Islamic Microfinance in Sri Lanka

Presented By: Faraaz Shaul Hameed

Thrust of the presentation

• What is Microfinance?

• What is Islamic Microfinance?

• Microfinance in Sri Lanka

• Microfinance coverage in Sri Lanka

• How does FGIHL operate Islamic Microfinance?

– Microfinance

– First Global Islamic Pawn Brokering (Al Rahn)

What is microfinance?

• “Microfinance” is often defined as financial services for poor and low-income clients

• More narrowly to refer to loans and other services from providers known as “Microfinance Institutions” (MFIs)

• These institutions commonly tend to use new methods developed over the last 30 years, taking little or no collateral.

• These methods include group lending and liability, pre-loan savings requirements, gradually increasing loan sizes, and an implicit guarantee of ready access to future loans if present loans are repaid fully and promptly

• Microfinance envisions a world in which low-income households have permanent access to a range of high quality financial services

What is Islamic microfinance?

• Refers to a “program that extends small facilities to poor people for self employment projects that generate income to take care of themselves and their families”

• It is a financial support to develop the income generating activity of the poor on a profit sharing basis, where capital should be returned along with the profit share

• Microfinance has proved to be one of the most successful programs of poverty alleviation globally

Microfinance in Sri Lanka

• Microfinance dates as far back as 1906 establishment of Thrift and Credit Co-operative Societies (TCCSs) under Co-operative Societies Ordinance introduced by British colonial administration

• In 1985 the Government established 17 Regional Rural Development Banks to reach remote rural areas that lacked access to financial resources

• 1980s and 1990s saw the entry of several local and international NGOs into microfinance

• Government plays a key role in the delivery of microfinance

– Around 65% of microcredit in Sri Lanka is provided through the government

• Post Tsunami which struck Sri Lanka in 2004, there was an influx of foreign aid of which substantial amount was channelled to microfinance

• Recently emerging trend is entry of commercial banks and registered finance companies and other large corporate entities into microfinance

• Absence of cohesive regulatory and supervisory system for microfinance is one of the barriers to future growth

Microfinance coverage in Sri Lanka

Microfinance Outlets by Sector

Microfinance Outlets by Province

Source: Microfinance Industry Report Sri Lanka 2009, GTZ ProMiS in collaboration with The Banking With The Poor Network

How does FGIHL operate Islamic Microfinance?

• Target Groups

– Small business set ups – Entrepreneurs who plan to expand their businesses– Handicraft industry– People living below the poverty line in rural villages– Self employed individuals– Widows

• Structure of First Global Islamic Microfinance

– Direct relationship with beneficiary– Forming a group through which facilities would be advanced to beneficiaries– Establishing relationships with village level societies who manage groups to direct

facilities to beneficiaries

• Characteristics of the Beneficiaries

– Persons with similar standard of living– Age, gender, education, income level,

etc.– Same neighborhood– Similar attitudes– Nature of business

• First Global Islamic Microfinance Schemes

– Communication– Fishing– Food production– Handicrafts– Service stations– SMEs

• First Global Islamic Microfinance Product Structures

– Murabahah– Mudarabah– Qardh Al Hassan– Bai’ Muajjal – Musawamah

How does FGIHL operate Islamic Microfinance?

First Global Islamic Pawn Brokering (Al Rahn)

• Our Intention

– Help the Needy People– Provide a service totally Interest free and

without any profits in return– To charge only a nominal fee as

Administration Fee to protect the Capital funds

– Opportunity to get out of “Riba”

• Requirements

– Age over 18 years old– Same party whose requirement is related

to– Should produce a valid NIC/ Pass port /

Temporary ID – Not with the influence of alcohol or drugs– Should be able to prove from where the

articles are

• Purpose of Pawning

– Education– Medical– Janaza– Pay utility bills (red notice)– Settle a debt– Redeem a pawn– Consumption– Housing – Wedding expense

First Global Islamic Pawn Brokering (Al Rahn)

• Articles for Pawning

– Accept

• Ring• Bangle• Chain• Bracelet• Necklace• Pendant• Coin• Biscuit

• Articles for Pawning

– Reject

• Hollow items• Covered with beads, stones

and other ornaments• Items with more alloy• Articles less than 18 karat

Thank You&

Jazaka Allah Khair

Mohamed Faraaz Shaul Hameed MBA(USA) BBA,PGDIBM-UK,AMABE-UK,DIBF-SL,DHRM-UK,DIBM-UK,DIM-UK

Mr. Faraaz is a Professional Banker for more than 20 years locally and internationally and embarked into Islamic Banking in 2007, and to date, he has gained a wealth of knowledge and experience, through his diverse positions held in various organizations* in Banking Operations, Management Consultancy, Business Management, Strategic Planning & Budgeting, Islamic Banking & Finance, Retail, Commercial and Investment Banking, Business Development, Compliance, Treasury training and career development etc.

Deputy CEO/Acting CEO

First Global Investments (Holdings)Sri Lanka

faraaz@firstglobal-group.com

* Organizations• Commercial Bank Ltd, Sri Lanka (Best bank for last 11yeras-in Sri Lanka)

• Al - Rajhi Bank, Saudi Arabia• Seylan Bank, Sri lanka• Thomas Cook Ltd, India • Standard Chartered Bank , Sri Lanka• Amana Bank , Sri Lanka• First Global Investments Holdings Limited, Sri Lanka