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Microfinance for Poverty Reduction and Quality of Life Enhancement from The Shariah Perspective – The Case of Amanah Ikhtiar Malaysia (AIM)

2nd Islamic Finance Research Dialogue Series
by

salwana hassan

on 9 February 2014

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Transcript of Microfinance for Poverty Reduction and Quality of Life Enhancement from The Shariah Perspective – The Case of Amanah Ikhtiar Malaysia (AIM)

Research Objective Questions
Literature Review & Research Framework
philosophy
Mechanism
Products & Services
Introduction
Poverty is a global phenomenon. It is the state at which people are living below a certain standard that they suffer physically, emotionally and socially. They are usually vulnerable and have limited access or options to basic needs.

Population : the poor households that are actively participating in AIM programme in the rural areas of Malaysia. Using the official AIM figure, the number of active participants in 2009 is 203,341

Sampling Unit : Household (each AIM participant represent one household)

Sampling Technique : proportionate stratified sampling

Sampling Frame : Four Selected Regions


sampling
RO
The 2nd Islamic Finance Research Dialogue Series
Bank Negara Malaysia, 12 Feb 2014

Ethical behaviour & intensity of commitment to a religious belief system
Problem Statement
Microfinance will facilitate poverty reduction programme and improve the quality of life in the participated community.
research method
This research used both quantitative and qualitative aspects of well-being which were captured through a survey of the new and senior.

The methods used to fulfil the research objectives and answer research questions for this research are based on survey and case study. In the survey, a set of questionnaire is used as an instrument to be distributed among the selected participants of AIM. Interviews with the officials were done to get better picture of the situation.

Microfinance for Poverty Reduction and Quality of Life Enhancement from The Shariah Perspective – The Case of Amanah Ikhtiar Malaysia (AIM)
by Salwana Hassan

Supervisors:
Prof. Datuk Dr. Syed Othman Alhabshi
Associate Prof. Dr. Ahcene Lahsasna

One of the poverty alleviation tools that has been successfully improved the QoL of the poor was introduced by Prof Muhammad Yunus in Bangladesh known as Grameen Bank.
According to shariah the best solution to eradicate poverty is to work (Al-Qardhawi, 2004) and by granting credit they have employment opportunity.
Malaysia adapted the Grameen Bank model in 1987 which is known as Amanah Ikhtiar Malaysia (AIM). AIM has been operating successfully for more than two decades in providing services to more than 300,000 households in Malaysia today.
AIM has the new agenda to improve and enhance the reach to the poor to achieve the ultimate objective of fair and just economic system within the Malaysian society and stepped up its operations to adopt Islamic microfinance framework in its poverty alleviation programmes.
Poverty
Microfinance
AIM
Poverty Reduction Tools
QoL/SWL
PWB
Economic & physical impact to its clients.
Poverty is the state of deprivation in terms physical, emotional and social well-being
Measure of poverty is based on national PLI , a std recommended practice adopted in MDG Report for
Causes : economical, social, political
Causes : economical, social, political
Alternative approach – granting credit for IGAs thus creating job & business opportunities
Cottage industry also contributed to economic growth
an effective poverty reduction tool
Granting small loans, repeatable & rely on cooperation as well as group
Grameen Bank used social collateral
Replication of GB
Impact on the poor
SWL
family • education
food • security within community
clothes • spirituality
health • business achievement
income • overall household

PWB
house condition & characters
basic amenities
saving
income & expenses
assets
SWB
community & social involvement
social and educational expenses
food insecurity
sources of information
voting exercises

RO
Belief
Practice
Ethics

a minimum level an average adult maintain a tolerable standard of living, can afford essential resources and consumptions
Scope for measurement : comprehensive perspective with indicators of practice, belief, duties and things that should be avoided
Amanah Ikhtiar Malaysia
economic loans and social loans p64
savings scheme
micro takaful
• Performance

disbursed its micro loans to identified & selected individuals who passed the screening process & form a group of 5 among themselves
historical background
Established on 17th September 1987 as a Limited Trust body registered under the 1954 Trustees Act (Incorporation, amendment 1981) Act 258 based on action research led by 2 academicians.
Provision of microcredit system that is specific, continuous, easy and affordable to the lowest bottom income ; Emphasis on moral values, honesty, integrity
performance
By the end of May 2011 it has reached out to 272,923 sahabat via its 106 branch offices.These offices are manned by1,724 committed staff who manage 7,193 centres. Each staff handles the weekly meetings of a few different groups and there are a total of 66,257 groups in the country. AIM has disbursed RM5 billion active portfolios and they manage to collect 99.49 percent of it back.

North-Kedah/Perlis:31,663 participants (16%)
East- Kelantan : 35,962 participants (18%)
East- Terengganu : 22,485 participants (11%)
Mid/South –Pahang/NS/Melaka: 24,979 participants (12%)
tests
Result
swb
social impact to its clients.

• 10 percent service charge imposed is considered burdensome for them (p102)
• Offer other Islamic contracts e.g Mudharabah & Musharakah
• participants also requested for additional products such as, financing for umrah or hajj
• complaints of dishonest field staff, AIM must have a standard good practice procedure and stringent rules of conduct to prevent this kind of misbehaviour. Anwar (2007)
• political interference in its operations which led to mission drift from its principles and waste of talents in steering AIM back on its course
Critics
Components of Swb
This study has analysed the current performance and constraints of AIM. It has complemented the government agencies to provide financial help for physical well-being to the poor in the rural areas.
Besides, AIM also acts as a booster for their self-esteem, motivation and a better quality of life. This research has shown quantitatively that social well-being and religious orientation have added some quality into their life even if physical wealth is not that significant.

Further Research/Extended Work
Model Application
Time constraint to measure impact on participants

Mechanism to measure the impact of multiple benefits & indirect impact on QoL control groups
AIM should reduce the burden of high charges on the loans taken up by the participants by having a variable financing cost called 3-tier rates to cater for the different groups of sahabat namely the extremely poor, the beginners and the successful.
Reliability Test
Normality Test
Conclusion
Recommendations
Limitations
thank you
Microcredit is the provision of small loans to finance income-generating activities without any collateral or guarantor to a group of five people.
However, disparity between the rich and the poor remains a reality and QoL still needs improvement.
This situation will get worse if no proactive actions taken to improve MFIs.
This thesis will put forward an argument to provide opportunity by providing capital to the poor and accept social capital instead of physical collateral. Trust is a pivotal element which includes religious values and ethics.
The poor have joined AIM to improve their quality of life & AIM has also successfully reached them with its unique business model that is heavily dependent on trust and esprit de corps instead of hard physical collateral for loan acquisition.
Participants have a good understanding of shariah belief and practices thus AIM could improve its services further by offering products that are in compliance with the needs and sensitivity of the shariah or develop into a proper waqf institution.
AIM should enhance its role as a waqf institution which will allow it to grow and offer new financial services and products just as Islamic banks are offering their customers rather than limit to qardh without extra costs or burden. AIM can offer products or contracts such as mudharabah, musharakah, ijarah, ar-rahnu or salam and this will reduce the operating cost as the cost of lending is shared among different services.
AIM could Focus on ‘The Entrepreneur’ and simulate the Verlagsystem in helping cottage workers to produce and market their products by focusing on the verlegers rather than individual workers. They are more successful and have more organised marketing system.
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