The document summarizes a presentation given at an international conference on Islamic microfinance. It discusses Akhuwat, an organization that provides interest-free microloans in Pakistan according to Islamic principles. It notes that Akhuwat has achieved over 99% repayment rates by lending through mosques and relying on community participation and volunteerism. Additionally, Akhuwat converts some borrowers into lenders by having them donate small amounts to the loan fund. This communal model of microfinance has been highly successful in alleviating poverty according to Islamic values.

1. International Conference onIslamic Microfinance By : CENTER OF ISLAMIC BANKING & ECNOMICS Held At: Faisal Auditorium Islamabad

2. AtherAzim Khan Professor of Finance University of Central Punjab Akhuwat: Redefining Microfinance

3. Internationally microfinance is considered a viable proposition to alleviate poverty but its sustainability is related to high interest rates. It is said that for those poor people who have entrepreneurial skills but they do not have access to finance can come out of poverty by using microfinance but microfinance should be provided to them at a very high financial cost considering that micro businesses are more profitable than other commercial businesses. General Perceptions about Microfinance

4. The argument in favor of high financial cost is the importance of sustainability of Microfinance Institutions, which is related to high costs charged to the poor borrowers. It is said that many of micro credit borrowers fail in their businesses and lose their money. This results into high percentage of bad debts, which again needs to be covered by the high financial cost. General Perceptions about Microfinance

5. Further, it is said that the experience of the world has proven that providing subsidized microfinance to poor does not work. Massive defaults are made and microfinance funds eradicate stopping the whole process. Experiences of providing lost cost microfinance to poor people have failed. This has resulted into making of such policies by fund providers, which require lending at high rates and pushing the poor to their limit. General Perceptions about Microfinance

6. Akhuwat model is not less than a miracle as Ahuwat has proven all the existing viewpoints regarding microfinance wrong. Malcolm Harper says that many wrongs written in his book ‘What is Wrong about Microfinance’ are corrected by Akhuwat. Akhuwat has proven that poor borrowers are more trustworthy than the rich and it has achieved a phenomenal rate of recovery i.e. more than 99% Ahuwat Model

7. Some of the important attributes of Akhuwat model are absolutely opposite the general practices of the world. Akhuwat has not only implemented this model but has seen a phenomenal growth in a short span of time. Akhuwat is also replicated this model with the help of local community Akhuwat Model

8. Akhuwat proves interest free financing, which on one hand is total negation of the philosophy that microfinance is not viable without high financial cost and on the other hand is the true form of Islamic microfinance. Akhuwat is done it by providing micro credit as Qarz-e-Hasna, which is an Islamic model and is cost free. The world says that subsidized microfinance is not viable and Akhuwat gives extreme subsidy i.e. zero cost of financing. Interest Free Financing

9. Akhuwat has revived the role of mosques in an Islamic society. Mosque was a center of many activities in the Muslim communities, which are unfortunately now just used to offer obligatory prayer. Akhuwat holds its disbursement ceremonies of micro loans in mosques to revive the role of mosques and to inculcate the Islamic spirit in the society Involving Mosques

10. Students of many universities and people from other walks of life work as volunteers for Akhuwat. This spirit of volunteerism provides new blood to the whole society. Spirit of Volunteerism

11. Another achievement of Akhuwat is converting borrowers into contributors of funds i.e. lenders of microfinance. Those borrowers who grew but effectively utilizing the money are now fund providers. Some have contributed extremely large sums of money to the Akhuwat fund. Another unique way of converting borrowers into lenders is by asking them to divert their tiny amounts of charity to Akhuwat fund, which collectively becomes tens of millions. Converting Borrowers into Lenders

12. It is also a common criticism on microfinance that loans are given for new businesses but are used for something else, hence the whole philosophy of providing microfinance to alleviate poverty eliminates. Although, Akhuwat also provides microfinance for other purposes such as rebuilding of houses or shops, repayment of extremely expensive loans etc., but majority of the loans of Akhuwat are to start a new micro business. This does not only ensure increase in the income of poor people but also makes repayment possible in most effective manner. Utilization of Microfinance

13. My interest in microfinance developed when I learnt about Akhuwat. Analyzing the Akhuwat model I have come up with a new theory. The Theory of Communal Viability as the Akhuwat model is based on community participation. Those who have money pay, those who need money borrow, those who do not have money but want to participate work as volunteers, use that place for the purpose which belongs to the whole community i.e. mosque. Funds are provided by the rich people of society Poor of the society are provided micro credit Mosques are used to provide microfinance People of the society work as volunteers in the process The Theory of Communal Viability

14. Thank You CENTER OF ISLAMIC BANKING & ECNOMICS Head Office: 192- Ahmad Block, New Garden Town , Lahore, Pakistan Ph: +92-42-35913096-8, 35858990, 38407850 Fax: +92 -42-35913056E-mail : info@alhudacibe.com Web: http://www.alhudacibe.com