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Islamic Credit Unions & Financial Cooperatives

Majed Salah
By Majed Salah
6 years ago
Islamic Credit Unions & Financial Cooperatives

Ard, Islam, Mal, Murabahah, Musharakah, Takaful , Waqf, Reserves


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  1. Islamic Credit Unions & Financial Cooperatives 7th International Economic Summit of Russia and OIC countries June 15-16, 2015 – Kazan, Russia AL BARAKAH Multi-purpose Co-operative Society Limited H.O: Mme Lolo Road, Rose Belle, Mauritius Tel: (+230) 6275766 E-mail: albarakahcoop@yahoo.com; www.albarakahcoop.org
  2. Islamic Credit Unions / Financial Cooperatives KAZANSUMMIT2015 June15-16,2015-Kazan,Russia Agenda Introduc)on:TheIslamicFinanceindustry TheCoopera)veMovement&CreditUnions CreditUnionsWorldwide CreditUnion/FinancialCoopera)ves IslamicFinancialCoopera)ves/IslamicCreditUnions Se@ngupIslamicCreditUnions FinancingInstruments&ReservesandotherFundsofIslamicCredit Unions •  Challenges •  Conclusion •  •  •  •  •  •  • 
  3. The Islamic Finance Industry KAZANSUMMIT2015 June15-16 ,2015-Kazan,Russia Evolution, Growth & Criticism •  EmergenceofIFIssince1960&growth-IBFIhasbecomea reality •  Observa)on–Sa)sfac)on–Growth •  Cri)cs: -  mimickingtheconven)onalproducts -  whether IFI are achieving the Islamic ideals of economic jus)ce -  providing necessi)es of life and well-being of the community -  good life and spiritual peace are available to society at large–encouragingconsumerism •  IFI – Mobilise resources to promote development in a Shariah-compliantmanner.
  4. KAZANSUMMIT2015 June15-16 ,2015-Kazan,Russia Islamic Financial Institutions •  TypesofIFI:F-B-T-L-FH •  DominancebyICB(HNW)& neglectedareaslikeIslamic microfinance&ins)tu)onslike coopera)veswhichare community-basedorganisa)ons (CBO)andhaveeconomicaswell associalobjec)ves. •  ExperimentofDr.A.Naggarof mobilizingsavingsandcreditsfor socio-economicdevelopment. •  Back-IBFevolvedthroughthe coopera)vesector-actedasa steppingstone
  5. Coopera )ve Bankin Germany- Delitzsch 7Principles •  Voluntaryandopenmembership •  Democra)cmembercontrol •  Membereconomiccontrol •  Autonomyandindependence •  Educa)on,trainingandinforma)on •  Co-opera)onamongco-opera)ves •  Concernforcommunity 1888–todate 24thOctober -Rockdale Pioneers, England 1852 1844 KAZANSUMMIT2015 June15-16,2015-Kazan,Russia The Cooperative Movement & Credit Union Further Developments Coopera@ve Movement& creditunionshas spreadalloverthe world
  6. Islamic Credit Unions / Financial Cooperatives Credit Unions Worldwide KAZANSUMMIT2015 June15-16,2015-Kazan,Russia WOCCU Statistical Report 2013 ** Penetration rate is calculated by dividing the total number of reported credit union members by the economically active population age 15-64 years old.
  7. Credit Unions - Financial cooperatives that may accept savings , deposits, provide credit and other financial services to its members KAZANSUMMIT2015 June15-16,2015-Kazan,Russia Africa SACCOS (Savingsand Credit Coopera)ve Socie)es) Afghanistan Islamic Investment andFinance Coopera)ves (IIFCs) CreditUnions Indonesia BaitulMaal watTamweel (BMTs) Egypt Savingsand Credit Associa)on knownasthe Gam’iya Throughouthistorythemodelhasprovedthatitisonethatmaybeadapted totheneedsofdifferentpopula7ongroups,differentcultures,languages,and religions,aswellastodifferentlegal,poli7cal,andeconomicsystems.
  8. Islamic Credit Unions / Financial Cooperatives Features •  Membership: People from all walks of life - Common bond •  Ownership - member-owned organization KAZANSUMMIT2015 June15-16,2015-Kazan,Russia •  Democratic - one member-one vote •  Capital: Financial dignity - Shares, savings and deposits from members •  Financing/Loans: savings precedes financing, spirit of savings ( 1x3 ) •  No maximization of profit/Surplus/profit returned to shareholders in terms of dividend, patronage bonus, lower fees, reserves and better services Islamic Credit Unions / Islamic Financial Cooperatives •  ICU refers to retail financial services in compliance with Islamic financing principles. •  Efforts on several fronts over the past 50 years to promote and set up ICU around the globe. •  During the past 8 years, WOCCU has built a network of 34 Islamic Investment and Finance Cooperatives across Afghanistan.
  9. Islamic Credit Unions Tracing History 1890 India •  EffortsintheorganizedsectorunderthestyleofthePatniCoopera)veCreditSocietywasestablished in1942,almostimmediatelyagertheadop)onoftheIndiancoopera)veAct1940(Dr.RahmatullahIFFIofIndiaincrisis/Bagsiraj-IFII,publishedbyKAU,Jeddah-2003) KAZANSUMMIT2015 June15-16,2015-Kazan,Russia 1960 Egypt and Pakistan •  “FormalIslamicbankingfirstemergedintheearly1960’sthroughcreditunionsofMuslimlandowners inEgyptandPakistanwhosimplypooledtheirresourcesandcouldtheninturndrawoutfundsfor agriculturalimprovementsonanon-interestbasis.”(ProfRodneyWilson) 1980-1982 •  Duringtheperiod1980-1982,AlhajiSaiyadiRingim,ChairmanofNASCUN(theNigeriancreditunion federa)on)andalsoChairman ofACCOSCA(thePanafricancreditunionconfedera)on)undertooka missiontoCairo,EgyptwherebyheconsultedIslamicscholarsabouttheapplica)onofIslamiclawto economicsandfinanceandaboutthefeasibilityofcreditunionsinMuslimsocie)es(Alhaji,1982). 1987 Thailand •  “HistoryofIslamicFinancialsysteminThailandstartedwiththeestablishmentofacoopera)ve society,PamaniIslamicSavingCoopera)vethatoperatesbasedonShari’ahin1987…”(Haron& Yamirudeng) 2003 India •  Studyshowsthatthereareins)tu)onsthathavegrowntoasizeof14IslamicCoopera)veCredit Society(ICCS)inIndia.Bagsiraj,2003 2006 Trinidad & Tobago, Imtiaz Ali, 2006 •  FounderofMuslimCreditUnionCo-opera)veSocietyLtd,Trinidad&Tobago,submimedaconcept papertotheIDB,Jeddah,SaudiArabiaasanini)a)vetothepromo)onofIslamicfinancethroughthe coopera)veandcreditunionsystem.
  10. KAZANSUMMIT2015 June15-16 ,2015-Kazan,Russia Islamic Credit Unions in Muslim-majority & Muslim-minority Countries CreditUnion Country Year MainProducts/Remarks Koperasi Muslimin Malaysia Berhad Ansar and Islamic Co-opera@ve H o u s i n g C o r p o r a @ o n L t d . (ACHC) Muslim Credit Union Coopera@veSocietyLimited P a X a n i I s l a m i c S a v i n g Coopera@ve M u s l i m C o m m u n i t y C o opera@veLimited Malaysia 1980 Canada 1981 BaiBithamanAajil;MuslimWelfareScheme(Al-Abrar); QardHassan Interest-free home ownership and investment opportuni)es QurtubaHousingCo-op Quebec,Canada 1991 T r i n i d a d & 1983 Tobago Thailand 1987 NA Australia Facilitated over $750 million in Islamic home finance andmanagescloseto$30millionininvestments. 1989 NA Musharakahousefinancing Loans and Savings Abertawe Swansea, Great 1992 (LASA)CreditUnionLtd Britain Conven)onal credit union offering Shari’ah compliant savingsandfinanceproductstoitsmembers(HajjFund, MarriageFund;FuneralFund,MurabahaandWakala) AmeenHousingCo-opera@veof California California,Inc.(AHC) Islamic Co-opera@ve Finance Australia Limited 1996 Investmentsandhomefinancing 1998 Al Barakah Mul@-purpose Co- Mauri)us opera@veSocietyLimited 1998 Housing and vehicle finance; Hajj fund; Qard Hasan (Benevolent) fund; Children Educa)on fund; small businessfinance;financeforotherhouseholdgoods Murabahah;Is)sna;QardHasan;HajjSavingsAccount; Coopera)veSolidarityFund/Takaful
  11. KAZANSUMMIT2015 June15-16 ,2015-Kazan,Russia Islamic Cooperatives / Islamic Credit Unions in Muslim-majority & Muslim-minority Countries CreditUnion Country Year TakafulT&TFriendlySociety T r i n i d a d & 1999 Tobago FML Mul@-Purpose Co-opera@ve FijiIslands 2004 Society BalkhSavingsandCreditUnion Mazar-e-Sharif, 2004 Afghanistan JawsjanSavingsandCreditUnion ManzilCo-opera@ve AlIslamiahSavingCoopera@ve AmwalCreditUnion S h e b e r g h a n , Afghanistan T r i n i d a d & Tobago Thailand HongKong Janseva Coopera@ve Credit Society India Limited AssiniboineCreditUnion(ACU) IslamicCreditUnionofCanada(ICUC) NA: Not Available MainProducts/Remarks Funeral Benefit; Hajj Fund; Investment Fund; Waqf (Cash Waqf, Real Estate Waqf); Property Ownership NA NA 2004 NA 2006 NA NA 2009 NA Ijarah; Murabaha; Is)sna'a; Musharakah; Wakalah; and a variety of accounts and wealth managementservices VarioustypesofDemandandTermDeposits Accounts;Murabaha;Mudaraba;Musharaka; Ijarahandmanyothers FirstbanktoofferIslamicmortgageservices exclusivelyatoneofACU’sbranches hmp://www.icucan.ca/home 2010 W i n n i p e g , 2010 Canada Canada NA Source: Computed
  12. Setting up Islamic Credit Unions •  ConceptualFramework “Cooperatewithallinwhatisgoodandpiousanddonotcooperatein whatissinfulandwicked…”(Q-5:2)-Ta’awoun KAZANSUMMIT2015 June15-16,2015-Kazan,Russia •  LegalFramework:Easyforma)on,lessregulatedthanothercorporatesector (Coopera)vesAct,CreditUnionAct);Shari'ah-compliant •  Values: –  IFbasedonIslamicethics/values:jus)ce,sharing,solidarity –  Coopbasedonvalues:honesty,equity,solidarity,self-help,mutual-helpetc •  •  •  •  •  •  Commonbond CBO(community-basedorganiza)on)/Member-ownedorganiza)on Smallseedcapital–canpromotesavingcultureamongthecommunity Incen)ves&Benefits–TaxReliefincertainjurisdic)ons Broadenownershipofbusinessandreduceconcentra)onofwealth Democra)sa)onoftheIFS(SMFInst.)
  13. Islamic Credit Unions KAZANSUMMIT2015 June15-16 ,2015-Kazan,Russia Formation & Organization •  Ini)al contribu)on of founder members who are conscien)ous and commimed peopletoprovideanalterna)vetotheinterest-basedins)tu)on •  Democra@cStructure/Management –  Democra)c:1man-1vote,Board&Sub-commimees •  Shareholdings/Membership/Returns –  Open to people from all walks of life, established by the people, for the people –  Community-based organiza)on (CBO) - Member-owned society where the spiritofownershipand senseofbelongingtoanIslamicfinancialins)tu)on willbepresent. –  Financialdignitybymobilizingcapitalfromthecommunity/members-shares, savingsanddeposits –  Not-for-profit-maximiza)on - reasonable profit on financing products, MudarabahandMusharakah –  Returnstoshareholders/members. •  OrgansofControl,Audit&GoodGovernance AGMappointInternalController,ExternalAuditor,sub-commimeesandShari’ah SupervisoryCommimeetoensurethattheaffairsoftheins)tu)onareconducted inaccordancewithShari’ahandwithinprovisionsoftheLawofthecountry
  14. Islamic Credit Unions KAZANSUMMIT2015 June15-16 ,2015-Kazan,Russia Marke@ng •  LackofawarenessofIslamicfinancialproducts. •  Correc)ng misconcep)ons about ICU - not a charitable ins)tu)on or a benevolent society but a business organiza)on opera)ng on Islamic lines for thecommunity. •  Word-of-mouthmarke)ng Educa@on&Training •  IslamicFinanceEduca)onProgram(IFEP)forexis)ngandpoten)almembers •  Topics and aspects such as Conceptual Framework of Islamic Finance, Basic Islamic Financial Laws, Quranic Verses concerning the economic system of Islam,Ethicsandopera)onoftheICU. •  Weekly/Fortnightly educa)on sessions for members and their beneficiaries/ dependents/sure)es + opportuni)es to conduct financial transac)ons and otherbusinessesoftheICUatthesame)me. Loca@on Incep)on stage - Mosques, Islamic educa)onal ins)tu)ons, and centers can be used fortheseac)vi)es.
  15. KAZANSUMMIT2015 June15-16 ,2015-Kazan,Russia Islamic Credit Unions FinancingInstruments ReservesandOtherFunds Murabahah(Cost-plusfinancing) StatutoryReserve Ijarah(Leasing) Is)snah(Construc)onFinance) Salam(Forwardpurchaseofa commodity) Mudarabah(PassivePartnership) Musharakah(Jointventure) DividendEqualisa)onFund(canserveasabufferbetween acertaindividendlevelandprofitsavailable.) ProfitEqualisa)onReserve(saversanddepositors authorizetheICUtodeductfromthenetincomeaPER contribu)onforpaymentintothePER.) MusharakahMutanaqisa (DiminishingMusharakah) TakafulTa’awuniFund(toprovidecreditcoverto debtorswhohavebeenfinancedbytheICU,other benefitslikemedical,death,etc) Qard-ul-Hasanah(Interest-free loan) ZakahFund(shareholderscanpayzakah-collectzakahfrom theMuslimcommunityatlarge,setupIslamicMicroFinance ProgrammefortheloweststrataoftheMuslimCommunity)
  16. Challenges at various levels •  IndividualLevel ChangeinthemindsetofIndividuals,whetheronapersonalorprofessionalbasis - should be able to perceive and appraise Islamic finance from an Islamic perspec)veratherthanlookingfromconven)onalbinoculars. KAZANSUMMIT2015 June15-16,2015-Kazan,Russia •  Organiza@onalLevel Islamic org., educa)onal ins)tu)ons, charitable org., welfare associa)ons and others can play a key role in society towards the promo)on of ICU by either se@nguptheirownICUortheycanbeferventsupportersofsuchins)tu)ons. •  CommunityLevel -  Mass educa)on and awareness programs from the grass-root level to enlightenandeducatethecommunityontheconcepts,goalsandprinciplesof Islamicfinance. -  People have to learn to live a modest and balanced material and spiritual lifestyle/goodlife(Hayattayyiba)toamainsuccess(falah). -  Overall, the whole community will benefit if they take the ini)a)ve to bring aboutthedesiredchangeasAllahsays: “…Indeed,Allahwillnotchangethe condi7on of a people un7l they change what is in themselves…” (Ar-Ra`d 13:11)
  17. Challenges •  Government/RegulatorsLevel Support community-based finance - favorable legal framework, tax incen)ves. Facilitator,Financialassistance. KAZANSUMMIT2015 June15-16,2015-Kazan,Russia •  GlobalLevel -  Globalpresence-thereisaneedforinterna)onalbodiessuchasAAOIFI, ISRA, IFSB and IDB to at least establish a special unit or department for developmentofthissector. -  WOCCU, establishing Islamic Investment and Finance Coopera)ves in Afghanistan (2004–2012) & publish the Islamic Finance Manual for establishingShari’ah-compliantcreditunionsinthedevelopingworld. •  HumanResource Dearth of human resource in this sector and investment in human resources capacity is very important. Skilled labour with specialized knowledge in credit unions and cooperatives and Islamic finance would definitely be a plus for the development of ICU.
  18. Islamic Credit Unions / Financial Cooperatives Conclusion •  ICU - in line with both coop and Islamic principles. KAZANSUMMIT2015 June15-16,2015-Kazan,Russia –  Inclusive Financial services to mobilize funds from all strata of the community for economic and social development •  Members to be enlightened that they are not to be interested only with the economic benefits of the institution but also with the spiritual and conceptual part •  Be prepared to face challenges, inconveniences or difficulties that will be unavoidable at the infant stage of the institution. •  Concern for community - Finally it will be the job of everybody & everywhere …
  19. Islamic Credit Unions / Financial Cooperatives ISLAMIC CREDIT UNION AN INCLUSIVE FINANCIAL INSTITUTION TO MEET THE NEEDS OF THE COMMUNITY Mr.MamodeRaffickNABEEMOHOMED Founder&Secretary ALBARAKAHMCSL E-mail:albarakahcoop@yahoo.com rafficknm@yahoo.com www.albarakahcoop.org Tel:(+230)6275766,Mb.57781738