Islamic Microfinance Liquidity Solutions
Question:
Salaam. I hope you are well. Assuming one is operating a microfinance company in a country that has no stock exchange. My question is how could this microfinance company provide liquidity for clients without using commodity Murabaha/tawarruq facility. Please I would want this question answered for me.
Answer:
In the Name of Allah, the Most Gracious, the Most Merciful.
As-salāmu ‘alaykum wa-rahmatullāhi wa-barakātuh.
v
Answer:
In the Name of Allah, the Most Gracious, the Most Merciful.
As-salāmu ‘alaykum wa-rahmatullāhi wa-barakātuh.
We apologize for the belated response.
Islamic Microfinance – Definition and background
Microfinance refers to the provision of financials services in the form of microloans to the marginalized, poor and underprivileged. Microfinance has roots in the Roman empire by Augustus who provided loans to the poor and women. Microfinance since then has evolved over the centuries in the formal and informal sectors. It is estimated that there are approximately 10 000 microfinance providers with approximately 11.6B USD in outstanding loans according to a 2018 study.
Islamic Microfinance refers to the provision of Islamic microcredit to the poor, underprivileged and needy of society. The Islamic microfinance solutions including micro-takafol for guarantees, Murabaha for trade and asset finance, Ijarah for asset finance, Mudarabah and Musharakah for equity finance, Sukuk for Islamic retail bonds, Qardh Hasanah for interest free loans and Zakaat/Sadaqah for Islamic donations/grants.
Islamic Microfinance Liquidity Management
Liquidity management refers to the ability of a financial institution to manage its cash requirements. The liquidity risk to financial institutions include far reaching consequences for the financial institution to meet their liquidity requirements whether on balance sheet or off balance sheet with various stakeholders including clients for future forex requirements, the regulator for capital adequacy requirements, etc. A financial institution should conduct a detailed risk management review of the liquidity position using different mechanisms and ratios. This will allow for current including future cash flow requirements.
There are a number of Islamic liquidity solutions including Sukuk/Islamic bonds, term deposits/savings certificates, Mudarabah/Musharakah in the form of joint ventures with investors or syndications with other financiers and procuring funding lines via other financial providers through short term self- liquidating solutions. You could also consider Salam and parallel Salam financing with agricultural providers or fixed medium term notes (MTN’s) with major institutions that represent a form of certificated shariah fixed instrument. Another solution is to consider a microfinance guarantee loan scheme on the basis of kafalah. You could contact the Islamic Development Bank (IDB) Group basedin Jeddah, Saudi Arabia also for assistance or global Islamic financial Services firm based in Dubai, United Arab Emirates.
Kindly refer to my book on Islamic risk and liquidity management titled “Your Brief Guide to Islamic Finance” available for free download from www.shariahbusiness.com.
And Allah Ta’āla Knows Best
(Mufti) Ismail Desai
Chairman of Shariah Board and Fatwa Committee,
Darul Iftaa, Durban, South Africa
DISCLAIMER: The views and opinions expressed in this answer belong only to the author and do not in any way represent or reflect the views of any organizations to which he may be affiliated with. The opinions and educational information proffered in this communication are based on the jurisprudential understanding and available knowledge of the author. Given that contemporary issues and interpretations of contemporary issues are subjective in nature, another scholar may reach different juristic inferences and conclusions to those as expressed by the author. Whilst every effort has been taken to ensure total academic integrity and honesty, the author is open to corrective measures based on sound academics and juristic inferences. The Shari’ah ruling given herein is based specifically on the specific scenario in question. The author bears no responsibility towards any party that acts or does not act on this answer and is exempted from any and all forms of loss or damage. This answer may not be used as evidence in any court of law without prior written consent from the author. Any or all links provided in our emails, answers and articles are restricted to the specific material being cited. Such referencing should not be taken as an endorsement of other contents of that website.
(Announcement: The Darul Iftaa under the auspices of the Mufti Ebrahim Desai Foundation is managed by Mufti Ismail Desai Saheb, son of Hazrat Mufti Ebrahim Desai Saheb RA. Mufti Ismail Desai will continue his academic career by conducting an intensive one year specialist programme in Islamic Finance, Banking and economics (MA) and Iftaa training programme for Ulema and Shariah graduates. Mufti Ismail Desai Saheb will also be conducting various programmes for the public on Islamic Finance, Ishaahi Majlis and general Islamic Q&A. Alhamdulillah the Darul Iftaa currently has over 50 students from over 32 countries globally. The Darul Iftaa will be conducting programmes on Islamic Finance, Business and Economics in various cities/countries. The programme is conducted free of charge and you can request an event by contacting us directly at www.shariahbusiness.com. You can contact the Mufti Ebrahim Desai Foundation for any details on Hazrat Mufti Ebrahim Desai RA at www.muftiebrahimdesai.com. We will keep you updated on our programmes and events via our email data base and other media channels)
Answer:
In the Name of Allah, the Most Gracious, the Most Merciful.
As-salāmu ‘alaykum wa-rahmatullāhi wa-barakātuh.
We apologize for the belated response.
Islamic Microfinance – Definition and background
Microfinance refers to the provision of financials services in the form of microloans to the marginalized, poor and underprivileged. Microfinance has roots in the Roman empire by Augustus who provided loans to the poor and women. Microfinance since then has evolved over the centuries in the formal and informal sectors. It is estimated that there are approximately 10 000 microfinance providers with approximately 11.6B USD in outstanding loans according to a 2018 study.
Islamic Microfinance refers to the provision of Islamic microcredit to the poor, underprivileged and needy of society. The Islamic microfinance solutions including micro-takafol for guarantees, Murabaha for trade and asset finance, Ijarah for asset finance, Mudarabah and Musharakah for equity finance, Sukuk for Islamic retail bonds, Qardh Hasanah for interest free loans and Zakaat/Sadaqah for Islamic donations/grants.
Islamic Microfinance Liquidity Management
Liquidity management refers to the ability of a financial institution to manage its cash requirements. The liquidity risk to financial institutions include far reaching consequences for the financial institution to meet their liquidity requirements whether on balance sheet or off balance sheet with various stakeholders including clients for future forex requirements, the regulator for capital adequacy requirements, etc. A financial institution should conduct a detailed risk management review of the liquidity position using different mechanisms and ratios. This will allow for current including future cash flow requirements.
There are a number of Islamic liquidity solutions including Sukuk/Islamic bonds, term deposits/savings certificates, Mudarabah/Musharakah in the form of joint ventures with investors or syndications with other financiers and procuring funding lines via other financial providers through short term self- liquidating solutions. You could also consider Salam and parallel Salam financing with agricultural providers or fixed medium term notes (MTN’s) with major institutions that represent a form of certificated shariah fixed instrument. Another solution is to consider a microfinance guarantee loan scheme on the basis of kafalah. You could contact the Islamic Development Bank (IDB) Group basedin Jeddah, Saudi Arabia also for assistance or global Islamic financial Services firm based in Dubai, United Arab Emirates.
Kindly refer to my book on Islamic risk and liquidity management titled “Your Brief Guide to Islamic Finance” available for free download from www.shariahbusiness.com.
And Allah Ta’āla Knows Best
(Mufti) Ismail Desai
Chairman of Shariah Board and Fatwa Committee,
Darul Iftaa, Durban, South Africa
DISCLAIMER: The views and opinions expressed in this answer belong only to the author and do not in any way represent or reflect the views of any organizations to which he may be affiliated with. The opinions and educational information proffered in this communication are based on the jurisprudential understanding and available knowledge of the author. Given that contemporary issues and interpretations of contemporary issues are subjective in nature, another scholar may reach different juristic inferences and conclusions to those as expressed by the author. Whilst every effort has been taken to ensure total academic integrity and honesty, the author is open to corrective measures based on sound academics and juristic inferences. The Shari’ah ruling given herein is based specifically on the specific scenario in question. The author bears no responsibility towards any party that acts or does not act on this answer and is exempted from any and all forms of loss or damage. This answer may not be used as evidence in any court of law without prior written consent from the author. Any or all links provided in our emails, answers and articles are restricted to the specific material being cited. Such referencing should not be taken as an endorsement of other contents of that website.
(Announcement: The Darul Iftaa under the auspices of the Mufti Ebrahim Desai Foundation is managed by Mufti Ismail Desai Saheb, son of Hazrat Mufti Ebrahim Desai Saheb RA. Mufti Ismail Desai will continue his academic career by conducting an intensive one year specialist programme in Islamic Finance, Banking and economics (MA) and Iftaa training programme for Ulema and Shariah graduates. Mufti Ismail Desai Saheb will also be conducting various programmes for the public on Islamic Finance, Ishaahi Majlis and general Islamic Q&A. Alhamdulillah the Darul Iftaa currently has over 50 students from over 32 countries globally. The Darul Iftaa will be conducting programmes on Islamic Finance, Business and Economics in various cities/countries. The programme is conducted free of charge and you can request an event by contacting us directly at www.shariahbusiness.com. You can contact the Mufti Ebrahim Desai Foundation for any details on Hazrat Mufti Ebrahim Desai RA at www.muftiebrahimdesai.com. We will keep you updated on our programmes and events via our email data base and other media channels)
and Allah Ta'ala Knows Best
Mufti Ismail Desai
Darul Iftaa
Durban, South Africa
Disclaimer The views and opinions expressed in this answer belong only to the author and do not in any way represent or reflect the views of any organizations to which he may be affiliated with. The opinions and educational information proffered in this communication are based on the jurisprudential understanding and available knowledge of the author. Given that contemporary issues and interpretations of contemporary issues are subjective in nature, another scholar may reach different juristic inferences and conclusions to those as expressed by the author. Whilst every effort has been taken to ensure total academic integrity and honesty, the author is open to corrective measures based on sound academics and juristic inferences. The Shari’ah ruling given herein is based specifically on the specific scenario in question. The author bears no responsibility towards any party that acts or does not act on this answer and is exempted from any and all forms of loss or damage. This answer may not be used as evidence in any court of law without prior written consent from the author. Any or all links provided in our emails, answers and articles are restricted to the specific material being cited. Such referencing should not be taken as an endorsement of other contents of that website.
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