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| © Akhuwat 2014 |
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ŲØŲ§Ų±Ł, Eid Mubarak and blessed celebration to all of Lendwithcare’s entrepreneurs, partners and lenders across the world this Eid al-Fitr. For those of you who didn’t know Eid al-Fitr, the festival of the breaking of the fast, occurred on Monday (or yesterday for some countries) and marked the end of the Islamic holy month of Ramadan with a day of celebrations held across the Muslim world. The festival, which is viewed much like Christmas for Christians or Holi for Hindus, is one of the largest in the Islamic calendar and comes as the culmination to a month spent fasting, praying and giving gifts to fellow Muslims and non-Muslims alike. This year’s Eid al-Fitr is also of special significance to those of us here at Lendwithcare as it marks the end of our first year offering Islamic loans to entrepreneurs in Pakistan through our partner Akhuwat. To commemorate this year’s Eid al-Fitr and the amazing work Akhuwat preforms across Pakistan we asked their Chief Credit Officer Shahzad Akram to tell us how our entrepreneurs in Pakistan normally spend Eid al-Fitr and just what Akhuwat will be doing themselves to celebrate the day.Shahzad told us that “Eid al-Fitr is celebrated in Pakistan with great religious harmony and enthusiastically and is treated as the second biggest event for all Muslims around the world. In Pakistan many days before Eid, people start to think and buy special dresses for the occasion as everybody wants to be look nice, beautiful and handsome on Eid day (Especially my wife who looks very awesome & pretty on Eid day)”. After attending morning prayers alongside their family people will greet “each other with embraces just to share their happiness” as well as give gifts of money to children and share sweet noodles in milk, a traditional Eid dish, with their neighbours, friends & relatives. Later in the day the children will spend the money they have been given in market stalls on sweets and ice creams while others will visit the graves of loved ones or go to the cinema or carnival with friends.
Shahzad also tells us that one of the most interesting dimensions of the day is the acts of charity that are incorporated into the Eid festivities and the Month of Ramadan as a whole. Many people will commemorate the occasion by donating a great deal towards helping the poor in their communities, either by arranging lunches and dinners, providing grocery items or simply in the form of money so that they too can afford new clothes for their families at Eid. Shahzad explains that for people in Pakistan “a special occasion [like Eid] is an opportunity to try to share their happiness with others rather than just celebrating it within [their immediate] family”. Indeed the Eid celebrations are especially important for entrepreneurs like Fozia Fatima, a mother of four from Lahore who received an interest-free loan from Akhuwat to start a beauticians business to help pay for her children’s education after her husband was injured at work. The desire of people in her local area to look their best on Eid means increased demand for Fozia’s beauty treatments and provides a great opportunity for entrepreneurs like her to gain new customers and grow their businesses. The small loan (£102) Fozia requested to adequately stock her beauty parlour was covered by Lendwithcare lenders, enabling our partner in Pakistan, Akhuwat, to issue more loans to small business owners like Fozia.
In the spirit of the occasion Akhuwat also distributed around 500 family clothes gift packs to their entrepreneurs and other needy people ensuring the poor also celebrate Eid even if they don’t have the capacity to buy clothes. In addition Akhuwat and a full team of volunteers arranged a carnival and a meal for their entrepreneur’s families in recognition of the hard work and achievements they have made in the past year. On behalf of Akhuwat and all of our partners and entrepreneurs across the world we would like to wish all our lenders a blessed celebration Eid al-Fitr and thank them for their continued generosity in allowing people like Fozia Fatima to take advantage of opportunities to improve their lives for the better.
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| © Akhuwat 2014 |
Conventional interest based microfinance has come under increasing scrutiny and its benefits questioned in recent years. Does Islamic microfinance present a viable alternative? Quite possibly.
Islamic, more correctly termed Shari’ah compliant’, finance is based on principles that include linking transactions to tangible economic activities, excluding financial speculation and excessive uncertainty, and funding only socially productive activities, in addition to the well-known stipulation against charging or paying interest. The core tenet of Islamic finance is to encourage ‘fairness’ in business and trade between different parties. Successful Islamic microfinance programmes can offer several potential advantages. They may engender higher rates of economic growth as evidence suggests that microentrepreneurs are willing to undertake more profitable ventures if risk is shared. They can build greater levels of trust and understanding between lender and borrower because of the deeper relationships built through partnership rather than a service provider-client relationship. Because only investment in socially beneficial activities is permitted, they may promote ethical investment and business practices among microentrepreneurs. Indeed, Islamic finance shares many of the features of socially responsible finance. It could also be argued that by adhering to Islamic financing principles some of the well-reported ‘excesses’ of interest-based microfinance, such as over-indebtedness among poor clients, might even have been avoided. This is because risk is shared and lenders stand to lose their capital if the funded venture is unsuccessful. Neither can they insist on repayment if borrowers, through no fault of their own, are unable to repay on time. Despite the fact that the Islamic microfinance sector is growing though, it still accounts for less than 1% of total global microfinance outreach. While many predominantly Muslim countries such as Bangladesh and Indonesia have vibrant microfinance sectors, Islamic microfinance only has a limited outreach. Since many Muslims (estimates vary from approximately one-fifth to almost half of the population) refrain from accessing interest based finance for fear of breaching their religious beliefs, it is reasonable to conclude that the unavailability of Islamic microfinance constrains the development of many Muslim owned small businesses. Why is Islamic microfinance not more widespread? One of the main reasons is that Islamic financing – which includes profit and loss sharing techniques and the purchase and delivery of items to microentrepreneurs – is typically more time consuming, costly and complicated to manage than interest-based microfinance. Furthermore, while interest based microfinance institutions have had ready access to funding (arguably some institutions have had too much investment directed at them which has in turn encouraged over lending), the development of Islamic microfinance has traditionally been constrained by lack of investment. As a consequence, Islamic microfinance providers generally remain small with an average client base of just 2,400. Finally, with a few notable exceptions, governments have generally failed to provide appropriate regulation and supervision for the expansion of Islamic microfinance or developed comprehensive guidelines on microfinance accounting principles, pricing methodologies and Shari’ah audits. What can be done to encourage the development of Islamic microfinance? Increasing operational efficiency and developing sustainable operating models that increase scale and outreach are absolutely crucial. Increasing interest from Islamic investors, such as the Islamic Development Bank as well the many commercial Islamic financial institutions, may alleviate the traditional constraint of lack of investment. However, this must be accompanied by a concerted effort to increase technical expertise and training opportunities, as Islamic microfinance generally requires a greater level of staff involvement and understanding of microentrepreneurial activities. Islamic microfinance providers also require a better legal and regulatory framework, not only to monitor their activities, but also to encourage them to experiment, innovate and develop. Apart from ensuring that products and processes remain authentically Islamic, there also needs to be greater clarity and understanding on what qualifies a service as Shari’ah compliant by seeking the necessary support from qualified Islamic scholars. It is imperative that Islamic financial products and services comply not only with the letter of Shari’ah but also the spirit. Otherwise, there is a real danger that Islamic microfinance will merely mimic interest-based finance. lendwithcare.org hopes to include Shari'ah compliant microfinance partners from Pakistan and Indonesia from January 2013. Potential partners must meet our eligibility criteria and this means prioritising social development as well as possessing strong financial performance. As part of our due diligence procedure we always visit prospective partners and the entrepreneurs they support to understand more of their policies, procedures and impact in the field.By Dr Ajaz Ahmed Khan, Microfinance Advisor at lendwithcare.orgThis article was first featured in Business fights poverty on 17 December 2012.
