FINANCE

AND
DEVELOPMENT
CHAPTER 9
Introduction
In this chapter, we are going to discuss
the different roles of finance in economic
growth and development. In addition, we are
also going to determine the contribution of the
emerging activities of microfinance, microcredit,
micro savings, and Islamic finance that are
relevant to the savings and investment
portfolios in developing countries like the
Philippines.
-Financial Systems are usually there to
transform short-term liabilities to long-
term assets.

-Modern financial systems can be

described as one-dimensional, focusing
on ensuring the economic security of
transactions.
Roles of finance
 Financial Institution​
-such as banks, bond markets, or stock markets
link the savers and borrowers of the economy
 Venture Capital
-basically benefits start-up business
entrepreneurs to develop new products
 Borrowing and Saving
-it can be the savings for retirement, or it can be
a mortgage like a car loan or education loan
 Roles of finance in development

LINK THE SCREEN AND SMOOTHEN MANAGE RISK MANAGE

SAVERS AND MONITOR CONSUMPTION PAYMENT
INVESTORS INVESTMENTS SYSTEMS
It is shared service
It acts as a bridge Rebalancing your Saving and Focuses on
provider and a
between savers investment portfolio borrowing are two identifying what
leader in
and regularly is important main tactics that could go wrong,
processing grant
investors where because it can bring individuals use to and implementing
payments for the
funds are mobilized your asset allocation smooth their strategies to deal
federal
between them. back in line. consumption. with those risks 
government.

REDUCING
DIVERSIFICATION TRANSFORMATION OF
TRANSACTION
RISK
COSTS
“ FINANCIAL DEVELOPMENT is
essential for
INEQUALITY.
reducing
”
INCOME
FINANCE AND
GOVERNANCE
-There must be a sound legal system to
generate trust

-Effective Corporate Governance is the

examination of the control of a company.
MICROFINANCE

 Defined as a range of financial

products (loans, savings/cheque
accounts, insurance, etc.) focused
on low-income individuals who
have generally been overlooked
by traditional financial service
providers
MICROcredit

 These are ways of improving

access of the poor to a variety of
financial services, including
microsavings, and micro
insurance.
MICROsavings
 The idea of pooling resources is
not new in terms of savings for
Filipino. Group cooperation
among individuals is inevitable as
well as the desire to help one
another in time of need.

● Rotating Savings and Credit

Associations (ROSCAs)
 Different version of ROSCAs (per country)

Susus Tontines Pasanaku

Chit fund (india)
(Nigeria & ghana) (west Africa) (Bolivia)

Hui Arisan Paluwagan

(china) (Indonesia) (philippines)
2 common types of
ROSCAs
• Random ROSCAs
-the fund is formed by contributions of those who
agreed on the microsavings and every agreed time,
they would take the pooled amount.
• Auction ROSCAs
-wherein a bid is tendered by those who want to
pool their money. The one who bids the highest
would be the first to receive the total amount.
ISLAMIC
FINANCE
 ISLAMIC FINANCE
A well-functioning Islamic finance system promotes economic growth.

In a study made Suseno et al. in 2018, it was found that macroeconomic factors, the level of

employment, and GP per capita have the most significant influences on financial inclusion in Islamic

banking countries. Other non-economic societal factors such as information technological advancement

and corruption level do not significantly influence financial inclusion.

 Financial Inclusion
Financial inclusion means that individuals and businesses have access to useful

and affordable financial products and services that meet their needs –

transactions, payments, savings, credit and insurance – delivered in a responsible

and sustainable way.

The Islamic finance model has its foundation and origin in the Koran and in the

Sunna (the sources of sharia, i.e., the Islamic law). Its application (except for a few

cases) is bound by a conventional body of rules and regulations as well as the

historical, social, and economic context of the country (Muslim and otherwise) in

which the model has been implemented.

Islamic Finance refers to the provision of financial services in accordance with

Shari'ah Islamic law, principles and rules.

 set of Islamic religious law that
governs aspects of day-to-day
SHARIA life for Muslims in addition to
religious rituals.
 Islamic Finance

Shari'ah does not permit receipt and payment of "riba" (interest),

"gharar" (excessive uncertainty), "maysir" (gambling), short sales or

financing activities that it considers harmful to society.

MAIN PROHIBITIONS OF ISLAMIC FINANCE
Maysir
Riba Investing in
forbidden
Paying or activities such as
charging gambling and
interests speculation
PROHIBITIONS IN
ISLAMIC FINANCE
Gharar financing
activities
Excessive harmful to
uncertainty and society.
risk
The belief that trade is to be conducted in a
faithful and beneficial manner and the
principle of risk-sharing form the basis of
Islamic business.
 Islamic Finance
In the Gulf Cooperating Countries (GCC), there is a direct relationship between adopting Islamic finance

and the economic growth of its member countries. The performance of their banking institutions has contributed to

the economic growth through induced financing activities. Managers of the Islamic bank have an understanding of

how their institution could improve economic performances as it reduces the severity of the financial crisis by

avoiding major weakness of the conventional banking system.

 Conventional Banks

Conventional banks treat money as commodity so they rent money for interest and

sell money on interest.

 Islamic Banks

Islamic banks deem currency/money as a 'mode of exchange', thus Islamic banks do

not sell/ rent money for profit.

However, they may rent a fixed asset or sell a Shariah-Compliant asset to customer

for a profit.
 Two Principles of Islamic Banking

• The sharing of profit and loss;

• The prohibition of the collection and payment of interest by

lenders and investors.

The Philippines, as a predominantly Catholic country, would contribute mainly to its

Halal industry to address the international system of Islamic finance. In a study made by

Martin et al. published in 2010, it showed that the knowledge of Halal concept makes

the respondents of the said study agree more with the active role of Islamic finance.
It provided insights to the main stakeholders, and its can be strategically used

to foster adequate synergy between Islamic finance and the development of

Halal tourist products to specialize in a more sustainable tourism.

 This would eventually contribute to the
economic growth and development of the
country.
‫حالل‬
is permitted or prescribed,
primarily refers to dietary
restrictions that Muslims
Halāl are expected to follow.
Halal products are in great demand by
consumers all over the world.
Thank You!
‫شكرا لك‬
ً