An Islamic Micro Finance Bank To Help Enterprises

An Moslem Micro cede avow To Help EnterprisesThe constituted Micro-finance programs have shown belittled bet in spiritual and cultural sensitivities ,also excludes the poorest of the poor and be inadequate to full-fill the needs of 37.4 % poor Muslims of the world. A recent report by CGAP suggests that a puffy proportion of poor muslims rejects alone forms of loans, including Grameen style Microloans on religious grounds, even many Government initiatives have failed because of this reason. Islamic Finance industry is an industry with rapid growth but has shown little interest in Micro-Finance and pauperism alleviation aiming for shariah compliance inform and not in spirit. There are many Islamic MF programs cur rakehellly operational in variant parts of the world, but they are regional and country based programs, this research paper result focus on the nurture of an International Micro-Finance Bank (not Program) with deepest local penetration. Interest based loans m ay pull prospective entrepreneurs to refrain from pursuing activities as cost of failure is withal high. Islamic Economics goals of equality, fairness, social solidarity through risk sharing, property rights, and sanctity of suffers entrepreneurship, partnership, income generation through productive activity for poverty alleviation are completely in sync with basic principles of any Micro-Finance program.Aim and objectives The purpose of my research is developing a sustainable and universal business model of an ideal full-fledged Islamic Micro-Finance Bank? by examining working technique and mode of operation of Islamic Banks(and of Banks working on No Interest principle) and of Micro-Finance programs ( both Islamic and Non-Islamic) and merging the working principles of both to come with a business model of a Universal World-Wide Micro-Finance Bank strictly following and working on principles of Islamic Finance. An Islamic Micro-Finance Bank will provide thousands of entrepreneu rial poors access to Micro-Finance- especially those who fear br distributivelying their religious beliefs. Islamic Micro-Finance Bank will seek to finance business activities which will lead to the scotch empowerment of the poor, rather than merely lending to the poor for consumption.Literature reviewIslamic Finance Islamic Finance refers to a system of Banking that is self-consistent with Islamic law(sharia) principles. This system reflects Islams teachings on wealth distribution, social and economic justice.The basic principles and practices of Islamic Finance date back to the early part of the seventh century. (Islamic Finance A Euromoney Publication, 1997). proscription of Riba(interest).Risk Sharing.Social Mission.Prohibition of Speculative Behaviour.Sanctity of Contracts.Shariah- approved activities.Islamic financing TechniquesIslamic pecuniary institutions have developed some(prenominal) financing techniques that are applicable according to the nature of the commodity o r business and finance flowing of the project. The principal financing techniques, murabaha, mudaraba, musharaka, and ijarah, are described soon belowThe first technique, murabaha, is the most popular and widely employ Islamic financing instrument. Murabaha involves the resale of a commodity after the lender adds a specific make margin (often referred to as the mark-up), which is paid by the borrower who agrees to buy that commodity. Usually, repayment is made in instalments to the financier, who pays the price to the original supplier of the commodity. This grapheme of finance is commonly used for financing assets or working capital inputs, such as raw materials, machinery or equipment. For murabaha to be Shariah-compliant the financier must own (or procure) the commodity first and whence resell it, the commodity should be a tangible one, and the buyer must know and then agree to the purchase and resale prices. under(a) mudaraba, a second type of contract, two parties are i nvolved the financier, who provides all the money, and the entrepreneur who uses his or her skill to invest the money in an attractive business venture. The profit from the mudaraba contract is shared by the financier and the entrepreneur according to a pre-determined ratio. Importantly, profit-sharing rates are a percentage of the profit and not a lump sum payment. In the case of a loss, providing it has incurred in the normal process of business and not due to neglect or misconduct by the entrepreneur, the financier loses all his or her money, while the entrepreneur merely loses his or her beat and effort.Musharaka, a third financing instrument, means partnership in Arabic and can be tacit as an equity participation contract. Both parties provide capital and are involved in the management of the funded venture. Profits are shared between each partner according to the ratio of his or her investment. If the venture suffers a loss, each partner loses according to this same ratio. Neither mudaraba nor musharaka are popular mechanisms in the setting of microfinance as the thorough reporting and transparency requirements surrounding the just distribution of any profit or loss can result in comforting operating burdens and costs on small businesses which are generally unaccustomed to formal accounting and reporting.Ijarah, a fourth primary finance instrument, is similar to leasing. Under this arrangement, an entrepreneur short of funds orgasmes a financier to fund the purchase of a productive asset. The financier may buy the productive asset and rent it out to the entrepreneur. The financier retains ownership of the asset and is responsible for its maintenance. Importantly, and like any other contract, an ijarah contract must fulfil all of the conditions of a valid contract stipulated by the Shariah. Thus, the contract should be clear, should be by interchangeable agreement, the responsibilities and benefits of both parties should be clearly detailed and the agreement should be for a known period and price.Islamic Micro-Finance Bank is something very very new and in fact thither is only one Islamic Micro-Finance bank currently in the world(Nigeria) and that too was launched recently on 15th of April 2010,recently State Bank of Pakistan has laid down guidelines for the establishment of any Islamic Micro-Finance Bank. My research problem is somewhat related with poverty as a whole and poor muslims around the world will be the main focus of the solution, because solution that is applicable for muslims is certainly available to each individual in the world. First, I will talk about why there is a need of Islamic Micro-Finance and then about the need of a Full-Fledged Islamic Micro-Finance Bank. About 65% of the SMEs (muslim owned) who had never applied for bank loans were uncomfortable with the interest based loan products being extended by banks. mend this may not be a conclusive evidence for the extensive demand for Islamic finance pro ducts as it is not clear that whether these respondents need the loans etc, provided generally the respondents do highlight the interest (Riba) based banking products as one of the reasons for their reluctance to access bank loans. About 75% of the farmers in Muslim dominate countries who did not take bank loans and 55% of all the farmers expressed their dislike of interest based products and said that they dont want to take the interest bearing bank loans. Although this finding signifies the need for introduction of Islamic Agrifinance Products, however the finding may be somewhat biased as a large takings of these farmers also considered lack of collaterals/defects in title deeds and non-cooperation by revenue department as the key hurdles in obtaining banks loans. Neverthe slight there is substantial demand for Sharia compliant agri-finance products and if offered most of the farmers would be willing to avail the facility. Conventional microfinance had also been questioned on its overall desired impact since the poors are subjected to very high interest rate of up to 30%. Some even argued that disbursing credit to the poor to make financial gains out of the same cannot be the aim of the microfinance institutions. Interest charged is rather oppressive for their poor receivers, thus fails to achieve the noble objective of microfinance. According to various studies, a notable number of the recipients were also prove to be well above the poor category.Islamic Micro-Finance , on the hand, utilizes Islamic financial Instruments which are based on PLS schemes rather than loan. Conventional microfinance institution focused mainly on women as their client. On the hand, Islamic Micro Finance Institution should not only be focusing on women but must also be extended to the family as a whole. Moreover, Conventional Micro-Finance used group lending as a way to decrease risk in their operation. Islamic Micro-Finance may also use similar technique, but they can also develop Islamic ethical principles to ensure their clients pay the payment regularly.Now, talking about why there is a need of an Islamic Micro-Finance Bank, well there are many Islamic Micro-Finance operational in different parts of the world run and managed by different organisations like Sanadiq at Jabal-al-Hoss Muassasat Bayt Al-Mal in Lebanon Hodeidah program in Yemen. IBBL, SIBL in Bangladesh Akhuwat in Pakistan Sahulat , Manara in India. Amana Ikhtiar in Malaysia BPRS , BMTs in Indonesia. FINCA in Afghanistan. Azaovad Finance in Northern Mali. But my question is that why we cannot have a Global Islamic Micro-Finance Program when is there is such a huge of this, microfinance programs are designed keeping in mind the needs of local people and how to serve them better, but if this is done with an International climb then experiences gained in one region will be very beneficial in addressing the problem of other regions, it will be very subservient in the diversification of ris k and also SMEs will be share to share expertise and experiences of one another and can work to build and ecosystem of mutual co-operation and empowerment. Also the increasing demand for alternative micro credit products by the less privileged members of the society against the conventional banking practices, now requires a whole financial system rather than a program or a bank as individual entities, marriage of two is much required need of the time and a new approach designed on the strict guidelines laid down by Quran for Islamic Finance is recommended, adapting Classical Islamic Contracts to new Islamic Micro-Finance is easier than for mainstream Islamic Finance.I want to develop a Islamic Micro-finance Bank with muslims as prime focus but only for muslims because What we are commissioning today represents our contribution towards providing an alternative banking for Muslims and non-muslims alike. Poor person is a poor person and this has nothing to do with her/her religion, a nd poverty can only be projecting if we consider all poors of the world as one and work global make No poverty? a reality.The number of Islamic Micro-Finance initiatives remains limited, less than 1% of the total global microfinance outreach, there is for a number of reasons increasing in interest in developing microfinance programmes based on Islamic Financing principles. Since, Islamic Microfinance is a new area, because little research has been conducted on its impact, outreach of such programmes has so far been limited. So, research with the aim of developing a new approach to Islamic microfinance is completely justified.Research Methodology and Method(s)My research methodology will be based on a lot research and study of Islamic Finance laws approved by Quran, their practical application in the real world scenario, how they are applied by different Islamic Banks and Micro-finance programs in their working, how other than they are applied in practice, analysis of shortcoming of different Islamic Banks and Micro-Finance programs. Study of how Islamic banks weathered current GFC, what were their advantages and disadvantages.How an Islamic Bank is started( rules and regulations in different countries) and how an Islamic Micro-Finance program works( relative to different regions), establishing a common ground for Islamic Micro-Finance bank, framing rules and policies for an ideal Islamic Micro-Finance Bank.Research and study of banking system in Japan( interest rates are negligible) and of diddly Bank Sweden(work on NO interest principal), how they operate , from where and how they fund themselves, how their modus operandi will sustain in an Islamic Finance environment.Data will be collected basically from internet because much of the work has not been done in the area of Islamic Micro-Finance Bank, interviews and discussion with the experts in field of Islamic Law and Islamic Finance, thorough study of Quran( Islamic laws and Financial laws).Study of books on this topic, discussion and advice from experts on Risk Management and Diversification and how i can apply them in Islamic Finance. Extensive of all available computer addresss of information Islamic Finance and Micro-Finance.Structure and planChapters in the Dissertation will be as Follows(Final Structure Can Change)CONTEXTUALISING ISLAMIC FINANCE Error germ source not found (Number of days taken to complete the chapter) new revival of Islamic financeError Reference source not foundIslamic economic foundationsError Reference source not foundEthical dimensions of Islamic economic systemsError Reference source not foundBenefits of Islamic bankingError Reference source not foundIslamic economic principles do they promote or cramp growth? 9DISTINGUISHING FEATURES OF ISLAMIC FINANCEError Reference source not foundPrinciples of Islamic financial systemsError Reference source not foundProhibition on speculation or risk (gharar)Error Reference source not foundProhibition on usury (ri ba) and hoardingError Reference source not foundProhibition on usury (riba) and interestError Reference source not foundProfits as distinct from usury (riba)Error Reference source not found action OF ISLAMIC BANKING TO MICROFINANCEError Reference source not foundInterface of Islamic Banking Principles and MicrofinanceError Reference source not foundIslam and microfinanceError Reference source not foundSocial and development roles of Islamic banksError Reference source not foundInformal Banking and Debt transfer (hawala)Error Reference source not foundIs Islamic microfinance truly Islamic?Error Reference source not foundISLAMIC FINANCIAL OBJECTIVES AND PRODUCTSError Reference source not foundFinancial productsError Reference source not foundIslamic MortgagesError Reference source not foundConventional Banking through the back door?Error Reference source not foundNeed for regulationError Reference source not foundISLAMIC MICROFINANCE IN PRACTICEError Reference source not foundExpansi on of microfinance in the Arab worldError Reference source not foundIslamic microfinance in the Arab worldError Reference source not foundExperiences in YemenError Reference source not foundExperiences in BangladeshError Reference source not foundResistance to the Grameen BankError Reference source not foundMicroFinance and Islamic Values 13Japanese Banking System and JAK Bank Sweden13Framing Regulations and Strategies For an Ideal Islamic Micro-Finance Bank 14