Taking Islamic Microfinance to Scale

On behalf of SPMUDA, The voice of (8) million Muslim Filipinos and the leading conglomerate of Muslim NGO’s in the Philippines would like to thank the sponsors of the 2010 Islamic Micro Finance Challenge.Inshallah, no hurt feelings while we are not choosen from among the 120 participants and instead we will continue our good works with or without support in all our endeavors to fast track peace and development of Southern Philippines affected by never ending stories of war. To the winner and runner-ups, We pray for the success of your projects and we look forward to establish mutual cooperation to widen our relations into new era of mutual interest for the best future of our Muslim Ummah in the Philippines and the International Muslim communities. Shukran!

Dear Nimrah,
Congratulations to you CGAP and other sponsors of the challenge.
It is high time to practice Islamic microfinance and imperative to take up the restoration work in the flood-hit areas of Pakistan where the government already left the work unfinished. This challenge is also an opportunity to bridge the local and international investors. There is not any doubt about the success of Islamic Microfinance.
I have a little story to narrate. About four years ago I stumbled into the microfinance sector with an absolute stroke of chance. Before that I had always dreamt of doing something for the crowded millions suffering in the ruthless clutches of poverty.
Microfinance, as you all know, was supposed to be one important tool to fight this threat of poverty. I began my new assignment in this sector with all sincerity. Soon I was awakened to the fact that the conventional microfinance in most cases was producing the results directly opposite of the stated aims. I cannot doubt the intentions of the donors and investors, but it was the element of “SOOD” and off- course in the intermediary layers there was an uncontrolled abuse which in fact was further dipping the poor in a bottomless pit of misery.
That was the point when I began to reflect on the causes of the setbacks in the sector. During the same period the news of failures in the worldwide conventional microfinance sector began pouring in. this also coincided with worst recession after the great depression of 1930s. By the way it began with sub-prime loan crisis and sooner than later it took over the whole developed world. Even today the whole world is reeling under this crisis with no end in site so far.
The most striking realization which I had during the period, was the nature of the relationship between the client and the facilitating agency, which I observed during my work with conventional microfinance. It was a cold, business-like, kind of matter of fact type relationship. I was surprised to see the utter disregard of the facilitators towards the clients’ education, skills, abilities and plight. Here lied the root cause of the set backs which led to the painful process of defaults and subsequently late night recoveries.
Having gone through this experience I further pondered upon the causes of failures and came to the conclusion that extending micro loans to the poor without evaluating the capabilities and skills is absolutely self-defeating.
I also came to the conclusion that extending hard cash to the cash-starved poor creates problems instead of offering any solution.
Here was the point when I, along with a few other friends, decided to enter the market with a new methodology, which we subsequently named as the Farz methodology. We had a few assets that we sold and took the plunge. Napoleon once said 25 percent of his decisions were always a leap in the dark. But to me, our decision to embark upon the partnership and asset-based microfinance was no leap in the dark.
To put the long story short, our one-year pilot project produced amazing results, at a time when not only the poor microfinance clients were defaulting but even the states began their journey on the painful course of bankruptcies and defaults. Though, there can’t be a comparison between our humble organization and the mighty states, it at least gives food for thought to many as to how did we achieve hundred per cent recoveries when the mighty organizations like Grameen were faltering.
The secret lies in the fact that first of all it is an interest free mode, and certainly we trained our clients, provided them with market linkages and health care before extending productive assets. Another important factor was the fact that we proceeded with our clients on partnership basis.
This is the humble saga of the Farz Foundation. During the last two decades, the world has seen the biggest events of human history. The one being the worst ever recession of the west, which now seems poised to hit the poor world. The experience of the west gives us a food for thought, while embracing all that was good in the western economic structures, we should not shut the door on innovation. We usually feel comfortable to walk on a beaten path, but world has always progressed with innovations. We do not and never intended to take a leap in the dark.
There is a striking similarity between the post second world war Europe and Pakistan. After the floods 20 million people have been affected. There tools and lands need repair. They need funds to kick start their productive work. They are a challenge as well as an opportunity for us. It’s a huge untapped market awaiting intelligent investors. Our one year pilot project opens a window to this new economic opening. Quite surprisingly Islamic banking and finance has witnessed about 15% growth at a time when the conventional banking was hit the hardest and is being bailed out with the huge sums, rendering the states bankrupt. Islamic Microfinance sector is also intended to play an important role in not a very distant future. By combining Islamic microfinance and rehabilitation work, we can work miracles.
We all agree that investment in human capital is always of a paramount importance for any society’s development. A poverty-ridden society is always a hub of growing militancy and crime. It can effectively be countered through creating a partnership with the poor along with creating awareness among them.
We also believe that the Islamic Microfinance Sector can also bridge the local investor with international financial institutions for curing our ailing economy and to have a healthy but so far an illusive growth rate. The Farz SME and Entrepreneurial village can pave our way to that desirable goal.
There is no denying the fact that industrial peace is a key to the smooth running of any unit as well as the over all economy.
We extend our hands to you to exploit this opportunity at the most opportune moment when millions of skilled people await our help to be reengaged in a productive process. Our country at least owes that much to us. This is not a mere dream. We have many precedents in the past when countries like Malaysia have prominently emerged on the economic map of the world.
Believe me another world is possible. ………………..

Assalamu Alaikum wrbkt, seemingly majority of people around the globe have really difficulties in maintaining the implementation of the scheme. Attraction to profit motive may be one major reasons for shifting the objective in the implementaion of Islamic Micro Finance Model. Hopefully we may be able to overcome this issue with the determination to proceed and strictly limits our microfinancing scheme to Shariah Compliant Model and putting aside income generation as a secondary factor. Trust is really difficult in this trend of money market operation, strong religious foundation of every microfinance agencies and its clienteles are the major factor that may contribute to its success. May Allahu Subhanallahu Ta’ala be with us all on this trend of events and help us prevent to shift the real objective of the operation from being a Riba Free Micro Financing Scheme to that of a profit oriented business financing scheme. More power to all of us who continuously try our best to make this objective succeed. Wa Bahdu Wassalam.