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Islamic Micro Finance: An Instrument for Poverty Alleviation. Poverty : Basic Issues Poverty is misperceived or under perceived by the people who are not poor… Below the Line: Hasnat A. Hye. Poverty defined by United Nations Lack of basic capacity to participate effectively in society
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Islamic Micro Finance: An Instrument for Poverty Alleviation
Poverty : Basic IssuesPoverty is misperceived or under perceived by the people who are not poor…Below the Line: Hasnat A. Hye Poverty defined by United Nations • Lack of basic capacity to participate effectively in society • Not having enough to feed and clothe a family • Not having a school or clinic to go to • Not having the land to grow food or a job to earn living • Not having access to credit • Insecurity, powerlessness and exclusion • Susceptibility to violence, living in marginal or fragile environments
Poverty : Basic Issues Poverty defined by World Bank • Low income and inability to acquire the basic goods and services: • low levels of health and education, • poor access to clean water and sanitation, • inadequate physical security, • lack of voice, and • insufficient capacity and opportunity to better one’s life.
Poverty : Basic Issues(contd.)`Poverty is not created by the poor.` Mohammad Yunus Poverty Dimensions • Shaky livelihoods • Excluded locations • Physical limitations • Gender relationships • Problems in social relationships • Lack of security • Abuse by those in power • Dis-empowering institutions • Limited capabilities • Weak community organizations Source: Voice for the Poor: World Bank
Poverty : Basic Issues(contd.)If a free society cannot help the many who are poor, it cannot save the few who are rich. John F. Kennedy Poverty statistics : 925 Million hungry people in 2010 Regions People • Asia and the Pacific - 578 Million • Sub-Saharan Africa - 239 Million • Latin America & Caribbean - 53 Million • Near East and North Africa - 37 Million • Developed Countries -19 Million
Poverty Alleviation Initiatives • Banks
Approaches to Poverty Alleviation Trickledown Approach Assumptions/Features • Riches are the driving force behind economic growth. • Wealth will naturally trickle down and benefit everyone. • Ensuring the right environment for the rich and the larger companies Strategies : • Market Mechanism • Growth promotion Result : Benefits hardly reached the poor
Approaches to Poverty Alleviation (contd.) Cooperative Movement Features : • Persons voluntarily cooperate for mutual social, economic, and cultural benefit • An expansion of decision-making power from a small minority of corporate shareholders to a larger majority of public stakeholders. • Occupied by the well-to-do farmers Result : Failed to benefit the Small Farmers and Landless
Approaches to Poverty Alleviation (contd.) Target Group Approach Strategies/Instruments • Microfinance, • Credit Entitlement, • Group replaces collaterals Results/Outcomes: • Could not reach the Extreme Poor • Slow graduation process • High interest rate
Limitations to Conventional Approach ParametersStatus • Access to Finance Pricing Basis • Non financial wants Ignored • Repayment Mandatory • Maturity extension Excluded • Fellow feelings No Provisions
Poverty: Islamic Viewpoint Islamic principles of poverty alleviation are based on the Islamic views of social justice and the belief in Allah Almighty. Islam defines poverty as a state whereby an individual fails to fulfill any of the five basic human requirements of life: • Faith, • Physical self, • Intellect or Knowledge, • Offspring, and • Wealth.
3. Tahsaniah (Beautification) Poverty Vs Human Need Hierarchy 2. Hajiah (Complementary) Maslow’s Shatibi’s Need Need Hierarchy Pyramid 1. Jaruriah (Essentials)
Islamic Finance: Philosophical BasisI was hungry but you didn’t feed me. But how I would be able to feed you as you are ever exalted and the Lord of the worlds! O my servant, if you be at the side of my ailing servant and soothe him, you can reach me there. Hadith al Qudsi. • Universal brotherhood • Distributive justice • Circulation of wealth • Transfer payment • Financial inclusion • Filter mechanism • Fellow feelings
Islamic Financing devices to address poverty • Benevolent loan (Qardul Hasan) • Zakah • Awqaf • Fidiyah (Compensation for non fasting) • Mohor (Dowry paid to women while married) • Micro Finance
Islamic Microfinance • A tool of satisfying the financial needs of the poor following Shariah principles • A form of socially responsible investment. • A target group approach under Islamic financing modes.
IBBL Micro Finance Model: RDS Special Features • Shariah based micro-finance • Collateral free • Farming and off-farming activities • Job Creation • Welfare and ethical services • Quard facilitates for sanitation
IBBL Micro Finance Model: RDS Target Groups of RDS • Farmers • Sharecroppers • Persons engaged in off-farm activities • Fishermen • Women and distressed people
Concluding Remarks • Introducing Integrated (microfinance, Zakah and Awqaf) model • Targeting the extreme poor • Portfolio diversification