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Ausaf Ahmad
Presentation at

Akbar Peer Bhoy College Of Management
Mumbai August 28, 2008

In the name of Allah, The Most beneficent, The Most Merciful.

the world does not go by Charity alone. • Alas. only if worlds seven richest family got together.AN IRONY • It is estimated that it would require US $21 billions to provide micro finance to world’s poorest 100 million families. Ironically. . they could wipe out global poverty from their combined wealth.

Lebanese. • Four kitchens specializing in Arab. Continental and Asian cuisine .Wealth of an Arab Prince • A Car Mercedes SL 600 studded with diamonds. worth 4.5 million $ • A ship worth 500 million dollars • A personal Boeing 747 • A palace worth 100 million dollars with 317 rooms and five kitchens.

• Two billion people do not have access to electricity and drainage facilities. • Two billion people do not have access to clean and safe drinking water. .A world of Contradictions • Appalling oceans of poverty along with the islands of prosperity.

WHY MICRO FINANCING? • Financial intermediation between savers and investors. • Mismatch between the preferences of savers and investors. • Problems of Moral Hazards • Problems of Adverse Selection • Problems of collateral and enough return • Solutions: Specialized agencies • Micro Financing .

WHAT IS MICRO FINANCING? • Micro financing is a term used for providing financial services such as micro credit. . • Poor people could be relied to repay the loans • Market mechanism could be used productively to improve the economic conditions of the poor. micro saving and micro insurance to Poor people. Profitability and Bankable projects? [ Poor people do not have collaterals]. • Credit worthiness.

• Two billion people do not have access to electricity and drainage system • Two billion people do not have access to clean drinking water .

Rural financing. Quebec experiment. • 1900 Alphonse Desjardin. Multinational Banks. . Bangladesh • International Institutions. • 1963 Mitghamr project • 1970s Grameen Bank. NGOs.A SHORT HISTORY • 1864 Wilhelm Raiffeisen’s German Village Experiment.

In the cases. in which NGOs are funded totally or partially by . http:/Wikipedia. NGOs maintain their non governmental status so far it excludes government representatives.What is an NGO? A non governmental organization (NGO) is a legally constituted organization created by private persons or organizations with no participation or representation of any government.

• Responsibility of repayment with the individual borrower. . Bangladesh • Incorporated in 1983 by Special law • No collateral. 97% women borrowers.GRAMEEN BANK • Owned by the poor borrowers • Esablished in 1976 in Jobra. Only group or joint Liability. No Legal instruments.

000 villages. Recovery Rate 98. 33 billion outstanding. Repaid TK 277 billion. • 100 percent loans financed from own deposits. Total staff over 21.000 • Total loans disbursement TK 310 billion. • Group of Five.5 per cent. . works in 75. All are denied credit if one defaults.GRAMEEN BANK • 23000 branches.

5 – 12% .GRAMEEN BANK • Interest Rates: Fixed for Micro credit programs 11% Income generating loans 20% Housing loans 8% Student loans 5% Struggling Members Zero %  Deposit rates 8.

Textiles. Bayopar Vikas. Software. Grameen Trust etc. Cybernet.GRAMEEN BANK • Housing loans. Information Highways. Micro enterprises loans. Knitwear. communication. . Higher education loans. Telecom. Udog. • 17 companies in Grameen Network e. Grameen Phone.g. Shiksha. IT Park. scholarships.

CRITIQUE OF GRAMEEN MODEL •Usurious : high interest rates •Exploitative •Benefits large corporation .

000 branches of cooperative banks. • Micro credit can change lives. 14000 branches of regional rural banks and 100. . • 90 percent in Rural India have no access to institutional credit. banking is out of reach for millions. • 75 million household depend on money lenders.NEEDS FOR MICRO FINANCE IN INDIA • With 63000 branches of commercial banks.

2. Large Capital Large size of Market Favorable Political Climate Institutional and Legal Framework Negative Mental block against Islamic banking is a big barrier against it in the Muslim Minority countries. 3. .Limitations Of The Corporate Sector to Provide Islamic Finance The organized corporate sector REQUIRES: 1. 4.

. mostly loan societies and investment companies. • Non Banking Financial Companies and Islamic Investment Companies. Many remain unregistered. • Different sources of funds • Lack control and regulation due to absence of legal framework.INTEREST FREE FINANCIAL INSTITUTIONS IN INDIA • More than 200 institutions. • Operating in the unorganized sector • Misnomer to describe them as Islamic Banks • Societies registered under Societies Act.

Interest Free Credit Associations 2.Interest Free Financial Institution in India 1. Interest Free Financial Companies 3. Investment Funds .

Interest Free Credit Associations • Mostly established in late 70 and 80s. . • Motivation: Avoid Riba • Registration: Charitable Societies or unregistered. kerala. AP and Chinnai. Coincides with employment upsurge in the Gulf • Concentrated in South India: Karnataka.

Interest Free Credit Associations II • Sources of Funds: Different for Charitable Societies. Cooperative Societies.Providing Loans Leasing? • • . Size of Capital involved: Difficult to tell Business Practices: Deposit taking .

competition. liquidation on legal grounds .SWOT ANALYSIS OF IFCAs Strength: Grass Root organizations Micro Financing Weakness: Unorganized Sector Lack of professionalism Lack of regulation (security) Opportunity: Mobilization of hidden resources Threat: Disintegration.

Muslim Fund • Al Idafa (Mumbai) • First three have been closed by the RBI for non compliance . U. (Bijnor.Islamic Financial Companies • • • • Al Ameen (Bangalore) Al Falah (Delhi) Al Mizan (Chinnai) Al Najeeb.).P.

SPIRIT OF COOPERATION • • • • • Democratic Participation One person One vote Open membership Cooperative Education Cooperate with other organizations. .

REMEDIES • • • • • • Require Legal Framework Professionalism Transparency Accountability Productivity and Efficiency. Needs to be organized .