Over the last few old ages micro-finance has been progressively recognized as an of import constituent in poorness relief schemes. Poor households face trouble in bring forthing regular and significant income to salvage for future and are highly vulnerable to economic, political, and physical downswings. A small bead in income or increase in disbursal can hold a black consequence on their already low criterion of life. They have limited entree to wellness attention installations ; have low literacy rate and hapless life conditions. Death, illness, or accident may coerce them to dispose their belongings or some of the productive assets, which in bend farther decreases future income and current support. The frequence of losingss is besides greater for the hapless ; many are on a regular basis exposed to natural catastrophes ( like inundation ) , fire, and larceny with limited agencies of recovery ( Patel, 2004 ; Ahmad, 2007 ; Obaidullah, 2008 ) .
Basically, Microfinance refers to doing little loans available to hapless people ( particularly those traditionally excluded from fiscal services ) through programmes designed specifically to run into their peculiar demands and fortunes ( Khan, 2008 ; p.6 ) . The demands of the hapless in Islamic states are no different from the hapless in other societies except that these are conditioned and influenced by their religion and civilization in a important manner. They need fiscal services because they are frequently faced with events that call for disbursement more money than might be available around the house or in the pocket ( IRTI, 2007, p.20 )
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The Islamic universe is tremendous with over 1.2 billion people, stretching from Senegal to the Philippines – consisting six parts: North Africa, Sub-Saharan Africa, the Middle East, Central Asia, South Asia, and Southeast Asia. Except for a smattering of states in Southeast Asia and the Middle East, there are high and lifting poorness degrees in both urban and rural parts of most Moslem states. Poverty degrees have besides been associated with high inequality aboard low productiveness. In Indonesia entirely with universe ‘s largest Muslim population, over half of the population – about 129 million are hapless or vulnerable to poverty with incomes less that US $ 2 a twenty-four hours. Bangladesh and Pakistan history for 122 million each followed by India at about 100 million Muslims below poorness line ( IRTI, 2007, p.18 ) .
Some 72 per centum of people in Muslim states do non utilize formal fiscal services ; many of them cite spiritual injunctions against paying involvement. On the other manus, fiscal instruments that address that injunction while following with other rules of Islamic law-or Sharia-have become more prevailing in recent old ages with the fast development of the Islamic Finance industry. Muslim Bankss outgrow their conventional opposite numbers by about 50 per centum yearly ( Karim, Tarazi and Reille, 2008 ) .
While conventional microfinance merchandises have been successful in Muslim bulk states, these merchandises do non carry through the demands of all Muslim clients. Uniting the Islamic societal rule of caring for the less fortunate with microfinance ‘s power to supply fiscal entree to the hapless has the possible to make out to 1000000s more people, many of whom say they would prefer Islamic merchandises over conventional microfinance merchandises. From low-cost loans and insurance merchandises to safe topographic points to salvage, microfinance services have been powerful arms in the battle against poorness, particularly in Latin America and South Asia ( CGAP News, 2008 ) .
This research proposal recognizes Islamic microfinance as a power tool to elate the populating criterion of Muslim community by supplying SharA«’ah compliant fiscal services within their easy range.
Conventional micro fiscal services installations do non run into the demands of bulk of Muslim population in developing states like Pakistan, Bangladesh, Indonesia every bit good as in developed states like UK, USA and Australia. The ground is that conventional micro fiscal establishments charge involvement on their loans provided to little and average endeavors every bit good as adult females enterprisers. A huge bulk of Muslim population choruss from availing conventional micro fiscal services due to the component of involvement that is considered abhorrent to SharA«’ah. Over 470 1000000s Muslim population is populating below poorness line ( gaining less than $ 2 per twenty-four hours ) in four mostly populated Muslim states: Pakistan, Bangladesh, Indonesia and India ( IRTI, 2007 ) . In this scenario, Islamic micro finance has enormous potency in these states and could be used as a powerful arm to contend against poorness. It can develop a valuable human capital base by fulfilling the fiscal demands of Muslim community and positively contribute towards the economic growing in those states.
Table: Outreach OF ISLAMIC MICROFINANCE, BY COUNTRY
No. of Included Institutions
% Female ( Avg. )
Entire no. of Clients
Entire Outstanding Loan Portforlio ( US $ )
Avg. Loan Balance ( US $ )
Dutch east indies
West Bank and Gaza
Beginning: CGAP Survey, 2007 as referred by ( Karim et al. , 2008 )
The above tabular array shows the outreach of Islamic micro-finance CGAP planetary study in 2007 as referred by Frasca ( 2008, p. 12 ) in which information was collected from over 126 Islamic MFIs and MFI experts in 19 Moslem states. The study reveales that Islamic MFIs have a entire planetary outreach of 380,000 clients ( or an estimated one-half 1 % of entire microfinance outreach ) . 80,000 of the above clients are served through a web of Indonesian co-ops and another 100,000 of the entire clients are served by two big MFIs in Bangladesh. It must be stressed that the MENA part is peculiarly underserved as CGAP ‘s study revealed that Islamic MFIs were concentrated in three states Indonesia, Bangladesh and Afghanistan, accounting for 80 % of the planetary outreach.
Frasca ( 2008 ) undertakes two seminal instance surveies in the usage of Islamic finance instruments in MFIs: a ) the Sanduq undertaking in Jabal Al-Hoss, Syria ; and B ) the Hodeidah Microfinance Programme ( HMFP ) in Hodeidah, Yemen. He concludes that Islamic MFIs can be both competitory with conventional MFIs in the part and run into the reported demand for sacredly tailored fiscal services for lower income groups. If we are to presume that microfinance in general can better criterion of life and alleviate poorness, Islamic MFIs appear to be making every bit good as their conventional microfinance opposite numbers.
CHALLENGES TO ISLAMIC MICRO-FINANCE INDUSTRY:
Muslim micro-finance industry presently faces the undermentioned challenges that need to be encountered strategically ( Karim et al. , 2008 ; Obaidullah, 2008 ; IRTI, 2007 ) :
Development of sustainable concern theoretical accounts
Credit warrant system ( engagement of Institutions like Takaful )
OBJECTIVES OF THE STUDY
The survey aims to accomplish the undermentioned aims:
To look into the funding costs of conventional MFIs by analysing cardinal fiscal informations of MFIs and set abouting a cross-sectional comparing of their operational costs ( to happen out which cost is important to borrowers )
To acquire the systematic information for different Muslim states on the size of Islamic MF relation to overall MF industry
To analyse the public presentation of Islamic MFI in relation to conventional MFIs based on set indexs
To set about a study to judge the sentiments and demands of general public to place the factors that affect the demand side of Islamic MF and their comparative importance in heightening the fiscal inclusion of the poorest of the hapless of society.
To propose a proposed model of Islamic MF by incorporating it with NGOs, NPOs ( non-profit organisations ) , Zakah, Awqaf and with Takaful every bit good as with professional preparation and capacity edifice establishments
First of wholly, a thorough survey will be conducted to acquire relevant information related to Islamic micro-finance industry in the selected Muslim states. A comprehensive study will besides be conducted to roll up relevant information about conventional MFIs to judge their operational efficiency, to measure their schemes and to larn from their experiences. Performance of selected Islamic MFIs will be compared to conventional MFIs on the set indexs critical to the success a MFI.
An effort will be made to analyze the bing theoretical accounts adopted by conventional every bit good as Islamic MFIs and to happen out spreads that exist between the supply and demand of Islamic micro-financial services. An effort will be made to happen out what jobs Islamic MFIs are confronting while making to ‘the poorest ‘ of the hapless. Which establishments need to be integrated with Islamic MFIs and how can they make integrating to minimise their operational costs, to make synergism and to make full the spreads to make the most impoverished and vulnerable subdivision of the society?
Finally, a study will be conducted in Pakistan to judge the sentiments of rural section and to place their demands. What type of Islamic micro-financial merchandises and services do they required to help them to upgrade their life status. Whether they have appropriate entrepreneurial accomplishments to run their ain concern? What sort of preparation are they required to heighten their accomplishments and abilities. Surely, development of a valid instrument is indispensable to roll up the desired informations. To determine the dependability of the instrument, a pilot survey will be conducted from 30-40 respondents and consistence of responses will be assessed utilizing appropriate package ( e.g. SPSS, AMOS etc. ) . After that, a comprehensive study of 300-400 people will be conducted in the selected rural countries of the Punjab Province. In the analysis, effort will be made to place variables that are significantly impacting the demands of the rural hapless. Attempt will besides be made to set up association among different variables every bit good as their relationship with the demographic profile of the respondents.
Reappraisal of Literature
2 Calendar months
Secondary Data Collection and Analysis related to Conventional and Islamic MFIs in selected Islamic states.
2 Calendar months
Development of a valid instrument for Customer study
Primary Data Collection in the Punjab Province of Pakistan
2 Calendar months
Analysis, Interpretation, Discussion of Results and Main Findingss
Compilation of the first Draft
Editing, Revision and Final Submission
Entire Expected Time
10 Calendar months
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