1. International Conference on Islamic Microfinance Organized By : CENTER OF ISLAMIC BANKING & ECNOMICS Held At: Faisal Auditorium Islamabad

2. ISLAMIC MICROFINANCE IN DIFFERENT COUNTRIES Need to serve the ultra-poor Fadlullah Wilmot Country Director Islamic Relief Pakistan

3. Designing programs for the ultra poor

5. School-aged children working manual labour jobs instead of attending classes;

6. Severe malnutrition (i.e., access to only one meal per day);

7. High incidence of physical handicap;

8. Own few productive assets;

9. Frequent migration, transient lifestyles in search of work;

10. Landless, or own less than 1 acre of cultivable land (including homestead);

11. Poverty is inter-generational;

13. They pray but “refuse to give even the smallest help to others,”.

16. Assumption that the poor can be good entrepreneurs given access to credit

17. Asymmetric Information Problems

18. Economic Viability of MFIs

19. Charging Fixed Interest Rates

20. Higher Interest Rates and focus on short term loans

21. Low Rate of Return on Investment

22. High Dropout Rate and Non-Graduation from Poverty

23. Debt Trap

24. Non-Conforming to Religious Beliefs

26. Islamic Financial Modes

27. Different countries and different regions different approaches Indonesia Yogyakarta profit sharing with the ultra poor Aceh – group system with women entrepreneurs Bangladesh – group system 20% ultra poor no charge, 60% moderate poor 7.5% service charge with any excess returned to borrowers 20% mini entrepreneurs with Islamic financing modes Pakistan individual system using Islamic financing modes

28. 11 Heterogeneity The idea of heterogeneity and exclusion from/by existing models [non deliberate, via design and logic, unassailable] have been powerful concepts to draw policy attention and create urgency for action Microfinance discourse [‘poorest of the poor’ as landless, non agriculture, women] The hard core poor/ ultra poor [microfinance left outs, and throw outs. Not only poorer than the poor but differently so]

29. What about heterogeneity among the poorest? Work harder, especially women Earn less Weak asset base 12

30. What about heterogeneity among the poorest? Informal safety nets as important as formal ones The poorest lose out even in informal safety nets 13

31. 14 Education and housing situation of the ultra-poor What about heterogeneity among the poorest? The education opportunity divide The living environment divide

32. Is there a spatial heterogeneity? Vulnerable labour market engagement Weak asset base 15

35. Safety net interventions are not designed to help the poorest graduate

37. BRAC two-step model In 1985 BRAC realised its microfinance programmes were unlikely to meet the needs of the ultra poor. Food donations provided a ‘breathing space’ for the poorest these would not remove chronic poverty. Attempt to combine food relief with skills training program, to create a basis for enhanced household income in the future. Regular compulsory savings of a few cents during the period of their food relief to build up a lump sum for investment. Training on poultry and vegetable production for female VGF cardholders was given and they were able to access microcredit At the end of the 24-month programme the ultra poor were eligible for microcredit

38. Poverty reduction as a 'two-step' process of livelihood protection and promotion

39. Results mixed About 80% of the IGVGD beneficiaries joined BRAC’s regular microfinance programme But only 70% continued beyond three years i.e. over 40% of the IGVGD beneficiaries fail to start the process of graduation. Those who dropped had fragile socio-demographic structures – the female headed households who do not having a working adult male in the household and/or suffer from chronic illness, etc 21

41. Asset transfer

43. 24 Problems facing Islamic MFIs 1. Dilution in the Application of Islamic Modes of Financing Main mode- murabahah or bai-muajjal. It is difficult to go out with the clients and buy the goods/assets from faraway markets IMFIs delegates someone else (and inspects later) Alternative is to use Profit-sharing modes Problem is the moral hazard problem--No book-keeping and difficult to monitor

44. Conclusion There are strong economic reasons for establishing Islamic alternatives to poverty-focused micro financing. Traditional institutions of waqf, zakat, and qardhassan are important means of financing IMFIs 25

45. Thank You CENTER OF ISLAMIC BANKING & ECNOMICS Head Office: 192- Ahmad Block, New Garden Town , Lahore, Pakistan Ph: +92-42-35913096-8, 35858990, 38407850 Fax: +92 -42-35913056E-mail : info@alhudacibe.com Web: http://www.alhudacibe.com