson: “Formal Islamic banking first emerged in the early 1960’s through credit unions of Muslim landowners in Egypt and Pakistan .…. on a non-interest basis.” (The evolution of Islamic banking and emerging trends in Islamic Finance) • Interest Free Financial institutions (IFFI) of India are the forerunners in the history of global Islamic financial movement. Tracing the history of growth of interest free financial institutions …, it is reported that such organized credit society had shown its presence as early as 1890. According to the directory of Islamic banks in India, such efforts in the organized sector in the style of the Patni Cooperative Credit Society Ltd. was established in 1942… • Study conducted by Bagsiraj (2003) shows that there are institutions that have grown to a size of 14 Islamic Cooperative Credit Society (ICCS) in India. (Dr Rahmatullah-IFFI of India in crisis/Bagsiraj-IFII, published by KAU, Jeddah -2003 Evolution of Islamic Banking & Finance Islamic Microfinance Cooperatives To Meet The Financial Needs Of The Community

10. “The history of Islamic Financial system in Thailand started with the establishment of a cooperative society, Pattani Islamic Saving Cooperative that operates based on Shari'ah in 1987… These Islamic cooperative societies have successfully established themselves as viable financial institutions in managing and mobilizing Muslims in this region.” (Islamic banking in Thailand: prospects and challenges (Sudin Haron & Kumajdi Yamirudeng) Inheritance in the economic sphere - F.C.S eco system-riba Initiatives /Scholars at work -No working model & since 1960’s IBF started – Mit Ghamr 1963( IMFI/Coop) Emergence of IFIs since 1960 & growth…. Types of IFI: F-B-T-L-FH Satisfaction/Criticism/Dominance by ICB( HNW) & neglected areas like Islamic microfinance & cooperatives Evolution of Islamic Finance/Micro Finance Islamic Microfinance Cooperatives To Meet The Financial Needs Of The Community

11. Islamic microfinance is still in its infancy and business models are just emerging Village BanksModel: Jabal Al Hoss in Syria, Hodeidah Microfinance Program in Yemen, FINCA implementing this model in Afghanistan Qard Al-Hasan Model: Mu’assasat Bayt Al-Mal in Lebanon, Ukhuwat-Pakistan. Grameen Bank Model: Bangladesh, a Shari’ah-compliant replication has been attempted by Islami Bank Bangladesh Limited. RoSCA Model: Rotating Savings and Credit Association, known in Egypt as the gam’iya. (Mahmoud El Gamal & ors-2011). Credit Unions: The fifth modelthat has been making its way since the beginning and receiving attention is the variation of Cooperatives/Credit Unions that are member-based Islamic Microfinance Cooperatives. Global Models of Islamic Microfinance Islamic Microfinance Cooperatives To Meet The Financial Needs Of The Community

12. Concept of cooperative in general: - From the beginning of human society, cooperation has always been a vital factor in human development. - As a social creature, it is the natural urge of man to cooperate with each other. - Cooperation conveys the idea of helping each other and making joint efforts to achieve a common goal. • Coop Movement emerged in the middle of the 19th century by the Rochdale Pioneers. • 24-Oct-1844, R/L, England, a group of people faced with economic exploitation and deprivation set up a cooperative store, based on the principles of self-help and mutual help. • Defined a set of principles (7) which became the basis for the cooperative ideology (CI) • CI spread all over the world be it a capitalist, socialist or Muslim society. • ICA & WOCCU The Cooperative Movement & Credit Union Islamic Microfinance Cooperatives To Meet The Financial Needs Of The Community

13. A credit union is a financial cooperative that may accept savings, deposits, provide credit and other financial services to its members. (Interest-based) • CU are in effect community banks. Credit unions called by different names: • In Africa-Savings And Credit Cooperative Societies (SACCOS) which emphasize on savings before credit. • In Afghanistan-(IIFC) Islamic Investment and Finance Cooperatives which comply with Shariah. • IMFC are institutions based on the principles of Islamic Finance. • IMFC/ICU refer to financial cooperatives that offer retail financial products in compliance with Islamic financing principles • Efforts over the past 30 years to set up Islamic Micro Finance Co-operatives around the globe T&T, Canada, Cameroun, Malaysia, Thailand ,Tanzania, India, USA, Indonesia, Australia, Pakistan, S.Lanka, Singapore, Afghanistan … Islamic Microfinance Cooperatives Islamic Microfinance Cooperatives To Meet The Financial Needs Of The Community

14. Why IMFC? • Conceptual Framework “Cooperate with all in what is good and pious and do not cooperate in what is sinful and wicked…” (Q-5:2) Ta’awoun? • Legal Framework - less regulated than the corporate sector (Coop Soc. Act ,CU Act) Shari'ah-compliant • Values- Islamic Finance based on Islamic ethics: justice, sharing, cooperation- Cooperatives based on values: honesty, equity,equality, solidarity, self-help, etc. • Easy formation & more elastic • Small seed capital requirement Islamic Microfinance Cooperative Islamic Microfinance Cooperatives To Meet The Financial Needs Of The Community

15. Why IMFC? 6. Community-based & more people-oriented, poor/rich (IEViews..),IF services to the community 7. Common bond- Islamic brotherhood/Ukhuwat 8.Spread ownership of business and reduce concentration of wealth 9. Financial & Mgt. inclusion – embark the poor on board 10. Multi-purposes - open to any type of economic activity 11. Incentives & Benefits – Tax Relief 12.Democratic/Shuratic/Leadership – 1 man-1Vote Consider the poor also as vicegerents of Allah who can take care of themselves, if they are provided with appropriate financial access and equitable opportunities for social mobility. Islamic Microfinance Cooperative Islamic Microfinance Cooperatives To Meet The Financial Needs Of The Community

16. Set-up- Formation meetings, Rules, Regulations, policies etc. • Operating Policies and Procedures A comprehensive set of standard operating policies and procedures is required to establish Shariah-compliant credit unions, also called Islamic Investment and Finance Cooperatives (IIFCs) in the developing world. • Membership Policies and Procedures - Introduces guidelines in relation to recruitment and acceptance of members - Member rights, responsibilities and obligations form part of this policy area. • Shares and Savings Mobilization -Mobilizing shares and savings in an environment where sufficient funds from members are not sufficiently available to meet the required cash-flow needs of the IIFCs is vital • Shariah-Compliant Financing – Islamic product types, terms, conditions and processes are in shariah- compliance and with all applicable laws and regulations of the country in which they are applied. Formation ,Development , operation & sustainability of IFC Islamic Microfinance Cooperatives To Meet The Financial Needs Of The Community

17. Assets and Liability Management - Asset liability management (ALM) can be broadly defined as the continual rearrangement of both sides of the IIFC’s balance sheet in order to maintain reasonable profitability, to minimize interest rate risk, and to provide adequate liquidity. When the officials declare a dividend rate on shares and savings or change profit rates on ICFs, they are engaging in ALM These decisions can impact liquidity and profitability. • Capitalization and Capital Adequacy • Assets at an IFC are sourced in two ways: liabilities owed to members and third parties, as well as capital that is owned by the IFCs . • Generally speaking, the more the assets side is financed by the IFC’s capital the better. An IFC is required to constantly increase the amount of capital/shares to maintain longevity and to continue to provide services to its members. • To increase its capital, the IIFC must accumulate net profits. • Minimum capital requirements is set by the Government Formation ,Development , operation & sustainability of IFC Islamic Microfinance Cooperatives To Meet The Financial Needs Of The Community

18. Collections :Effective collection policies are vital to the survival of the IFC. • collection policies and procedures that are in compliance with Shari’ah. • At the same time, they fully adhere to international best practices employed by the credit union movement around the world. • Provisions and Allowances for Bad Debt • Accounting /Cash Operations Recording financial transactions with the aim of producing meaningful financial statements that can be interpreted and analyzed provides the basis for appropriate and timely decisions Formation ,Development , operation & sustainability of IFC Islamic Microfinance Cooperatives To Meet The Financial Needs Of The Community

19. Internal Controls Manual deals with establishing internal control system and determining methods and measures to be used in order to control the IFC’s daily operations, safeguard its assets and prevent possible fraudulent activities, procedural mistakes and human errors. • Human Resources Finding suitable and qualified staff for IFCs -challenge. Human resources policies set out criteria for finding and identifying suitable staff, recruitment, training and staff retention. Formation ,Development , operation & sustainability of IFC Islamic Microfinance Cooperatives To Meet The Financial Needs Of The Community

20. Procurement • Both at the establishment stage and afterwards, IFCs need to procure goods and services • Adequate management of procurement and ensuring that the IFC gets the best value for price in a transparent way is very important. • Tendering procedures, selection of suppliers and vendors, receipt of goods and services, responsibilities and the required approvals within approving limits. • Information Technology & Security • IFCs deal with thousands of members and various types of accounts. It is very important that the IIFC management maintains high quality information technology systems in place. • Minimizing exposure to risks associated with the information stored on various devices and platforms, and ensuring authorized access etc. Formation ,Development , operation & sustainability of IFC Islamic Microfinance Cooperatives To Meet The Financial Needs Of The Community

21. Case study Al BarakahMulti-purpose Co-operative Society LimitedAn Islamic Microfinance Cooperative in Mauritius Islamic Microfinance Cooperatives To Meet The Financial Needs Of The Community

23. Geographical Background & Muslims in Mauritius • Mauritius - gateway to Africa, South Asia & Asia • Multi-religious society/Democratic: • Population: 1.3 M Islamic Microfinance Cooperatives To Meet The Financial Needs Of The Community

24. Mauritius International Benchmarks Islamic Microfinance Cooperatives To Meet The Financial Needs Of The Community

25. Budget speech 2008/2009 - Minister of Finance • Mauritius wants to connect to this sophisticated and growing global phenomenon that spans banking, non-banking financial services, micro-finance, insurance and capital markets. • We will also set the regulatory framework for leasing companies to market products which are Shari'ah compliant.(60) • And to level the playing field appropriate amendments will be made to the legislation to make normal banking and Islamic banking tax neutral.(62) Islamic Banking & Financial Services in Mauritius ? Islamic Microfinance Cooperatives To Meet The Financial Needs Of The Community

26. Muslims presence in all walks of life: Islamic schools, professionals, orphanage, business, politics, etc. • Muslims have contributed enormously in the development of the economy • But as a community, little has been done to establish the financial system of Islam. • In 1990’s there was a keen desire by Muslims to establish an Islamic bank in Mauritius. • To become part of the Islamic Finance global phenomena. • Preliminary work carried out- Research- Different Laws, Coop • Formation of an Islamic Financial Cooperative/Credit Union in the Cooperative sector AL BARAKAH Geographical Background & Muslims in Mauritius Islamic Microfinance Cooperatives To Meet The Financial Needs Of The Community

27. Formation meeting - promoters, committed members • Draft Rules, regulations, policies, procedures • Registration with the Registrar of Coop • Legal Framework Operates: • Within the Co-operative Societies Act 2005 (Registered on 10th June 1998) • Within the framework of its rules, regulations policies • In accordance with Islamic Financial principles Formation of AB Islamic Microfinance Cooperatives To Meet The Financial Needs Of The Community

28. To provide an alternative to the interest-based financial institutions for the community. (Community-based) • To provide halal investment opportunities and returns. • To contribute in a halal way to the overall development of the economy. • To have a Mission – based (Not for profits) & Market-based (For profits) approach to poverty alleviation • All members of AB do not belong to the extremely poor or the destitute category and are in a position to create wealth for themselves, for the Islamic Microfinance Institution (IMFI) • For profit financing provides financial sustainability to AB AL BARAKAH? Islamic Microfinance Cooperatives To Meet The Financial Needs Of The Community

29. To operate as a financial institution based on Islamic cooperative principles and providing a wide range of services on an interest-free basis VISION To be a leading Cooperative Society in the field of Islamic Finance for a fair and just society. MISSION GOALS • To present a practical model of Islamic Micro Finance through the co-operative sector. • To lay the foundation for an alternative financial system to the Mauritian population at large. Islamic Microfinance Cooperatives To Meet The Financial Needs Of The Community

30. To provide savings facilities to members To create a source of credit for its members for provident and productive purposes. To create the framework to enable members to manage their financial resources for their mutual benefit. To promote the welfare and economic interest of its members To promotes the concept of family empowerment Objectives Islamic Microfinance Cooperatives To Meet The Financial Needs Of The Community

31. Organisation Structure Shari'ah Advisors: Dr. Monzer Kahf (USA) Br. Qazi Abdus Samad (Pakistan) Br. Imtiaz Ali (T&T) Islamic Microfinance Cooperatives To Meet The Financial Needs Of The Community

32. Products & Services Based On Islamic Financial Techniques

33. Islamic Microfinance Cooperatives To Meet The Financial Needs Of The Community

34. Other Activities • Creating awareness about Islamic Finance. • Organizing lectures, training, seminars, conferences, workshop, trade fair • Coming projects Insha Allah • AB Zakat Fund • Halal Tourism Islamic Microfinance Cooperatives To Meet The Financial Needs Of The Community

35. Performance 1. CAPITAL Islamic Microfinance Cooperatives To Meet The Financial Needs Of The Community

36. Performance 2. MEMBERSHIP Islamic Microfinance Cooperatives To Meet The Financial Needs Of The Community

37. Performance 3. PROFITABILITY Islamic Microfinance Cooperatives To Meet The Financial Needs Of The Community

38. Individual/organisational/government level Legal Framework Public acceptance Economic potential Human Resource Mass Education-Islamic Finance Education Programme IFEP Competition Challenges Islamic Microfinance Cooperatives To Meet The Financial Needs Of The Community

39. Opportunities with AL BARAKAH for Projects in Mauritius Economy grew by 3.3% in 2012 GNI/Capita (MUR Rs.) = 252,726 Inflation rate (2012) = 3.9% Islamic Microfinance Cooperatives To Meet The Financial Needs Of The Community

40. Legal & Regulatory Framework: • The Banking Act 2004 - Amendments 2007 • The FSDA 2001 - (Non-banking activities) • The Cooperative Societies Act 2005 Opportunities with AL BARAKAH for Projects in Mauritius Islamic Microfinance Cooperatives To Meet The Financial Needs Of The Community

41. 15 years of operation An eye-opener Well-being of all citizens Make use of all the resources and make it a priority to set up Islamic Microfinance Institutions of mass-outreach for community development. Concurrently, we also have to educate the poor and the community on the concepts, goals and principles of Islamic Microfinance and to live a moderate and balanced material and spiritual lifestyle to attain falah. Conclusion Islamic Microfinance Cooperatives To Meet The Financial Needs Of The Community

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