Microfinance Hub

Press Release: AlHuda CIBE to Organize Workshop on Rural Finance

Posted by Fehmeen on November 17th, 2011 | No Comments

This press release was submitted by Zubair Mughal.

AlHuda Centre of Islamic Banking and Economics is organizing a two days specialized Research workshop on Islamic Agricultural and Rural Finance in Islamabad

(Lahore) In the wake of the current financial crisis coupled with the global food shortage, the need for improving the global village economy through enhanced output has become a challenge for planners and other stakeholders. The importance of livestock and allied sectors cannot be compromised for agricultural growth and Islamic agricultural and rural finance can bring a genuine green revolution to an economy. As Islamic finance has made a lot of progressive research in agricultural finance, bringing a number of pragmatic and useful choices which, if implemented, can bring revolutionary development to the economy.

This intention was declared by Muhammad Zubair Mughal, Chief Executive Officer, AlHuda Centre of Islamic Banking and Economics (CIBE), while explaining the objectives of a specialized training workshop on Islamic Agricultural and Rural Finance being organized by AlHuda-CIBE on 28th & 29th November 2011 in Islamabad. The workshop will be attended by officials from banks and financial institutions, agricultural research development and planning institutions with an interest in Islamic finance.

He further emphasized the role of Islamic finance in the agriculture and rural sector, saying that it brings new avenues not only for business for Islamic financial institutions by using innovative products, but also for small farmers and other agro based businesses.

Relevance of Financial Literacy

Posted by Fehmeen on November 17th, 2011 | No Comments

This is a guest post by Maliha Hasan.

Financial literacy is an active process, in which communicating information is only the beginning and empowering consumers to take action to improve their financial well-being is the ultimate goal. Financial literacy is critical for promoting access to finance by creating incentives and environments that promote desired financial behaviors such as saving, budgeting, or using credit wisely.

For the nearly 3 billion people living at the bottom of the pyramid, the ability to make good financial decisions is also important. The poor lack resources to cushion them from lost savings or investments or enable them to rebound from adversity. Having access to safe savings products or insurance can greatly affect their financial future. Fees and interest expenses related to financial products—formal or informal—are also likely to represent a higher share of income and thus have a significant impact on well-being.

Financial literacy is a popular topic in both developed and developing economies. As recent difficulties in advanced credit markets have shown, customers everywhere would benefit from having greater financial knowledge.

Financial literacy is especially important today for several reasons. The financial crisis will reduce access to credit and increase its cost in many developing-country markets, just as it already has in the United States and Europe. Financial literacy can help to prepare consumers for tough financial times, by promoting strategies that mitigate risk such as accumulating savings, diversifying assets, and purchasing insurance. Financial literacy also reinforces behaviors such as timely payment of bills and avoidance of over-indebtedness that help consumers to maintain their access to loans in tight credit markets.

The author holds a Masters degree in Finance, with over 10 years of experience with non-profit organizations in Pakistan. She has worked with women and children in the fields of primary education, literacy training, healthcare services as well as livelihood and enterprise development. Currently she is interested in how access to finance impacts development, especially in emerging markets.

Micro-financing: Helping To Develop Developing Countries

Posted by Fehmeen on October 3rd, 2011 | No Comments

Many in the developed world aren’t very familiar with micro-financing. One of the only parallels would be something like cash advances, but they work a little differently. There’s a lot of debate on whether or not micro-financing is positive or just predatory. Either way, it has shown to be a powerful tool in helping developing countries build up their private sector and finally get out of poverty.

You don’t really need to be an expert economist in order to understand the concept behind micro-financing. It’s a basic premise that’s all based around helping poor people get out of oppressive poverty. These individuals are able to apply for small, low-interest loans so they can either improve their current situation and look for a better job, get an education, or start and operate their own business. In the end, the people borrowing this money are able to pay it back over a long period of time. These programs have become very popular in the developing world and have shown to empower poor people to get out of their current economic situation and improve their status.
Some have argued that these types of practices equate only to predatory lending, but as many other countries have shown, it’s more effective than other types of aid that are given to developing countries by non-profit organizations. As is often the case, when large organizations like the International Monetary Fund or the United Nations give large amounts of money to the government, the money rarely makes any real impact to the average citizen. This is because much of the money given to governments is largely spent on developing infrastructure, education, and other aid programs. It really doesn’t help people improve their status and acts much more like a trickle-down-effect.
Many have argued that these lending organizations are making money off of these lending programs but that’s only because so many people view them as a viable way to make the most impact in their life. Through these programs people are able to pull themselves out of debt and finally pay off their bills through access to larger lines of credit, or larger disposable incomes, and even prepaid cards (including perhaps, prepaid phone cards) and start their own business. Either way, it’s changing lives and even though some minor changes could be made to these lending programs, it’s much better than letting someone remain in poverty.

Youth Savings – Benefits and Challenges

Posted by Fehmeen on March 24th, 2011 | No Comments

Youth savings accounts, also known as child savings accounts have been gaining popularity as industry professionals begin to realize the benefits of offering financial services to youngsters. Youngsters across the world regularly save money, which encourages financial discipline; however, there is a safety risk associated with storing money at home.

Benefits of Youth Savings

When microfinance and commercial banks offer youth saving accounts, these youngsters:

Enter the formal financial economy,
Are eligible to earn interest on their savings,
Enjoy the safety of bank accounts, and,
Build certain capabilities associated with using financial services.

It goes without saying that once these youngsters are old enough to access microloans and other forms of credit, the screening and approval processes used by microfinance institutions will be less bureaucratic.

Challenges in Youth Savings

Despite the importance of such schemes, youth savings face two major hurdles as of today:

High costs: the low transaction size of microsavings pushes up the administration cost of offering youth savings accounts. Development aid can help deal with the low margins, but reliance on external funding is detrimental for the sustainability of this service. One possible solution is to use an alternative medium of service delivery, such as mobile banking, to reduce administration costs.
Legal barriers: most countries require bank account holders to present a legal identification card (available around the age of 18), as well as other supporting documents, in order to prevent fraudulent activities. As a result, adult supervision is mandatory in all countries, except in the Philippines where children can open their bank accounts at the age of 7. A recent blog post at the CGAP Blog discusses this issue.

Importance of Mobile Banking Interoperability – CGAP

Posted by Fehmeen on March 17th, 2011 | No Comments

Mobile banking interoperability is a far-reaching vision that promises to improve financial inclusion by leaps and bounds. Clients cannot transfer funds between money wallets associated with different telecom companies, which reduces liquidity in the financial system. Despite this, mobile banking providers are reluctant to collaborate with competitors fearing a decline in market share.

A recent article by Ignacio Mas at the CGAP Blog discusses the importance of interoperability in this context and suggests a few suggestions for mobile phone operators who are currently unwilling to let other carriers tap into their mobile banking solutions.

Mas highlight two types of players in the mobile banking ecosystem who stand to benefit from such a shift in industry dynamics:

Mobile banking customers, both individuals and corporations, who may currently deal with the lack of mobile banking interoperability by signing up for different service providers themselves. Inconvenience and high costs are two hurdles in this regard, and
Merchants who play the role of mobile banking agents, often servicing subscribers of different telecom companies under one roof.

Apart from these, the mobile money carriers can leverage such a partnership strategically by viewing it as an investment in their distribution channel, which will ultimately ‘maximize the total size of the pie’.

Click here to read the article.

Making Mobile Financial Services Available to Everyone

Posted by Fehmeen on March 10th, 2011 | No Comments

The following video is a beautiful depiction of the need for maximizing the use of mobile financial services. The video takes a look at people individuals from across the world and shares their journey with mobile banking services – the challenges they faced, the benefits they enjoyed when using ATM SIMs (i.e. financial services through mobile SIM cards). Some benefits mentioned are as follows:

24/7 availability of mobile banking services as opposed to strict bank timings in the case of conventional finance
Time efficiency of mobile banking services (no need to stand in queue or visit the nearest bank branch)
Better financial discipline in terms of saving money
Improved security of funds as money is stored in electronic form, and lastly,
The ability to perform all basic financial services (mobile money transfer, mobile banking and mobile payments) through the mobile phone’s SIM card (no need for additional magnetic cards).

Source: Gemalto

Farz Foundation and Poverty in Pakistan – Speech 2

Posted by Fehmeen on March 3rd, 2011 | No Comments

Address by Iftikhar Malik, chief guest at First Islamic Microfinance Conference in Pakistan, 2011

I have known Mr. Farhat Abbas Shah for his poetry and anchor ship, but quite recently, another aspect of his personality has surprised me. He has come up with a novel idea for an economic rehabilitation of the ultra poor through an asset-based financing model along with business training, health care and awareness. And, above all, the timing of his idea coincides with the most difficult times owing to world wide recession and the worst flooding in our history. I also believe that there could be sweeter uses of adversity if one has a thinking mind.

We all know the recent setbacks in the world economy, which is going through its worst crisis (since the Great Depression). He demonstrated the courage to take on the curse of poverty in these difficult times. As a matter of fact, believing in this idea in the beginning was not that easy when the most potent economic structures world wide were crumbling.

He chose Islamic microfinance as an answer to the most pressing questions of our time. But what convinced us all was the success of the first Farz pilot project that was completed with 100 percent results. I believe there always is a room for change and improvement as we have seen that this world has undergone a sea of change during the last many decades. Only those communities and nations survive who keep their doors open to change.

What Farz methodology ensures is a gradual change on solid footings. It aims to choose willing workers, training them and providing them with productive tools. I do agree that as an aftermath of unprecedented floods, scores await this help and we can initiate a self-sustaining economic activity in many parts of this country.

Despite difficult times, India, our next door neighbor is posting a healthy growth rate of above 9 percent. Strangely enough, even Bangladesh has shown a far better economic performance than us. Another alarming fact is that our economy is constantly going downhill. It is our foremost duty to do our bit to the national cause, which ultimately would help us all no matter which sector we work in.

Another fact that makes this task imperative is that modern state structures alone cannot help uproot poverty. The private sector has to play its role. A shared prosperity is the only key to boosting industry and finance. We must help each effort aimed in this direction.

I want to assure the Farz Foundation of all out help for this noble cause. We do need to help ourselves to stand up with grace in the community of nations. And I also believe that another world is possible only if we all realize our joint responsibility.

An incorrigible optimist that I am, I also believe, like Farhat Abbas Shah, that another world is possible. Lets join our hands to assume our responsibility at the most critical juncture of our history. I believe through a collective effort we can make a considerable difference.

Three Secrets of Safe Microfinance

Posted by Fehmeen on February 24th, 2011 | No Comments

Microfinance may not be a panacea for poverty, but there is definitely a panacea for microfinance. Elizabeth Rhyne, Managing Director of the Center for Financial Inclusion, recently disclosed three secrets for the success of microfinance institutions, through a blog post that appeared on the Huffington Post.

These ‘secrets’ were adopted as best practices back in the 1980s but somewhere down the line, microfinance providers began to falter as competition increased and thirst for growth and profits grew. The three secrets are as follows:

Sound underwriting techniques to determine repayment capacity

Loan officers need to spend time with potential clients and gather information from various sources about the ability and willingness of clients to repay their loans. This includes research about current debt obligations to other microfinance institutions (MFIs), possibly through clients themselves or microfinance credit bureaus.

Offering micro-savings to retain clients

‘Asset accumulation’ through savings is beneficial for microfinance clients as well as microfinance institutions, as they can leverage these funds to grow profitably without relying on capital markets or development aid. Two successful examples cited in the article are, Bank Rakyat Indonesia and Equity Bank in Kenya.

Skilled human resources to build strong loan portfolios

Microfinance is a high-touch model in which loan officers have to deal with numerous cases each day, while overcoming any cultural barriers. This requires skills (credit analysis, people skills, etc.) and motivation (through personal-goal alignment or monetary compensation to reward safe growth of loan portfolio).

Elizabeth Rhyne goes on to say these principles may be tested under pressure from rapid growth and competition, and one of the best ways to ensure permanent applicability is to adopt client protection principles.

Be sure to read the original Huffington Post article.

Looking at Microfinance in India – Humor

Posted by Fehmeen on February 18th, 2011 | No Comments

Source: 'The Hindu' 5th Dec 2010

This cartoon was graciously submitted by Dr S Santhanam, a Development Finance Consultant from India.

The image aptly depicts the real beneficiaries of certain microfinance institutions who fail to give equeal importance to their social and financial objectives. As per Dr. Santhanam , “microfinance users grow at a rate of 8% while the promoters grow at 8000%”.

The Need for Islamic Microfinance – Speech 1

Posted by Fehmeen on February 12th, 2011 | No Comments

Opening remarks by Farz Foundation CEO at the First Islamic Microfinance Conference in Pakistan, 2011.

Ladies and gentlemen,

This is the humble saga of the Farz Foundation until now and here I stand before you along with my wonderful team without which I could not have achieved whatever I have achieved so far. During the last two decades, the world has seen the biggest events of human history – which was the worst ever recession (since the Great Depression) of the west, which now seems poised to hit the poor world. The experience of the west gives us food for thought, while embracing all that was good in western economic structures, we should not shut the door on innovation. We usually feel comfortable about walking on a beaten path, but the world has always progressed with innovations. We do not intend to take a leap in the dark.

There is a striking similarity between the post-second world war Europe and Pakistan. After the floods, 20 million people have been affected. Their tools and lands need repair. They need funds to kick start productive work. They are a challenge as well as an opportunity for us. It’s a huge untapped market awaiting intelligent investors. Our one year pilot project opens a window to this new economic opening. Quite surprisingly Islamic banking and finance has witnessed about 15% growth at a time when conventional banking was hit the hardest and is being bailed out with huge sums, rendering the state bankrupt. Islamic Microfinance sector is also intended to play an important role in a not very distant future. By combining Islamic microfinance and rehabilitation work, we can work miracles.

We all agree that investment in human capital is always of a paramount importance for any society’s development. A poverty-ridden society is always a hub of growing militancy and crime. It can effectively be countered through creating a partnership with the poor along with creating awareness among them.
We also believe that the Islamic Microfinance Sector can bridge local investor with international financial institutions for curing our ailing economy and to have a healthy but illusive growth rate. The Farz SME and Entrepreneurial village can pave our way to that desirable goal.

There is no denying the fact that industrial peace is a key to the smooth running of any unit as well as the overall economy.

We extend our hands to you to exploit this opportunity at the most opportune moment when millions of skilled people await our help to be re-engaged in a productive process. Our country at least deserves that much from us. This is not a mere dream. We have many precedents in the past when countries like Malaysia have prominently emerged on the economic map of the world.

In the end I would like to pay my gratitude to all those, who supported us in making this event a milestone in the arena of Islamic Microfinance.

I believe, State Bank of Pakistan, Akhuwat, Naymet, Alhuda, Pak Qatar, Islamic Relief, Akhuwand Khor, Muslim Aid, Farz Foundation, Islamic Microfinance Network and many other Islamic Microfinance Organizations can change the fate of the poor economy of Pakistan.

Believe me, another world is possible.