"Equitable microfinance" - Conference & workshop report.

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Excerpt from the Conference & Workshop Report: Islamic Modes of Financing.
Facilitated and authored by M. Zahid Elahi, Executive Director, ACE with
support from Swiss NGO Programmes, November 2000.

Loans bearing a fixed rate of interest and exchanging like for like with an
increase have been strongly prohibited in Islam. The Supreme Court...*has
decided that all forms of lending based on fixed interest (Riba) would be
stopped and the country will follow the Islamic Financial system after July
31st, 2001.

There is sufficient material describing Riba and the various instruments that
have been allowed in Islam and declared Halal. Unfortunately these descriptions
have not been translated into implementable and workable models in Pakistan.

Practitioners of Micro-Finance in NWP, whether Banks, Leasing companies or
NGOs, are faced with the problem that approximately half the population is
averse to taking loans on fixed interest. People would much rather remain poor
than compromise on their faith. NGOs have particularly been very strongly
criticised and attacked for this non-Islamic practice. There is growing
resentment against the NGOs amongst the clergy and the rural poor mainly due to
the fact that they are promoting un-Islamic practices.

The NGO sector in*the country*has successfully adopted Micro-Finance models
and has demonstrated that the poor are bankable and credit worthy. They have
not however been able to develop user-friendly lending models.

Development is all about giving choices and alternatives. Poverty alleviation
efforts cannot be effective or have the desired impact unless all or at least a
majority of the poor can be reached. Poverty cannot be eliminated under the
conventional system under which more than half the population would much rather
remain poor than lose their faith.

The Islamic Financial System aims to maximise Social Benefits as opposed to the
objective of profit maximisation under the conventional financial system. The
Islamic system demands of financiers to have a new role of providing support
and being informed about the market and viable businesses that are then closely
monitored.

To create awareness and develop a practical model that can be implemented, ACE
organised a one-day conference, which was followed by a one-day workshop.*...
During the workshop, the participants applied these concepts and principles to
real life situations. As a result, lending models for Livestock, Agricultural
Inputs and Trading / Shop Keeping/ Machinery loans were developed.




Complete report, some 30 pages, 162 kb in Wordor 40kb in Winzip, is available
through email.
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compressed to 40kb.
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