1. MURABAHA MODEL FOR
ISLAMIC MICROFINANCE
Presented at NIBAF Islamabad
Training on Islamic Microfinance
March 07-08, 2008
Presented by
Muhammad Sajid Naveed
Program Manager Economic Development
Human Development Foundation Pakistan
2. MURABAHA MODEL FOR ISLAMIC MICROFINANCE
Objectives
To highlight basic difference between
conventional micro credit and Murabaha
mode of financing
To discuss whether Murabaha can be
suitable for Microfinance with better results
or not?
3. MURABAHA MODEL FOR ISLAMIC MICROFINANCE
• Murabaha is a cost plus sale agreement
• It involves physical transfer of goods
Micro Credit is interest base loan
It involves cash disbursement
4. MURABAHA MODEL FOR ISLAMIC MICROFINANCE
Client pays agreed profit amount which
remains unchanged in Murabaha
Borrower pays interest amount that varies
on daily basis in traditional micro credit
5. MURABAHA MODEL FOR ISLAMIC MICROFINANCE
Probability of loan misutilization
is low in Murabaha
High probability of loan misutilization
in Micro Credit
6. MURABAHA MODEL FOR ISLAMIC MICROFINANCE
No benefit to client on early payment and
no penalty at late payment in Murabaha
There is benefit on early payment and
penalty on late payment in micro credit
7. MURABAHA MODEL FOR ISLAMIC MICROFINANCE
The principle amount is recovered
first and profit is recovered later
Interest amount is recovered first and
principal amount is recovered later
8. MURABAHA MODEL FOR ISLAMIC MICROFINANCE
Common Features
o Applicable for group based methodology as
well as for individuals
o Labour intensive
o Suitable for working capital and fixed asset
financing
o Need systematic approach for risk mitigation,
economic viability and sustainability
o Target poor segment of community
o Social collateral
o Require vigilance in monitoring & supervision
o Exquisite customer service is essential
9. MURABAHA MODEL FOR ISLAMIC MICROFINANCE
Murabaha in Practice
• Hodeidah Microfinance Program Yemen
• Human Development Foundation Pakistan
10. MURABAHA MODEL FOR ISLAMIC MICROFINANCE
Key Advantage
Customer feel comfort in Murabaha because of
religious aspect
Key Disadvantage
Special arrangements & vigilance required for
purchase & sale of goods
