Islamic Bankers see large profits in Islamic Micro-finance.

MANAMA, Sept 5 (Reuters) – As Islamic lenders rapidly expand in developing countries, their potential to profit while helping the poor is huge, bankers said on Wednesday. About 35 percent of the world’s 1.2 billion Muslims are poor, creating a large market for micro-finance — the lending of small sums of money, the bankers told a conference on the role of Islamic finance in development. “The existing micro-finance institutions that are working in a non-Islamic way are extremely profitable,” Mohammad Zubair, senior economist at the Islamic Development Bank (IDB), told Reuters on the sidelines of the conference in Bahrain. “They are making a rate of return in excess of 20 percent on the equity of the institution.” Made famous by Nobel Peace Prize winner and micro-finance expert Muhammad Yunus, the practice involves offering small amounts of credit to entrepreneurs, often in emerging economies, who do not normally have access to regular bank loans. Buoyed by growing demand from Muslims for investments that comply with their beliefs, Islamic financial institutions are expanding rapidly, often in poorer regions where many citizens are overlooked by banks. Several Gulf Islamic lenders have said they are interested in expanding in Indonesia, Sudan, North Africa, Jordan, Syria, India and China. Some banks have already made the move. “It’s expanding … in areas that were traditionally underserviced by financial institutions, so that’s improving access to credit,” the International Monetary Fund’s Ghiath Shabsigh said. Islamic finance bans the receipt of interest, and loans are typically backed by physical assets. While Islamic financial instruments may not be better suited to the poor than conventional ones, Shabsigh said their presence diversifies ways of raising cash, which boosts development. “You are diversifying the range of instruments, that’s good for financial markets and development in general,” he said. The Saudi-based IDB said it had launched “very successful” pilot micro-finance programmes in several developing countries, but was currently working with central banks to try to ease regulations that threaten to stifle the industry. “Micro-finance is really at the local level and cannot expect to meet the reporting requirements of large banks, which increases the transaction costs,” Zubair said. CHARITY BILLIONS The IDB said it was also in talks with Muslim states to standardise and regulate the collection of zakat — about 2.5 percent of disposable income Muslims must give to the poor every year by Islamic law. Shi’ite Muslims are also required to pay a 20 percent tax called khums, while some rich Muslims donate land or money in the form of endowments, known as awqaf. The total sums could be huge, and be used for investments whose profits benefit the poor, the IDB said.  

MicroFinance Institutions Link

I hope that you will find the below links to “ Microfinance ” of use .
More people are beginning to realize how the “realworld ” is in Africa and Asia
and how just a few dollars can make a difference.
The list will be updated as this blog develops….You can always send me more interesting links
and your comments either through this blog or email me : darhomes@yahoo.com
You can also visit our other blog at:
http://www.microdinar.com 
http://www.id21.org
http://microlinks.org
http://www.themix.org
http://www.ruralfinance.org
http://www.aba-sme.com
http://www.microfinancegateway.org
http://www.rubybleu.org
http://www.goconnection.org
http://video.yahoo.com/people/975845
http://cidafoundation.org
http://skollfoundation.org

MicroFinance

Half the world’s population – approximately 3 billion people – live on less than $2 a day. In most developing countries, more than 50% of the people survive by operating very small businesses. Microentrepreneurs sell a wide range of goods and services: fruits and vegetables, dairy products, baked goods, household items, school supplies, clothing, and services like hair care, just to name a few.
Like any businessperson, these microentrepreneurs need access to working capital to buy equipment and inventory if their businesses are going to grow. But commercial banks won’t lend to them. They’ve assumed the poor are not credit worthy; they also believe small loans cost more than they’re worth. The poor are often illiterate and wouldn’t be able to complete required paperwork if given the chance. Equally important, they lack collateral, an essential feature of the traditional banking model. As if these barriers weren’t enough, patriarchal cultures often exclude women from formal banking systems in spite of the fact that women lead the lion’s share of micro-enterprises. The result: the entrepreneurial poor must fend for themselves when it comes to credit. This typically means dependence on money changers or loan sharks who charge exorbitant interest (anywhere from 50% to 100% per month).
Microfinance emerged in Bangladesh and Latin America during the late 70s as an alternative to other forms of credit. Instead of worrying about ways that the poor didn’t fit traditional banking models, early microfinance practitioners developed a loan product with their customer in mind.

The Guarantee to pay back is known as: “Group Guaranteed Lending”:
Borrowers form peer groups of five to ten members. They take small loans – beginning around $100 – at a rate of interest designed to cover the lender’s costs, about 2% per month. Group members’ cross-guarantee one another’s loans (that is, if one woman doesn’t make good on her loan, the others help repay it) thereby resolving the need for collateral and adding a healthy dose of peer pressure and mutual support to the system. When the first loans have been repaid, members have access to successive, larger loans. After completing several loan cycles, in effect, clients have developed a credit history and become eligible for individual loans which provide larger credit limits and more flexibility.
Microfinance programs around the world typically target women. Women repay their loans more reliably than men and are more likely to invest increased income in improved nutrition, healthcare, and education for their children. The need among women is also greater. FINCA, a microfinance organization active in 19 countries, estimates that 70% of the world’s poor are women; they have traditionally had limited access to education and productive resources like land and credit. This backdrop of patriarchy highlights another benefit: women who participate in microfinance build their confidence and self-esteem in addition to their economic power, thereby strengthening their position and contributions in their homes and communities. Women are the clients of choice.
Microfinance successfully challenged old assumptions. It turns out that the poor are credit worthy. In well managed programs across the world, repayment rates remain above 98%. By setting interest rates to cover costs, operating efficiently, and utilizing commercial credit to meet the demands of a growing loan portfolio, microfinance institutions are capable of weaning their dependence on donor dollars and reaching full sustainability. The appeal is clear: microfinance is an effective, market oriented, self sustaining approach to world poverty.

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