RELIGIOSITY AND THRESHOLD EFFECT IN

SOCIAL AND FINANCIAL PERFORMANCE OF

MICROFINANCE INSTITUTIONS

MOHAMMAD ASHRAFUL MOBIN

HOW ISLAMIC MICROFINANCE

CAN FACILITATE RURAL FINANCE
AT
6TH GLOBAL ISLAMIC MICROFINANCE FORUM IN
NAIROBI, KENYA NOVEMBER 8TH 2016

PRESENTED BY
FARIDA TAHIR
MANAGING DIRECTOR/CEO
GRASSROOT MICROFINANCE BANK, NIGERIA
WWW.GRASSROOTMFB.ORG

CONTENT

NTEN

Definition Microfinance and Islamic microfinance

Sources of Islamic microfinance
Islamic Microfinance Contracts
Global overview of Islamic microfinance
The need for Islamic microfinance in rural areas
Opportunities
microfinance

and

challenges

of

Islamic

Current position of rural finance in Nigeria

How Islamic microfinance can facilitate rural
finance

DEFINITION OF MICROFINANCE
Microcredit, or microfinance, is banking the un-bankable,
bringing credit, savings and other essential financial services
within the reach of millions of people who are too poor to be
served by regular banks, in most cases because they are
unable to offer sufficient collateral. In general, banks are for
people with money, not for people without. (Gert van Maanen),
Microcredit: Sound Business or Development Instrument,
Oikocredit , 2004)
Microfinance refers to an array of financial services, including
loans, savings and insurance, available to poor entrepreneurs
and small business owners who have no collateral and
wouldn't otherwise qualify for a standard bank loan. Most often,
microloans are given to those living in still-developing countries
who are working in a variety of different trades, including
carpentry, fishing and transportation

DEFINITION ISLAMIC MICROFINANCE

Islamic microfinance differs from conventional microfinance in
that it must adhere to the same principles as Islamic finance,
which is structured to provide products for Muslim customers that
are in compliance with the code of ethics and conducts laid out
under sharia law.
It utilizes a range of models to avoid elements forbidden under
sharia, namely interest (riba) and uncertainty and deceit (gharar).
Financial instruments are therefore designed to provide funds in a
manner that avoids both interest payments while still taking into
consideration the need to cover overhead and the cost of
financing if the MFI is to be sustainable, and shares the risk of the
investment between the financier and recipient or places it on the
MFI alone..
IMF is also defined as the provision of financial services to
the poor subject to certain conditions laid down by
Islamic Jurisprudence.

OBJECTIVES OF ISLAMIC MICROFINANCE

The fundamental objectives of Shariah (Maqasid Sh ariah)
aims to achieve the following:

Protection of Religion (Al-Din)

Protection of Life (Al-Nafs)

Protection of Family (Al Nasl)

Protection of Intellect or Mind (Al Aql) principles

Protection of Property (Al-Mal)

Thus, these are the principles upon which IMF was derived. It
is to ensures wealth creation, distribution and redistribution of
resource employment generation, financial inclusion and
poverty alleviation.

SOURCES OF ISLAMIC MICROFINANCE

Primary Sources
- Quran
- Sunnah
Secondary Sources
- Ijmaa (jurist consensus)
- Ijtihad & Qiyas (analogy)
- Others

ISLAMIC MICRO FINANCE CONTRACTS

GLOBAL OVERVIEW OF ISLAMIC

MICROFINANCE

Over 300 Islamic microfinance Institutions operate

in 32 countries

USD 1 billion market size.

Indonesia, Bangladesh, Pakistan and Afghanistan

have 80% share of Global Islamic microfinance
industry (CGAP)

Over 2 million active financing clients.

Murabahah & Qarz-e-Hasan are the major

Products.

Share of Islamic microfinance in Global Islamic

finance industry & Microfinance Industry is less
than 1%

THE NEED FOR ISLAMIC MICROFINANCE IN

RURAL AREAS

Islamic asset-based financing can prevent diversion of funds for

consumption
Almost one-half of the 56 IDB member countries in Asia and Africa
are classed as United Nations Least Developed Countries (LDCs),
with poverty rate on the increase
Approximately 46% conventional microfinance clients worldwide
reside in Muslim countries
Financial inclusion, rising poverty in rural areas, high unemployment
in rural areas , religious obligation
Large target segment is averse to the interest based microfinance
products.
Islamic Microfinance have proven track record that it deals with long
lasting & complete solutions for sustainability.
Offer effective alternative to informal lenders as shail system
Will provide opportunity for poor or small farmers to produce, be self
employed given the required capital and inputs.

OPPORTUNITIES AND CHALLENGES OF

ISLAMIC MICROFINANCE
Islamic microfinances exclusion of interest could alleviate
a major criticism of conventional microfinance which has to
do with high interest rates charged on loans
Population of 1.2b, female 50%, unbanked/excluded 80%
(Gautam Vir), poverty rate about 44% (world bank 2012)
Market opportunities
Unemployment rate (SA 26%, NGR 24%, Kenya &
averaging 35% in north Africa)
Limited number of Islamic microfinance institutions
Regulatory challenges
Lack of knowledge and awareness of IMF systems

CURRENT POSITION OF RURAL FINANCE IN

Few
NIGERIA
AND OTHER
AFRICAN
COUNTRIES
no of financial
institutions
are located
in rural areas
Adoption of technology to provide services to farmers
e.g solar system, mobile banking, agent
Rural urban migration
Non availability of products to support IMF in rural areas
Decaying Infrastructural development
Bias to conventional finance due to riba as contained in
the holy Qur'an 2:276 (And Allah has permitted trade
and prohibits interest)

HOW ISLAMIC MICROFINANCE CAN

FACILITATE
RURAL
FINANCE
Taking
banking closer
to the poor
(rural banks)

Providing Shariah compliant products and services

Investment in rural urban transportation
Provide warehousing facilities
Create market linkages
Provision of entrepreneurship trainings and skills acquisition,
sensitization/awareness creation, facilitate group formation,
Provide added services under wakala contract e.g marketing and
sales representatives, electronic banking, other payment services etc
Address gender disparity to enable considerable financial inclusion and
sustainability.

CONCLUSION
It is very important for (stakeholders) to note that
given the huge task ahead of us, solutions to financial
needs in rural Africa must be curved around specific
and general demands of individuals and the market
environments. The religious beliefs, customs and
values of the people we serve are a MUST to consider
when reaching out to them. The poor and other
marginalized groups are complex being to deal with,
yet their needs are very important to address in order
to facilitate growth and development of our societies.

Wallahu `Aalam
Thank you
f.tahir@grassrootmfb.com
+2348038361330, +2348175443912

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