By Farhat Abbas Shah,

Microfinance Focus, August 6, 2011: 10 core components of Islamic Microfinance Model require a bit elaboration of the prohibitions also. When we enter in Poverty alleviation scene through any Islamic model, we can’t exclude Zakah, Qarz e Hasna, and Sadqah Khairat.  The microfinance professional who believes in microfinance as a social business will agree that earning high profits by the partnership with the poor is better than earning from the poor. If we claim that we wish to make the poor productive but we did do not develop the mechanism and can not assure the productivity of the poor, how we can expect the required results even from the mechanism we implement. According to CGAP Microfinance Gateway, the study ‘’ Non-Productivity of Microfinance Loans in Pakistan” by Mazhar M.(4 Sep 2010 microfinance gateway) “examines the productivity of microfinance loans in Pakistan. It compares the success of Islamic microfinance lending methodology in Pakistan to that of conventional lending.

The study is based on field work with foundations and bank clients, and data obtained from MFI and microfinance bank employees. It discusses:

• Principles and objectives of microfinance;

• Challenges faced by Pakistan’s microfinance sector;

• Principles and methodologies of microcredit;

• Microfinance programs in Pakistan;

• Comparison of microfinance methodologies in Pakistan;

• Principles of Islamic microfinance;

• Difference between productive and non-productive loans;

• United Nations Millennium Development Goals.

The study illustrates the asset delivery methodology (Farz methodology) developed by the Farz Foundation. It compares data from conventional and Islamic MFIs in Pakistan on aspects such as staff behavior, facilities offered by MFIs, loan type preferred by clients, impact of loans on microenterprises and poverty, and productivity of loans. It identifies characteristics of a successful MFI and emphasizes the importance of trust-building with clients. The study states that MFIs in Pakistan should focus on attaining the Millennium Development Goals.”

Why the organizations lost their trust among the borrowers? Because they remain unsuccessful to make them productive, while they didn’t stop taking profits from them.

The most important impact of Islamic Mechanism of poverty alleviation is that it justifies the losses and profits in a very humanistic way to make an economic justice for every one either he or she is an investor or service provider or partner. The prohibition of usury, actually based on this above mentioned philosophy. Interest based financial tools can not focus on any one’s productivity.  They keep watching only one-sided profitability.

There is an issue of taking some profit on Qarz e Hasna prevails as a hidden syndrome can be observed in a few of Islamic Microfinance organizations.

But a number of Muftees are not ready to digest it as a Halal transaction according to the Qarz e Hasna Principals. The turning of Zakah into Qarz Hasna is already an interrogative sign for Ulema (Muslim scholars). Here we can see what Islam says about Zakah and Qarz e Hasna as followed.

Literally Zakah means

Blessing, purification, increase and goodness. It is so called as it blesses the wealth from which it is taken and protects it from misfortunes. Ibn Taimiah said, "The soul of one who gives Zakah is blessed and so is his wealth."

Technically Zakah is defined as

"A determined portion taken from wealth and allocated to those deserving it, by a Qur'anic injunction." Sometimes Zakah is referred to in the Holy Qur'an as Sadaqah (alms). The Qur'an says, "Of their goods take alms, that so thou mightest purify and sanctify them; and pray on their behalf, verily thy prayers are a source of security for them." (Surah Al-Taubah, No.9, Verse: 103). In an authentic hadith, the Prophet (peace be upon him) said to his Companion Mu`adh, when he was sent to Yemen as governor, "Tell them that Allah has made Zakah obligatory for them, that it should be collected from the rich and distributed among the poor."

It is clear that there is not any modification is allowed in the case of Islamic Principles. Only unclear matters can be  brought under  Ijtehad.

Ijtihad (Arabic: اجتهاد‎, ʼiǧtihād) is the making of a decision in Islamic law (sharia) by personal effort (jihad), independently of any school (madhhab) of jurisprudence (fiqh).[1] as opposed to taqlid, copying or obeying without question.  It is mainly associated with the Shi'a Muslim Jafari school of jurisprudence. To be valid and accepted it has to be rooted in the Qur'an and the hadith and it is required that no established doctrine rules the case. A mujtahid is an Islamic scholar who is competent to interpret sharia by ijtehad( Wikipedia )

In Islamic law, the analysis of problems not covered precisely in the Qur'an, the Hadith, or the scholarly consensus called the ijma'. In the early Muslim scholarly community, every jurist had the right to exercise such original thinking, but the growth of legal schools prompted Sunnite Muslim authorities to declare that the principal legal issues had been settled by the 10th century. Shi'ite Muslims have always recognized ijtihad, and jurists considered learned enough for this kind of analysis have great authority. In the 20th century an attempt was made to restore ijtihad among Sunnites to help Islam adapt to the modern world.

The directions about Zakah and Qarz e Hasna  are very clear and they don’t need any more elaboration or explanation. So that to translate them according to any ones strategy is not only a sin but a social crime also, because instead of providing kind hearted donors awareness, taking benefit of their unawareness can not be call a social work. In the long run it can be a media blast like the Norwegian Govet and professor Yunus story of misusing the aids funding. Qarz e Hasna also can not be used as a loan. Any kind of benefit against Qarz e Hasna is strictly prohibited. The lender of Qarz e Hasna can not bound the beneficiary to pay within a particular time period. It is upon the borrower’s discretion that when he pay back the loan. May be till he/she gets economically sustainable.

There is still a dilemma of Islamic Banks that they are not willing to become a partner on profit and los basis instead of a lender.

In Pakistan Punjab province assembly has passed a bill against lending money on interest basis and a committee has been formed ( Shariah compliant loaning to the farmers ) to bridge the Islamic Banks and the formers. Ms. Humaira Awais the member board of advisers of Farz Foundation is the key person to make this milestone effort successful.  So the basic philosophy is an Islamic microfinance Model is to earn money or to get big profits by making the poor partners not by pulling them under debt.  So it must be kept in mind that EARNING WITH POOR, NOT EARNING FROM POOR.

(Disclaimer: Views expressed in the article by the author are his own and do not necessarily represent those of Microfinance Focus. Microfinance Focus does not take any responsibility for correctness of the data presented by contributors.)