It is generally believed that Islamic banking was re-launched to bring the large unbanked population within the folds of the microfinance bank industry. Since its re-launch, the Islamic banking industry isĀ
Ā still concentrated in urban, semi-urban areas where financial services have greater availabilityĀ while a significant percentage of faith-sensitive voluntary exclusion signifies huge potential demand for Islamic banking in the country. The State Bank of Pakistan (SBP) and the industry need to collaborate further to expand their network to regions where there is no or limited availability of financial services particularly in the areas of SMEs, agriculture and microfinance.
Microfinance cannot be separated from Islamic finance if targeting the ultimate objective of social welfare enhancement by promoting inclusive growth and encouraging wealth distribution.
Structures of Islamic microfinance have got inherent checks, and the ability to deal with varying levels of poverty while providing foundations for the sustainability of institutions. However, the presence of Islamic microfinance is still very low and is concentrated only in a few countries depicting a huge potential market for Islamic financial institutions as well as microfinance institutions to capture faith-sensitive microfinance clients. Although there are a number of microfinance banks and fintechs like FINCA, Khushhali Bank, Apna Bank, Advans, First MF Bank, NRSP, Pak Oman, Telenor Bank, Kashf Foundation, Akhuwat, Waseela and U Bank owned by Mobilink and Ufone respectively, in this article I would specifically discuss the recent contributions of Akhuwat and Kashf Foundation.
Akhuwat Foundation
Akhuwat Foundation is a non-profit company established in 2001 and registered with the Securities and Exchange Commission of Pakistan (SECP). Akhuwat aims to alleviate poverty by creating a bond of solidarity between the affluent and the marginalized. Their goal is to develop and sustain a social system based on mutual support. They extend a helping hand to the poverty-stricken by providing interest-free loans so they can start a business and become self-reliant.
Other than having almost 1,000 branches in almost all cities of Pakistan to conduct its operations of distributing Qarz-e-Hasna ā interest-free loans ā Akhuwat also uses places of worship, like mosques and churches to disburse credit. The primary tool being used by Akhuwat Foundation is micro-credit in a Shariah-compliant manner, that is they give interest-free small loans to the unbanked, underprivileged families. It is important to mention that the recovery rate is an astounding 99.93 percent, something unheard of in conventional banking.
Recently, its founder Dr. Amjad Saqib has been awarded the “Global Man of the Decade” award in the UK for his contribution towards the efforts of uplifting the bottom of the pyramid population. This is in addition to the prestigious Ramon Magsaysay Malaysian award and Sitara-e-Imtiaz that he has already been bestowed with earlier.
Kashf Foundation
Kashf Foundation was set up in 1996 as the first specialised microfinance institution in Pakistan and began operations as a Grameen replicator. Since then Kashf has successfully carved out a distinct and unique niche for itself in the microfinance sector at home and abroad by offering a suite of innovative and transformative products and services to low-income households especially women. Kashf offers appraisal-backed individual lending to its clients along with other nonfinancial services to have a transformative impact at the household level.
Recently, InfraZamin, which is a credit guarantee provider backed by international development financial institutions, has joined hands with Kashf Foundation to bring the countryās first gender bond to institutional capital market investors. Kashf will use the funds for lending exclusively to women for the development of micro-infrastructure such as rural area school construction, flood rehabilitation of damaged homes and expansion of women-led micro-businesses.
The bond proceeds will help Kashf, which already has 700,000 active women clients, support 30,000 women from low-income households to develop micro-infrastructure. The Pakistani bond will probably be the first of its kind in South Asia as well as the Middle East. The subscription for Pakistanās first gender bond, which will help Kashf raise Rs2.5 billion for onward lending, will be complete in the next 2 months. The privately placed bond will subsequently be listed on the Pakistan Stock Exchange within 180 days.