Akhuwat’s Business Model: Fighting Poverty with

Interest-Free Microfinance

Project Proposal
BSAF (Spring-2022)

Submitted by
Ahmed Niaz Reg No: 180762
Neshwa Mohammad Reg No: 180764
Muaavia Bin Naveed Reg No: 180802

Faculty of Management Sciences

Air University School of Management (AUSOM)
Air University, Islamabad.
 Final Year Project BSAF (Spring-2022)

Akhuwat’s Business Model: Fighting Poverty with

Interest-Free Microfinance

Submitted By: Ahmed Niaz (180762)

Neshwa Mohammad (180764)

Muaavia Bin Naveed (180802)

Supervisor: Sir Jawad Zahid

AIR UNIVERSITY SCHOOL OF MANAGEMENT, ISLAMABAD

*This project is submitted to the Air University, Islamabad, as a pre-requisite for the degree of BSAF.
Introduction
Pakistan has experienced a low GDP growth during the pandemic period along with a decline
in employment levels leading to a worsening situation in respect of poverty. The percentage of
the population living below the national poverty line for Pakistan was 21.9 % which is an
alarming value as the total population of Pakistan is around 220 million.

A microfinance institute aims at assisting poverty affected communities by providing them with
small loans, giving them a chance to establish and develop their own small businesses. This
helps those who do not have access to conventional banking or have suffered social exclusion
due to poverty to obtain a chance at self-sufficiency. Microfinance is now being considered as
one of the most essential and an effective driving force for poverty reduction and alleviation.
Akhuwat’s case attracted us because of its unusual strategy for microfinance.

Akhuwat is one such microfinance institution that was established in 2001 with one mission:
“To alleviate poverty by empowering socially and economically marginalized segments of the
society through interest-free microfinance and education.”

Akhuwat is based on a completely interest-free micro-finance model. This means that

borrowers return, in absolute terms, the same amount of money that they borrowed from the
organization. Akhuwat strives to empower its borrowers, so they are eventually in a position to
be donors, themselves contributing to the goal of a poverty-free society which in their terms is
called “reciprocity of economy”. Akhuwat ensures inclusion of all members of society
irrespective of their religion, caste, color, or gender.

Objective
Our aim is to successfully replicate and implement Akhuwat’s interest free microfinance
model across all Islamic Banks in Pakistan for poverty reduction and alleviation,
empowerment of poor and ensure a sustainable development of the integration model.

Problem Description
Poverty has increased rapidly in Pakistan even people are rundown of their basic rights (shelter,
income generation, self-employment). Microfinance is the best key to reduce poverty. Today,
microfinance sector has been growing rapidly in the world especially in Pakistan. Pakistan is
an attractive market for Microfinance Institutions and can create many opportunities for the
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needy ones. There are various challenges like improper regulations, increasing competition and
limited management capacity which hinder the sustainability of microfinance institutions.
However, Akhuwat’s unique microfinance model is promising as it is much more effective than
other MFI’s in Pakistan. We must first work out if Akhuwat has a sustainable microfinance
model as it is often criticized for having a financial model that is deemed unsustainable in the
microfinance industry.

We can then fast track alleviation of poverty in Pakistan by creating an expansion plan and
replicating Akhuwat’s business model. Akhuwat Islamic Microfinance (AIM) Model provides
interest-free loans to the underprivileged to enable them in creating sustainable pathways out
of poverty. AIM is the largest interest-free microfinance program in the world. According to
Akhuwat, they are facing an expansion problem as well as a lack of marketing communication
so we will come up with a solution which will help them scale their operations across Pakistan
and help alleviate poverty on a broader scale.

Methodology
Firstly, we will need to understand Akhuwat’s whole business model and how it operates.
For this, we will be using primary and secondary research. A qualitative explanatory will be
carried out through interviews both structured and unstructured, medium of information and
reference through internet as a secondary source. Secondary data sources are also important to
find information that is already proved and researched. These sources will help us develop a
better understanding of the service system it follows.

Moreover, we will be carrying out a financial analysis of Akhuwat Foundation and analyzing
the sustainability of their operations. We will also be looking at Akhuwat’s audits to understand
if their overall model is a sustainable Islamic interest-free microfinance model for potential
poverty alleviation to a larger scale.

Finally, we will also conduct a cross market comparisons of existing microfinance institutions
in the market and with the help of the guidelines for Islamic microfinance business by financial
institutions published by the State Bank of Pakistan, develop a sustainable and long term
solution to expand Akhuwat’s business model across Pakistan to serve as many poor segments
of society as possible.

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Project Scope
This research is done with the aim to understand the business model of Akhuwat and analyze
its sustainability. The purpose of the study is to see how Akhuwat is working for human welfare
and whether its operations and business processes are worth being replicated. The major focus
is on how Akhuwat tends to run its loan management system providing zero-interest loans to
the inferior segment of the society.

The majority of this work will look into how the governance, operational processes and overall
business model of Ahuwat is ideal and how it should be replicated other Islamic Banks for a
prosperous society and elevation of the poorer people of the country. This research covers the
basic background and facts of the NGO along with its managing policies, corporate objectives
and core business operation.

The groundwork will be focusing on how Micro Financing is rare in Pakistan and if it is adopted
by Islamic Banks as similar to Akhuwat, it can sustain growth and alleviate poverty hence
improving standards of living for the poor.

“Is the business model for Akhuwat sustainable?” would be the main research question
addressed in this study. The focal point of the study would deal with the loan approval and loan
recognition system of Akhuwat with the loopholes present and how they could be overcome.

Feasibility Study
I. Risks Involved
 No such risk would be faced for gathering relevant data other than the fact that
management may show reluctance in providing information as it may hurt their
confidentiality in certain areas.
 Due to Covid-19 there may be a restriction in the number of members present during
interviews and meetings.
II. Resource Requirement
 For financial information, we would require access to financial statements and other
financial records of at least the past five years.
 Similarly, there would be the need for the presence of authoritative staff and
management from whom we can obtain primary information through inquiry and
interviews.
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Solution Application Areas
We firmly believe that this project holds great value as the results of this final year project can
go on to ensure poverty alleviation on a mass scale across Pakistan. We are mainly targeting
the microfinance and Islamic banking sector by integrating Akhuwat’s business model. The
benefits from our findings will primarily be people under poverty and the lower income class
in Pakistan. It is also expected that the findings of our study will help improve Akhuwat’s
marketing communication and help boost its vison and mission to a large pool of members.

Tools & Technology

We will be using both quantitative and qualitative research tools for our respective research.
We plan on carrying out an analysis of financial statements to determine whether or not the
business model is sustainable for replication and expansion which will be performed on MS
Excel. Moreover, the qualitative methods will include interviews, discussions and review of
different research conducted on Akhuwat’s operations and practices.

Milestones
Milestones Objectives Date

Preliminary Data Collection  Identification of the broader February 1st – 14th

for Final Proposal
Literature Review
Survey And Questionnaire
Development
Data Collection & Findings
Data Analysis and
Formalization Of Final
Report
Submission & Post
submission Activities
problem relating to Akhuwat
foundation’s business model.
 Refining of border problem into a
researchable problem
 A clear statement of the problem
with research objectives and
questions
 Review of existing literature February 20th – 23rd
 Variable identification
 Questionnaire design February 24th – 28th
 Structured Interview Questions
 Visit to the firm March 1st – 10th
 Data Collection
 Findings of the Data
 Write up of the whole project March 11th – 30th
 Structuring solution including
conclusion and recommendations
 Presentations April 11th – 15th
 Final submissions
 Final Defense

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References
 https://ssir.org/articles/entry/akhuwat_making_microfinance_work
 https://akhuwat.org.pk/integration-of-waqf-and-islamic-microfinance-for-poverty-
reduction-case-of-pakistan/
 https://case.hks.harvard.edu/akhuwat-fighting-poverty-with-interest-free-microfinance/