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Importance of Islamic Microfinance in Pakistan

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Muhammad Asif Nadeem
CIIT/FA13-MSMS-031LHR

Pakistan has almost 180 million population and the 98% of the population are the Muslims so in this way Pakistan is very attractive market for Islamic microfinance. If we take a look of Islamic microfinance in microfinance sector globally it constitutes only 0.5% and it is in embryonic stage. In Pakistan a lot of struggle is made to take the Islamic microfinance to the next level. Many microfinance institutions provide shariah compliant financial products but two microfinance institutions Akhuwat and Center for Women Co-operative Development (CWCD) provides fully Islamic products.
Akhuwat came into existence in 2001 and the main purpose of this is to achieve poverty alleviation and growth and to provide Shariah compliant microfinance products.Uptill now Akhuwat has main focus in the urban areas of province of Punjab but it has also marginal presence in Baluchistan and KPK. In 2011 Akhuwat showed gross loan portfolio of Rs. 355 million and it is distributed into 42,069 borrowers. The main Islamic microfinance product that the Akhuwat provides is Qarz-e-Hasan. Akhuwat provides loans to the people which are interest free and the repayment period is soft. Akhwat focuses large on social collateral and most of the offices are in communities and the community vouches for its members. Donations are the primary source of funds for Akhuwat which are given from the people and also from the organizations which are supporting Akhuwat’s cause. Although Akhuwat has taken steps to attain funding of its own, but Akhuwat still covers its costs through the donations.
Center for Women Co-operative Development started microfinance in 1992. In December 2011 the active borrowers of CWCD were 72144 and the gross loan portfolio of the Center for Women Co-operative Development was 128 million. Among these 72144 borrowers 2525 got loans in groups and rest got loans on individual basis. Five main Islamic microfinance products are provided by Center for Women Co-operative Development which includes Salam, Ijarah, Diminishing Musharkah, Istisna and Murabahah. Center for Women Co-operative Development does not provides Qarz-e-Hasan loans so their all products are profit oriented. The main focus of Center for Women Co-operative Development is on existing entrepreneurs who want to expand their business and for this purpose they require capital. The target of the Center for Women Co-operative Development is emerging entrepreneurs and for this purpose CWCD has shifted from group loans to individual loans. Many products are structured in a way that benefit small business and the loans are especially for the benefit of the individual business.

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