Religiosity and threshold effect in social and financial performance of microfinance institutions

 

Mohammad Ashraful Mobin

ISLAMIC FINANCIAL COOPERATIVE

Case study of AL BARAKAH Multi-purpose

Cooperative Society, Mauritius

AL BARAKAH MULTI-PURPOSE CO-OPERATIVE SOCIETY LIMITEDH.O.: Madam Lolo Road, Rose Belle, MauritiusTel: (+230) 6275766E-mail: albarakahcoop@yahoo.com; www.albarakahcoop.org

• Introduction: The Islamic Finance industry • The Coop Movement & Financial Cooperatives /CU • Financial Cooperatives /Credit Unions Worldwide• The Financial Cooperatives/ CU Movement and Islamic

Financial Institutions• Islamic Financial Cooperatives/Credit Unions • Setting up Islamic Financial Cooperatives/CU/SACCO • Financing Instruments of Islamic Financial Cooperatives/CU • Reserves and other Funds of IFC/ICU • Case Study of AL Barakah MCSL • Mauritius and Africa • Conclusion

Agenda

• Conceptual Framework “Cooperate with all in what is good and pious and do not cooperate in what is sinful and wicked…” (Q-5:2)- Ta’awoun

• Legal Framework – Easy formation, less regulated than other corporate sector (Cooperatives Act ,Credit Union Act); Shari'ah-compliant- WOCCU

• Values:– IF based on Islamic ethics/values: justice, sharing, solidarity– Coop based on values: honesty, equity, solidarity, self-help,mutual-help

etc• Common bond - IB • CBO (community-based organization) / Member-owned organization • Small seed capital – can promote saving culture among the

community• Incentives & Benefits – Tax Relief in certain countries• Multi-purposes - open to various types of economic activity• Broaden ownership of business and reduce concentration of wealth • Democratisation of the IFS (SMFInst.)

Setting up Islamic Financial Coop/CU/ SACCOS in Africa

• Formation & OrganizationInitial contribution of founder members who are conscientious and committed

people to provide an alternative to the interest-based institution.• Democratic Structure / Management

– Democratic: 1man-1vote, Board & Sub-committees• Shareholdings / Membership / Returns

– Open to people from all walks of life, established by the people, for the people

– Community-based organization (CBO) - Member-owned society where the spirit of ownership and sense of belonging to an Islamic financial institution will be present.

– Financial dignity by mobilizing capital from the community/members -shares, savings and deposits

– Not-for-profit-maximization • Organs of Control, Audit & Good GovernanceAGM appoint Internal Controller, External Auditor, sub-committees and Shari’ah

Supervisory Committee to ensure that the affairs of the institution are conducted in accordance with Shari’ah and within provisions of the Law of the country

Islamic Financial Coop/CU

Marketing• Lack of awareness of Islamic financial products.• Correcting misconceptions about ICU - not a charitable institution or a benevolent

society but a business organization operating on Islamic lines for the community. Education & Training

• Islamic Finance Education Program (IFEP) for existing and potential members• Topics and aspects such as Conceptual Framework of Islamic Finance, Basic Islamic

Financial Laws, Quranic Verses concerning the economic system of Islam, Ethics and operation of the ICU.

• Weekly/Fortnightly education sessions for members and their beneficiaries/dependents/sureties + opportunities to conduct financial transactions and other businesses of the ICU at the same time - e.g. application for membership, financing, collection of installments, announcements.

Location Inception stage - Mosques, Islamic educational institutions, and centers can be used for

these activities. Financing InstrumentsMurabahah (Cost- plus financing); Ijarah (Leasing); Istisnah (Construction Finance); Salam

(Forward purchase of a commodity); Mudarabah (Passive Partnership); Musharakah (Joint venture); Musharakah Mutanaqisa (Diminishing Musharakah); Qard (Interest-free loan)

Islamic Credit Unions

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Islamic Credit Unions

Al BarakahMulti-purpose Co-operative

Society Limited

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• Belonging to Africa, Mauritius is a dot on world map, but a reference in the region

• Mauritius is a member of the African Union, Southern African Development Community (SADC), the Common Market for Eastern and Southern Africa (COMESA) and the Indian Ocean Rim – Association for Regional Cooperation (IOR-ARC).

• In 2012 the Board of Investment of Mauritius launched the Africa Centre of Excellence to discover investment opportunities in the African continent, to provide information on Mauritian companies doing business in Africa, to facilitate joint venture opportunities between the international investors and local companies.

• Mauritius has signed Investment Promotion and Protection Agreements (IPPAs) with 15 African countries

• International Arbitration Act 2008 – Mauritius is increasingly being used as an arbitration jurisdiction and in particular as a centre for International Commercial and Investment Arbitration, in the African Region.

• Chartered Institute of Logistics and Transport Africa Forum Meeting, Wednesday 09 March 2016

Mauritius and Africa

• Facilities in Mauritius - Liberalised Legal Services to enable foreign law firms to establish local offices or joint ventures with Mauritian lawyers

• Air transportation sector, a historical agreement has been signed with Changi Airport Singapore for the establishment of an air corridor between Asia and Africa using Mauritius and Singapore as hubs. Air Mauritius has made good progress to increase the number of destinations and frequencies in Africa, which is also planning to operate to Dar-es-Salam and Maputo as from May this year. Other destinations such as Harare, Lusaka, Mbabane and Gaborone upcoming… ( PM Keynote Address )

• International banks operating in Mauritius – HSBC, Standard chartered • Bilingual – English, French & other Asian languages• Commitment of authorities to promulgate Islamic Finance in Mauritius • 2007: Adherence of the BOM as Associate Member to IFSB. Graduated to

Full Membership in October 2008 • April 2009: Launch of Islamic window by HSBC Amanah and October 2009:

Islamic banking license granted to Century Banking Corporation Ltd • 2010: Signing of Agreement for the establishment of International Islamic

Liquidity Management Corporation (IILM). The BOM becomes founding member of IILM.

Facilities in Mauritius

Why Mauritius• Impressive track record, political stability and

more than 3 decades of sustained economic growth

• Secure investment location with established rule of law

• Freest and most business-friendly country in Africa

• Peaceful, multi-ethnic with a unique lifestyle in a blend of cultures

• Investment-friendly regulatory regime• Ocean State with one of the largest Exclusive

Economic Zones in the world• Preferential market access to Africa, Europe

and the USA• State-of-the-art infrastructure• Active double taxation agreement (DTA) with

43 countries

Quick FactsGDP per capita: approx. USD 9,200 * Moody’s Investors Service: BAA1 (2015)Population: approx. 1.3 millionPolitical System: Democracy with free and fair elections held every 5 yearsOfficial Language: EnglishLegal System: dual system (Common & Civil Law)GDP Growth: 3.4% * Unemployment: 8% * * 2015 est.

Why MauritiusInternational Benchmarks

No Index Global Rank Africa Rank1 World Bank Doing Business 2016 32 out of 189

countries1st

2 Global Competitiveness Index 2015-2016 46 out of 140 countries

1st

3 Corruption Perceptions Index 2015 (Transparency International)

45 out of 168 countries

5th

4 International Property Rights Index 2014 31 of 97 countries 2nd5 Mo Ibrahim Index of African Governance 2015 - 1st6 2016 Index of Economic Freedom

(Heritage Foundation)15 out of 178 countries

1st

7 Economic Freedom of the World 2015(Fraser Institute)

6 out of 157 countries

1st

8 Human Development Index 2015 63 out 188 countries 1st

9 Global Enabling Trade Report 2014 – World Economic Forum

29 out of 138 countries

1st

10 Forbes Survey of Best Countries for Business 2014

34 out of 145 countries

1st

Chinese3%

Christians28%

Hindu51%

Muslims18%

Distribution of Population

• Location – I.O, gateway to Africa, South Asia & Asia• Political - Democratic• Multi-religious society• Population: 1.3 M

Geographical Background & Population of Mauritius

Presence in all walks of life: Islamic schools, professionals, orphanage, business, politics, etc.

Contribute enormously in the development of the economy As a community, little has been done to establish the IBF.

In 1990’s there was a keen desire by Muslims to establish an IB in Mauritius.

Preliminary work carried out – Research - Different Laws, Coop Law

Formation of an Islamic Financial Cooperative/Credit Union in the Cooperative sector - AL BARAKAH

Muslims in Mauritius

Formation meeting by promoters & committed members Draft Rules, RegulationsRegistration with the Registrar of Cooperatives

(10th June 1998)Legal Framework

Operates: - Within the Co-operative Societies Act 2005 - Within the framework of its rules, regulations and policies - According to Islamic Financial principles

Formation of ABMCSL

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Organisational Structure

Shari'ah Advisor: Dr. Monzer Kahf

Products & Services

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• Creating awareness about Islamic Finance by organizing lectures, training, seminars, conferences, workshop, …

• Organising Umrah • Coming Insha Allah * AB Zakat Fund * Halal Tourism• Opportunities with AL BARAKAH for IBF in Mauritius • Legal & Regulatory Framework: The Banking Act 2004 - Amended 2007 The FSDA 2001 (Non-Banking activities) The Cooperative Societies Act 2005 -Membership for

corporate bodies for projects/joint ventures.

Other Activities

Challenges at various levels• Change in the mindset of Individuals -• Government / Regulators LevelMust support community-level finance by providing a favorable legal, and tax

incentives .In many countries, credit unions are governed by the Credit Union Act although the global trend is moving towards the regulation and supervision of credit unions by the Central Bank. (Trinidad and Tobago, Republic of Ireland). The same policy can be applied for the regulation and supervision.

• Global Level - Due to the prevalence of ICU globally, there is a need for international

bodies of IF such as AAOIFI, ISRA, IFSB and IDB to at least establish a special unit or department for development of this sector. Responsibility as regulator, facilitator and for developing Shariah standards for products that promote these efforts.

- WOCCU, has already taken the lead in this perspective by establishing Islamic Investment and Finance Cooperatives in Afghanistan (2004–2012) and afterwards, becoming the first to publish the Islamic Finance Manual (a first known guide for establishing Shari’ah-compliant credit unions in the developing world). Now, WOCCU is shifting its attention to Libya.

• ICU is in line with both cooperative and Islamic principles • Financial services to all strata of the community in Africa.• Opportunities of managing the wealth of the community in a Shari’ah

compliant manner.• ICU will assist to build up a robust community-based financial institution,

spread ownership of business and reduce concentration of wealth. • A combination of self-reliance with active participation of the community

will strengthen economic and social development in Africa• Global prosperity cannot be pursued without the inclusion of the Africa• ICU can make people have to learn to live a modest and balanced material

and spiritual lifestyle/good life (Hayat tayyiba) to attain success (falah). • Overall, the whole global community will benefit if they take the initiative

to bring about the desired change as Allah says: “…Indeed, Allah will not change the condition of a people until they change what is in themselves…” (Ar-Ra`d 13:11)

• Concern for community - Finally it will be the job of everybody

Conclusion

Mr. Mamode Raffick NABEE MOHOMEDFounder & Secretary AL BARAKAH MCSLE-mail: albarakahcoop@yahoo.com rafficknm@yahoo.comwww.albarakahcoop.orgTel: (+230) 6275766, Mb. 57781738

AlHuda CIBE FZ LLE - U.A.EP: + 971 56 9286664, + 971 55 938 99 00

AlHuda Center of Islamic Banking & Economics - Pakistan

Ph: (92-42) 35913096 - 98, Fax: (92-42) 35913056Email: info@alhudacibe.com Website:

www.alhudacibe.com