Focus on the Field A Day of Workshops to Advance Practice through Collaboration presents Islamic Microfinance: Recent Experience and Future Challenges Facilitator: Sasha Muench, Mercy Corps - Monterey Institute of International Studies Presenters: Aamir Rehman, Harvard University Paul Robinson, FINCA Robert Wieland, WOCCU October 23, 2007 Washington, DC
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Focus on the FieldA Day of Workshops to Advance Practice through Collaboration
presents
Islamic Microfinance: Recent Experience and Future Challenges
Facilitator: Sasha Muench, Mercy Corps - Monterey Institute of International Studies
1. Increase participant understanding of Islamic financial tenets and variations
2. Identify areas of interest in this topic among participants
3. Illustrate lessons learned in providing Islamic microfinance effectively
4. Discuss key questions regarding expansion of Islamic microfinance
5. Summarize what we know and what we need to learn
Possible Breakout Groups
1. Products What elements of traditional MF products are impacted
by Sharia? How might they be addressed? What are the implications for profitability?
What are the implications for savings products? Who are key actors to involve in the product design
process? What questions must be asked of potential clients?
2. Back-office What are the implications of compliant (i.e. non-interest
bearing and/or profit sharing) products on MIS? What are the implications of sharia lending on financial
forecasting, risk calculations, loan-loss assessment? Accounting / auditing - how do you account for profit? What additional staff training is required?
Possible Breakout Groups
3. Governance & Management What questions are raised by Sharia regarding traditional
MF institutional governance and ownership structures? What are the implications on an MFI obtaining financing
from non-sharia lenders?
4. Risk Management What are the implications of compliant products on an
institution's risk profile? (i.e. Mudarabah, long-term murabaha (fixed rates)) How might these be managed?
5. Legal & Regulatory Environments What do we need to know about the legal framework for
Islamic microfinance? Do national microfinance laws need to be changed to
accomodate Sharia lending and how?
Some Terms
Murabaha: Mark-up sale
Istisna: Purchase for future delivery (can include labor)
Musharaka: Equity sharing agreement (both have equity stake)
Ijarah: Leasing
Takaful: Insurance equivalent (mutual insurance)
Tawarruk: Reverse murabaha (cash financing)
Salam: Future purchase (opposite of Istisna) – ex: crops
WOCCU & Islamic Microfinance in Afghanistan
Experiences from ARIES & MISFA
Robert Wieland, for Curtis Slover, World Council of Credit Unions.
October 23, 2007 Washington, DC
WOCCU’s Credit Union Development Projects in Afghanistan
• 2004 – 2005 WOCCU helped to establish two area-based open bond credit unions in the north of Afghanistan: Balkh and Jawzjan. Those two credit unions have grown and become institutionally self-sufficient over the intervening period to the present.
• More recently, WOCCU has established another five Investment Finance Cooperatives (IFCs) in the East and South of the Country. All of these institutions are being re-jigged to accommodate Islamic injunctions against “Riba”, offering “murabaha” loans and share returns on deposits.
Indicators Members of Investment and Finance Cooperatives
Unit of Measure Number
Data D
isaggregation
Regions North EastGrandTotalProvinces Balkh Jawzjan Aqcha Samangan Baghlan Nangarhar
Total by Province 2,634 2,612 313 1,027 830 814 8,230
Gender
Male 2,267 2,070 305 961 756 737 7,096
Female 367 542 8 66 74 77
1,134
Indicators Cumulative Value of Loans Disbursed
Unit of Measure Loan Principal (USD)
Data D
isaggregation
Regions North EastGrand Total
Provinces Balkh Jawzjan Aqcha Samangan Baghlan Nangarhar
Total by Province 1,652,420 1,782,100 57,630 317,080 235,060 297,930 4,342,220
Gender
Male 1,452,040 1,466,435 57,430 305,980 223,100 287,830 3,792,815