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Pakistan has favorable environment for the growth and expansion of microfinance sector: EIU
Over 2 million beneficiaries including non muslims are taking the productive use of Islamic microfinance worldwide
Islamic banking industry has been showing a spectacular annual growth rate of over 30 percent over the past five years with sustained growth momentum despite substantial increased base. Islamic Banking has been expanded across 80 districts of the country with a network of 304 branches offering Shariah-compliant products and services. The future outlook of the industry is also very positive with bright prospects of doubling its market share by 2020. The market share of Islamic banking assets and deposits in overall banking industry increased to 11.2 percent and 12.1 percent respectively by end of December 2013.
The Consultative Group Against Poverty (CGAP), a World Bank initiative, estimates that roughly 72 percent of individuals in Muslim-majority countries are not using formal financial services. There are approximately 650 million Muslims that live on less than $2 per day. The potential for microfinance in this market segment is self-evident.
Islamic banking and finance is said to be confined mostly to the affluent class. It totally ignores the poor and downtrodden class. The 46 percent of whole world poverty exists in the Muslim world while the Muslim population in the world is 26 percent. If this alarmingly increase in poverty in the Muslim world is not controlled soon then a pathetic scene will arise throughout the universe. The various causes of rapidly increasing poverty in the Muslim world are lack of education, employment, extremism, political and economic instability and so on. On the other hand, the main problem is non availability of the proper financial products, which are in line with the Muslim’s religious values and social norms. Also, micro financing is not being utilized by Muslim population due to interest.
Poverty alleviation is not only the social responsibility in Islam but also a religious obligation. Zakat, Charity, Sadqa, Fitr, Usher and Qarz-e-Hasan etc. are amongst the key religious obligations of Muslims. The social responsibility for removing poverty has been taken by conventional banks in some countries. Limited Islamic micro financing facilities provided by Islamic Financial Institutions and the least attention and interest by International Donor Agencies (UNDP, World Bank, IFC) towards Islamic Microfinance is throwing the Muslim world into a devastating poverty.
In spite of all the odds the demand of Islamic microfinance is rapidly increasing in order to serve poverty alleviation and social development. Its active client size have exceeded to 2 million now from which more than 700,000 belong to Sudan and more than 400,000 clients of Islamic Microfinance Institutions are from Pakistan. On the other hand, Yemen, Indonesia, and Bangladesh also have a good number of clientage and Islamic Microfinance has satisfactory demand in Morocco, Senegal, Nigeria, and Tunisia. Islamic microfinance has been successfully utilized for poverty alleviation. Both Muslim and non Muslim are taking equal benefit from this role model. Microfinance is a system which can be utilized and operated by all the segment of society without any religious discrimination.
It is a wrong concept that Islamic microfinance is an intricate financial product. It can easily be introduced in any country in any type of Islamic Microfinance Institutions. All Islamic microfinance products whether that is Grameen model, Village Banking model, Credit Union model, Cooperative model or self help group etc are all in line with models of microfinance credit. The conventional microfinance banks have opened their well established branches in rural and far flung areas cater to the needs of all sorts of small and medium sized enterprises and also the agricultural sector.
According to the statistical information of multilateral development agencies, 300 million people were graduated from Micro to SME level in past year, and the countries mentioned in the list are China, India, Brazil and Chili etc. From the enlisted countries we have come to know that then countries mentioned in the list are not Muslim and by this we have come to know that the poverty is diminishing in non Muslim countries and increasing in Muslim world.
There are lots of challenges faced by Islamic microfinance such as lack of technical expertise and quality human resources, lack of standardization of the products etc but the major hitch is lack of funds for Islamic microfinance institutions, this is why the growth is not so constant of this influential system but it can be corrected with tested capital, Social Sukuk, Centralized Zakat System, revitalization of Waqf concept, Islamic banking charity to be used in Islamic microfinance.
Economic Intelligence Unit declared Pakistan among the top countries which have favorable environment for the growth and expansion of the microfinance sector. The top three microfinance banks of Pakistan have registered an average growth rate of 35 percent annually. According to another report, the microfinance sector of Pakistan has worked hard enough and brought down the number of recorded poor families. The Pakistan Poverty Alleviation Fund has contributed Rs14 billion to the microfinance sector so as to stir up the loaning facilities.
The State Bank of Pakistan has been showing a lot of involvement and it kept on issuing instructions regarding the framework, funds supply and the working of the microfinance banks from time to time. State Bank of Pakistan has emphasized upon the Islamic finance industry to make the individual as well as cooperative efforts to develop Islamic microfinance in the country. It will provide every support and make possible speed to the industry in efforts to build and expand its portfolio in these sectors. It is stressing on the research and development to develop solutions for bringing monetary and fiscal policies and practices in conformity with Shariah principles.
There are thousands of profitable and non-profitable government/semi government organizations, and NGOs providing small loans to individuals for establishing their small business entities. All of them are practicing different models of small credits. During the past years, microfinance came into a clear sight, when Dr. Younus of Bangladesh received the Nobel Peace Prize. Serious activists have now realized that lending money for no profit is doing no good; as a substantial share is spent on organizational expenditures. Therefore, such a model is not feasible without heavy donations and it does not serve the cause of development.
Islamic microfinance model of partnership has appeared as a productive and workable model for development. It does not only gain the poor enabling them to establish a small scale business, but also generates profit for the donor. Their fundamental difference between Islamic Microfinance and conventional micro credit is that Islamic Microfinance is free of usury and profit. A secured profit on lending a certain amount of money is not Shariah-compliant. Islam supports a specialized way of financing at which the lender shares the profit and loss on an equal basis. Therefore, Islamic Microfinance can be illustrated as lending for micro partnerships. There are handful successful models of Islamic Microfinance in usage around the globe.
Islamic Microfinance may be a not much an accomplished product, but it has a lot of effectiveness. This model is distinctly adopted in many countries in the world now and it is acknowledged that if this model gets some sort of government commendation; it can play a significant role in wiping out poverty. Islamic Microfinance speedily acquired consent in Muslim and non-Muslim countries due to its phenomenal performance in poverty eradication.
Currently more than Islamic Microfinance institutions are offering their services to 1.6 million clients in around 32 countries. Due to Islamic microfinance’s pivotal role in reducing poverty, international donor institutions and multilateral organizations like USAID, IDB, ADB, IFAD, UNDP, World Bank and IFC etc. have precisely explained their policies in various countries to further invigorate Islamic Microfinance, which would ensure the rapid advancement of Islamic Microfinance in the near future.
There is an extensive need for research in Islamic Microfinance industry so that new Islamic Microfinance products can be popularized. Currently only Murabaha has 80 percent share of the total Islamic Microfinance market. Currently about half of the world’s poverty that is common in Muslim countries is mostly due to the disapproval of Muslims to take interest-based loans.
More than 2 million beneficiaries including non Muslims are taking the productive use of Islamic Microfinance worldwide. Islam is the only religion that takes the responsibility of poverty alleviation as one of its main obligations. Zakat, Ushar, Waqaf, Fitrana, Qard-e-Hasna, Murabaha, Ijarah, Musharaka etc have the qualities to eliminate poverty. It is interesting to note that Islamic Microfinance Model like Akhuwat is providing interest free funding to the poor. This organization has so far provided funding in the shape of Qarz-e-Hasna worth of Rs1.1 billion to 94,000 families. The recovery percentage remained 99.9 percent.
The provincial government of Khyber Pakhtunkhwa formally launched Rs1 billion Islamic Microfinance scheme for provision of employment to skilled men and women of the province. The scheme would be implemented through the Bank of Khyber.
The Government of Pakistan has set a target of reaching 10 million microfinance customers by 2015. State Bank of Pakistan has planned to establish full-fledged Islamic microfinance banks and Islamic microfinance division in conventional microfinance bank to amplify the growth of Shariah financing throughout the country mainly in lower income group of society and agriculture sector which can generate more than $500 million in foreign exchange exports. The establishment of microfinance bank and agro-financing in accordance with Shariah compliance is the part of SBP five-year Strategic Plan (2014-18) for the Islamic banking industry in Pakistan.
Islamic Microfinance is a system which can be well utilized and operated by all the section of society without any religious inequality. There is an extra benefit for Muslims that it is in accordance with their religious belief but for non-Muslim it is an excellently financial instrument for poverty alleviation and social development.
