Communitycurrency has yet to make its mark in Malaysia. However, in many other countries, they are emerging attempts of building new social and economic infrastructure established to coordinate systems of provision. The emergence of communitycurrency gives rise for new incentives, structures and institutions to be embedded within a society in hopes that the society would re-align to move towards new sustainability goals. In achieving this dream, communitycurrency puts forwards an alternative medium of exchange, not to replace the current national currency, but to provide other options for economic and social interaction. Not only do they serve as a currency for trade activities, communitycurrency also enhance community sharing as they are place-specific, assimilating one specific society’s local culture and only circulates within that specific area without any chances to be drained elsewhere. The emergence of communitycurrency will also give a new perspective towards the misleading market signals being conveyed by the conventional economy, hence giving chance for the internalization of social and environmental costs and benefits. Communitycurrency also values and rewards the unpaid work of social reproduction and inhibits the development of social capital, cohesive communities and active interaction between members of a society. Most importantly, communitycurrency proves that money is not everything in life. As shown through the findings of this study, members of communitycurrency enjoys what they do, regardless of the monetary value that they were going to acquire through the trade.
Inspired by Islamic values and teachings; Helping Hand for Relief and Development (HHRD) built up its Islamicmicrofinance program in 2010 based on Shariah principles. HHRD’s Esaar Microfinance Program was started at large scale with the objective to contribute to increasing economic opportunities in the underprivileged areas of Pakistan. Following an integrated approach, the program is providing opportunities to increase the income of beneficiaries to earn a livelihood for their families by undertaking productive income-generating activities. The Islamic approach emphasizes microenterprise development through financial and non- financial assistance adhering to principles of transparency, brotherhood, and cooperation. Its mission statement follows: “To facilitate and support livelihood opportunities and microenterprise development for poverty alleviation through the provision of IslamicMicrofinance as a Flagship Program of HHRD.”
This study shows that Islamicmicrofinance has a significance role in poverty alleviation strategies. On the other hand, the product of conventional microfinance has been a fruitful impact in Muslim countries, but those products do not fulfill the requirement of all the Muslim clients. Integration of Islamic social values of caring for the less privileged with microfinance power to deliver financial services to the poor has the potential to cover the millions more needy people, many of them prefer Islamic products over conventional microfinance due to Interest (Riba). This research paper undertakes a case study of Esaar Microfinance Program of Helping Hand for Relief and Development, an Islamicmicrofinance program operating in Pakistan. After the critical financial examination of Esaar Microfinance shows that it is providing services for all living below the poverty line including the “extremely poor” and Interest free loans can be used as a powerful tool against poverty. Yet Loan portfolio growth of Esaar Microfinance declines with the sharp decline of equity growth over the last six years that might pose some constraints on its financial stability in future. This challenge could be overcome by combining Islamicmicrofinance with NGOs (Non Government Organization), NPOs (Non Profit Organization) and RSPs (Rural Support Programs) with the specialized resource mobilization institutions and capacity building centers will enhance the financial stability of organizations and will be supportive of achieving the targets of providing Islamic microfinancial services to the poorest of the poor under the umbrella. It will also help to uplift the living standard of people and ultimately contribute towards the economic development and enriched prosperity of the country. References
INKOPSYAH: Induk Koperasi Syariah is a parallel institution registered as a secondary-level cooperative since 1997, with a national office of 9 staff members in Jakarta. It functions as a wholesaler of funds from PNM and the Small Enterprise Development Fund PUKK (which receives contributions from the 5% profit share state enterprises have to devote to poverty alleviation and small enterprise development) and monitors the loans, but leaves TA in the hands of PINBUK. INKOPSYAH has some 500 primary level BMT-members registered with the MoC as cooperatives. To qualify as a member, total assets have to exceed Rp 500m. At the regional level, INKOPSYAH works through regional secondary cooperatives, Pusat Koperasi Kredit Syariah BMT (PUSKOP), which cooperate with PINBUK. The main function of the PUSKOP is to facilitate access of BMT to credit. They are also responsible for monitoring members and BMT that are non-members. As an example, the PUSKOP of Central Java employs 7 staff and funds its operations from fees from BMT for training and the sale of software; it also retains some margin on long-term loans (from the apex through PUSKOP to BMT), and from its ownership of five retail shops. At the end of September 2002 INKOPSYAH had total assets of Rp 2.6bn, with the major funding coming from PNM in the form of a 5 year subordinated loan of Rp 2bn at 19% interest p.a. In 2003 INKOPSYAH was instrumental in channeling Rp 15bn from PNM to BMT. It reports a good repayment performance and a profit of Rp 300m in 2003.
The purpose of this paper is to discuss the potential role of the institution of Waqf in poverty alleviation. Poverty is a complex, multi-dimensional phenomenon that has captured the attention of numerous scholars and agencies globally. The social role of the Islamic financial sector can be best exemplified by providing finance to the poor to increase their income and wealth. This paper will explore on how microfinance can be provided on Shariah compliant basis through Waqf model. This research also reviewing the development of the integrated Waqf based Islamicmicrofinance which aimed to provide solutions to reduce poverty. An integration of Waqf-based Islamicmicrofinance (IWIM) model is proposed to address all the practical challenges of microfinance faced in Muslim communities. In this model, microfinance is practised in compliance with Shari’ah to address the multi-dimensional aspects of poverty and empowering the poor in order to enhance the socio-economic development and hence the well- being of the Ummah. With this aspiration, the IWIM model aims to tackle the challenges related to the scarcity of capital, inadequate human resources, absence of proper Takaful programs and project financing in an integrated approach. However, Waqf based microfinance still may be facing some problems should be addressed which related to credit risk, moral hazard, and economic viability.
In this study, as advocated by Saunders and et al. (2009), triangulation which is the use of different data collection technique within one study in order to achieve a more accurate research has been used. In order to vitiate the impact of perception bias, the use survey questionnaires have been coupled with semi structured interviews. This research employs a descriptive research method by collecting data from urban and rural areas with a view to ascertaining their perception about Islamicmicrofinance on how it can help alleviate poverty and achieve national development. For this study, a deductive approach is employed because the literature review has identified theories and ideas and what is left is to test data collected. The choice of multiple methods as advocated in business and management research by Saunders et al. (2009) has been adopted.
enhance it. These effects are: the high rate of return (compared to a fixed interest rate), the holistic approach in supporting businesses and productive activities, a more effective mobilization of excess resources, a fairer society. Montgomery, H. and Weiss, J. (2005) surveys the evidence from Asia by carrying out a rigorous study and states that microfinance may have had positive impacts on poverty but its reach to the core poor is very limited. Swope, T. (2005) shows that microfinance can lead to an increase in income, better nutrition for families, greater high school attendance, empowerment of women and alleviation of poverty. Moreover, there is abundant support to demonstrate that micro- finance can lift families out of poverty and is also able to expedite the completion of sex of the seven millennium development goals. Segrado, C. (2005) expresses that Islamic banks have grown recently in the Muslim world but still constitute a very small share of the global economy compared to the Western debt banking paradigm. Misra, A. (2006) brings out the missing link impact assessment in the Indian context, which is a precondition for poverty reduction on account of the influence of new paradigm of institutional viability under commercial microfinance.
As part of the initiatives of addressing the poverty problem, many international and national institutions have undertaken programs to help countries provide better job opportunities to the unemployed, and to promote microenterprises. The latter, which normally turned away by conventional profit-orientated financial institutions due to lack of collaterals, high transaction costs, and fragile legal enforcement mechanisms, have been served by microcredit and microfinance institutions (MFIs) since their inception in the 1970s with phenomenal success. However, there is an increasing trend for the Muslim microentrepreneurs turning to Islamicmicrofinance Institutions (IMFIs) for Shari`ah complaint financing taking into consideration of faithful Muslims’ adherence to their religious practice. According to IDB, the number of customers of IMFIs though quadrupled in recent years has reached to only 10, 00000 Muslims compared to the 650 million Muslims who are below the average poverty line. There is an urgency for the IMFIs to build capacity and capability in order to provide Shari`ah compliant products to adherent Muslims who are in dire need of Islamic microfinancing.
An interest in the microfinance sector in Africa has been growing since the 1990s (Buckley, 1997). Buckley (1997) studied the microfinance sector in Kenya, Malawi and Ghana; the author concluded there is little evidence to suggest that microfinance brings significant positive impacts on the growth and development of entrepreneurship in these African countries. Years later, Basu et al. (2004) found that the number of entrepreneurs seeking microfinance assistance is relatively small compared to those seeking deposit services. Consistent with the findings of Buckley (1997), Van Rooyen et al. (2012) reported that microfinance in sub-Saharan Africa does not have uniform positive impacts on entrepreneurship development or poverty alleviation; in some countries, microfinance brings more harm than benefits. Van Rooyen et al. (2012) found that microfinance also brings negative impacts such as the exploitation of women or causing the borrowers’ children to drop out of school.
Modern microfinance in contrast was driven by a social goal and these usurious moneylending practices from the Delhi sultanate (13 th to 16 th century) allegedly disappeared. The industry was seeking to achieve the double bottom line, combining financial performance with positive social impact. This belief hold true until the microfinance crisis occurred, revealing irresponsible lending practices putting borrowers at risk. According to the Consultative Group to Assist the Poor (CGAP) “in a financial world characterized by responsible finance, clients’ benefits would be balanced carefully with providers’ long-term viability, and client protection is built into the design and business at every level”. This definition of responsible finance resonates deeply with the goals of Islamic finance: “economic well-being with full employment and a high rate of economic growth, socioeconomic justice and an equitable distribution of income and wealth, stability in the value of money, and the mobilization and investment of savings for economic development in such a way that a just (profit-sharing) return is ensured to all parties involved” 3 . Islamicmicrofinance is at the confluence of responsible finance and Islamic finance and therefore could have the potential to shift out of poverty religious Muslims and at the same time ensuring that there is no mission drift. According to CGAP however, “despite a four-fold increase in recent years in the number of poor clients using Sharia-compliant products (estimated at 1.28 million) and a doubling in the number of providers, the nascent sector continues to struggle to find sustainable business models with a broad array of products that can meet the diverse financial needs of religiously observant poor Muslims”. Needless to say, not all Muslims have the same degree of religiosity and not all Muslims are willing to go for Sharia-compliant products solely on the basis of their religious beliefs. Rather they would like to compare the pricing offered before choosing one product over another.
By some accounts, if borrowers of Islamicmicrofinance programs in Malaysia can increase their income level and move out of poverty, they would soon become active contributors of zakat (Hamdan et. al., 2012). To be sure, there is evidence that AIM microcredit program, relative to other microfinance programs in Malaysia, has notably increased employment rates and income level along with improving human development and quality of life even for hardcore poor households (Mamun et. al, 2010 &2011; Saad 2010 & 2011; Hamdan et. al., 2012). However, while AIM does not charge interest on loans due to restrictions of Shari'ah Law, it essentially replaced interest with management fees (Mokhtar 2012). Here, the proposed research suggests the utilization of zakat/sadaqah system to replace the use of management fees. Zakat is considered a temporary measure to allow the poor to graduate from the level of recipient to a level of donors. According to Mustafa (2011), al-Shaybani puts zakat at the third hierachy of infaq (spending), which implies that it is compulsory for a Muslim to earn and spend for basic needs to the level that he is in a position to pay zakat. Therefore, it is just important for the needy as it is for the endowed to aspire and engage in zakat because zakat brings one closer to God, prevents miserliness, acts as a compensation for sins and a means to security (Senturk 2007).
Making poor bankable is the shortest definition of microfinance. Microfinance (MF) is a powerful poverty alleviation tool. It implies provision of financial services to poor and low-income people whose low economic standing excludes them from formal financial systems. Access to services such as, credit, venture capital, savings, insurance, remittance is provided on a micro-scale enabling participation of those with severely limited financial means. The provision of financial services to the poor helps to increase household income and economic security, build assets and reduce vulnerability; creates demand for other goods and services (especially nutrition, education, and health care); and stimulates local economies..The main aim of the paper is to assess the potentials of Islamic financing schemes for micro financing purposes. The paper argues that Islamic finance has an important role for furthering socio-economic development of the poor and small (micro) entrepreneurs without charging interest (read: riba’). Furthermore, Islamic financing schemes have moral and ethical attributes that can effectively motivate micro entrepreneurs to thrive. The paper also argues that there is a nexus between Islamic banking and microfinance as many elements of microfinance could be considered consistent with the broader goals of Islamic banking. The paper, first, introduces the concepts of microfinance, and presents a case for Islamicmicrofinance to become one of the components of Islamic banking. The paper then discusses, the potentials of various Islamic financing schemes that can be advanced and adapted for microfinance purposes including techniques to mitigate the inherent risks.
As part of the initiatives of addressing the poverty problem, many international and national institutions have undertaken programs to help countries provide better job opportunities to the unemployed, and to promote microenterprises. The latter, which normally turned away by conventional profit-orientated financial institutions due to lack of collaterals, high transaction costs, and fragile legal enforcement mechanisms, have been served by microcredit and microfinance institutions (MFIs) since their inception in the 1970s with phenomenal success. However, there is an increasing trend for the Muslim microentrepreneurs turning to Islamicmicrofinance Institutions (IMFIs) for Shari`ah complaint financing taking into consideration of faithful Muslims‟ adherence to their religious practice. According to IDB, the number of customers of IMFIs though quadrupled in recent years has reached to only 10, 00000 Muslims compared to the 650 million Muslims who are below the average poverty line. There is an urgency for the IMFIs to build capacity and capability in order to provide Shari`ah compliant products to adherent Muslims who are in dire need of Islamic microfinancing.
However, eventhough BMTs concept and role are well accepted by society and the growth of its number increased significantly, most BMTs faced common problems that need to be solved. A study by Rodoni (2008) found that most BMTs were lacking in human resources and had limited link to develop the business. Widiyanto and Ismail (2010) also indicated that the effectiveness of BMTs in financing was relatively low and it might be caused of poor management. Meanwhile, Kholis (2009) and Amalia (2009) analyzed that most of BMTs lack supervision and development assistance. Based on the previous studies, it can be summarized that BMTs need assistance to develop its role, solve human resource problems, and increase its performance to achieve its objective in alleviating poverty and maintaining financial sustainability.
Today widespread poverty is one of the major problems of mankind and its alleviation one of her major agendas. In recent years microfinance has emerged as an important instrument to relieve poverty in the developing countries. Today there are more than 7000 micro lending institutions providing loans to more than 25 million poor individuals across the world, their vast majority being the women. However these institutions face some serious challenges, especially in less developed countries where the proportion of people in poverty is high. The existing microfinance in Nigeria serves less than 1 million people out of 40 million being the potential number that need the service. Also, the aggregate micro credit facilities in Nigeria, account for about 0.2 percent of the GDP and is less than one percent of total credit in the economy. Addressing this situation inadequately would further accentuate the problem and slow down growth and development of the country. We find that the microfinance institutions charge interest rate as high as up to 100% for lending and pay as low as 5% on savings. This aggravates the existing inequalities in the distribution of wealth and income in Nigeria. Finally, Nigeria being a country with a Muslims majority, represents a potential for Islamicmicrofinance especially that most Muslims reject the conventional interest based micro financing, which is not tailored in line with their faith. This might cause failure of government project to combat poverty in the country through micro financing. Under the circumstance Islamic micro financing has potential to serve the country better. The paper has relied on the sources of Shari`ah law, secondary data from journals, periodicals, conference proceedings, text book , internet search and other sources of published data to support the argument.
The findings show that in general the two institutions sought outreach to the poor and target the poor as major parts of their clients (50% - 80%) whereas K-MFI seek the poor as an exclusive target (90% and above). Notwithstanding the crowned objectives of serving the target population, the institutions only partially address the issue of financial exclusion of the poor. Both the institutions had not defined target groups which identify their potential target members. Services were not strictly directed to a well defined set of clients which have unique selection (eligibility) criteria which differentiate the target and non-target groups. For all intent and purpose, Salaam Financial Services and K-MFI have been less successful in reaching the hardcore poor. These are thousands which are often undernourished, are marginalized in society and often unable to get financial supports. The institutions under study had neither client empowerment facilities such as currently elected client representatives that voice the interest of the clients within and/or beyond the organizations nor social capital programs such as active spiritual development programs which contribute to the uplift and perfection of of the clients.
services remains low all over the Muslim world partly due to religious beliefs. This gave rise to the evolution of Islamic Banking to serve the Muslim population with violating their religious beliefs. This new industry got a very welcome response and has witnessed enormous growth since its inception. Although development of Islamic Finance has improved access to finance to some extent but Micro entrepreneurs mainly remain excluded from financial services. They lack collaterals and are unable to fulfill certain requirement to gain access to finance. Conventional microfinance played an important role in providing financial services to poor entrepreneurs on collateral free basis. IslamicMicrofinance needs to be developed in the same manner to help Muslim micro entrepreneurs.
Ibrahim (2003) highlighted that Islamic banks should be able to manage and utilize Islamic financing formula to provide venture capital to small entrepreneurs. Unfortunately, despite of a great deal of scholastic work being proposed on Islamic approach for financing, very little practical application is being carried out. Hence, this paper argues that there are viable approaches of Islamicmicrofinance programme for Islamic banking application in terms of instruments and operational frameworks which seem to be practical at the moment. Despite of many obstacles that might be faced by the Islamic banks especially in managing credit risk, there are indeed many approaches or solutions that could be considered. The obstacles should not deter any effort to offer a viable financing for the poor since microfinance has the potential to significantly alleviate poverty. However, to accomplish this goal the field needs to cater for different tastes and different levels of poverty (El-Komi and Croson, 2013).
Abstract: Islamic Rural Bank must deal with internal and external risks which will affect to the performance of the bank. This paper aims to assess the internal and external risks that influence to the bank performance. By adopting panel data analysis, the paper analyzes 21 biggest Islamic rural bank which as a representative of 21 provinces around Indonesia during 2013-2017 which result 420 observation period. Furthermore, Return on Asset (ROA) are utilized as dependent variable which represents Islamic rural bank’s performance. As independent variables, Non- Performing Financing (NPF) and Capital Adequacy Ratio (CAR) are applied as internal risk in Islamic rural bank. To analyze external risk, regional macroeconomic factors, Regional Economic Growth (REG) and Regional Inflation (RInf) are employed then Total Asset of Islamic rural bank (Size) is also used as complementary variable. Based on the analysis, this study finds that SRB has robust risk management through internal and external risk. However, REG has significant ROA that explains the performance of Islamic rural bank will depend on regional economic growth in each province.
The definition of Murabaha according to Appendix (B) of the Financial Accounting Standard No. (2) (FAS (2)) issued by AAOIFI is a “sale of goods at cost plus an agreed profit markup.” This requires a full transparent disclosure of the cost incurred by the seller, Murabaha to the Purchase Orderer is defined according to the same appendix mentioned above as “an agreement according to which the orderer asks the purchaser to purchase an asset of which the latter will take legal possession. The orderer promises the purchaser to purchase the asset from him and give the ordered a profit thereon.” The IslamicMicrofinance Institution act as the purchaser and the client act as the orderer, the purchaser should first acquire the asset under a valid sale contract between him and the vendor of the asset, after taking legal possession of the assets and risks of ownership are transferred to the purchaser, a new sale contract between the purchaser and the orderer according to the same conditions of the first mutual promise is conducted, where the settlement of the price could be done in installments, a complete ownership of the asset is transferred to the orderer once the sales contract takes place, and the full settlement of the price as a condition for legal possession as mentioned by Dhumale and Sapcanin (1999) and Rahman (2007) and other researchers is a not valid provision according to Shari’ah Standard No. (5) issued by AAOIFI which states that it is not permissible for the seller to stipulate full settlement of the price as a condition for ownership transfer. Dhumale and Sapcanin (1999) and other points out that the group liability mechanism common to microfinance where peer pressure and monitoring takes place to reduce default risk could be implemented in murabaha model, however; a real collateral rather than a social collateral could be used, a salient feature of murabaha is that it is an asset based product, this asset could be used as a collateral to mitigate the credit risk as stated by Shari’ah Standard No. (5). and this feature give IslamicMicrofinance institution the advantage of providing the poor with both Finance and collateral.