Islamic Microfinance Challenge: Profiling Tameer Bank, Pakistan
Winning project idea
At Tameer, we consistently hear a need for Islamic Banking products. Pakistan does not have any visible Islamic microfinance banks or institutions, so this is a critical project to move forward, albeit in a staged way to limit risk and cost and making sure that we apply new learning as we go. With the basic infrastructure in place, Tameer envisages a healthy Islamic Banking Portfolio. Eight products are expected to be launched; four on the asset side (Murabaha, Bai’ al ‘inah, Ijarah, Musharika), three on the liability front (current /checking account, Mudarba, Mudarba certificates), and one Takaful product (health microinsurance).
A separate Islamic Banking Division will be created within Tameer to serve as the business managing unit for Islamic banking. This business unit will have dedicated front end staff both at the head office as well as in all the dedicated Islamic banking branches and Islamic business desks in the conventional branches. All back office and support services like HR, Audit, and Financial Control will be shared between the conventional and the Islamic bank. A senior level Shariah Advisor, reporting directly to the CEO, will help structure banking products that are in compliance with Shariah principles.
Innovation
Tameer appreciates the fact that for any plan to be successful, it requires effective marketing, so we are looking at two parallel marketing tracks:
Above-the-line: Mass media campaigns will be run introducing Islamic Products. Deposit products shall be focused upon more initially with gradual introduction of the whole array of shariah complaint loans within a period of six months.
Below-the-line: Since Tameer focuses upon the un-banked population for their socio-economic empowerment, we have some experience in below-the-line marketing. So for Islamic Banking, for example, we will be conducting activities that include an Islamic Bachat event. Brochures and pamphlets will be distributed at meetings in places of congregation in densely populated areas that are not currently included in the banking sector.
Islamic Portfolio: Achieving financial sustainability with Islamic products
Islamic microfinance is meant to provide certain sections of the society with an opportunity for financial inclusion that otherwise stay out of it on religious grounds. When looked at from the overall business plan perspective, this initiative is of strategic importance to Tameer Bank; hence, we are not aiming for quick wins. Tameer views Islamic Microfinance as a journey which will take investment and patience to gain the trust of the target segments.
Below is a snapshot of the projected growth of Islamic Microfinance portfolio and the performance indicators.
With an average loan size of USD 200, the net Islamic portfolio is expected to grow many-fold: within three years of launch in 2011, we estimate growth for Islamic portfolio from USD 0.7 million in 2011 to USD 7.8 million in 2013. The growth in portfolio will be aided by deposits which could reach USD 7.76 million in 2013 – a growth rate of 558% since 2011, making the ratio of portfolio to deposit a very respectable 1.02.
On the profit and loss front, total revenue to 2013 is expected to stand at USD 1.6 million, with total net income of USD 0.86 million.
Starting from just 1,750 borrowers in 2011, Tameer plans to reach over 36,000 borrowers in 2013. Women borrowers will constitute about 29% of the Islamic portfolio on average, outmatched by the 39% of the women savers out of a total of 76,000 for the year 2013.
With operational sustainability more than 200% for 2013, and financial sustainability averaging at around 129%, the model so proposed is expected to have a healthy Return on Assets (ROA) of 9% and Return on Equity (ROE) of 62%.
Scaling up in Pakistan
By the end of 2013 there will be one fully operational Islamic branch along with nineteen Islamic counters of Tameer at existing branches offering Islamic deposit and loan products.
Once the counters have been introduced, a hub-n-spoke structure will connect a single counter in a branch to ‘sales and community center(s)’ which will also act as marketing and selling vehicles for Tameer’s Islamic Banking portfolio.
Introducing Islamic products through counters in existing branches, instead of entire dedicated branches will help reach out to many more potential clients. The Islamic product, however, will not blend with conventional products as the former will adhere strictly to Islamic principles. Tameer plans to change the geographical locations of the counters or convert branches to Islamic branches at a later stage, depending on demand.
Also in this Series
Islamic Microfinance Challenge: A Summary
A business model for Islamic microfinance: what does it need?
Al Amal, Winner of the Islamic Microfinance Challenge 2010
Al Amal provides various financial services and products (Islamic financing, savings, solidarity insurance, etc.) and is among a handful of microfinance institutions in the Arab World providing Islamic financial services.
Comments
Islamic micro finance is a
Islamic micro finance is a very good initiative to be taken for a poor country. But the current experience of Islamic banking and Islamic financing could not provide worthy results.
There are two very important contributing factors amongst rest of the working indicators.
1- Socio- Economic conditions of the country
2- Products offered in the context of existing interest based banking.
Almost all Islamic countries are following the interest based economic system. The concept of “free economy” and foreign loans dismantle the concept of Islamic financing. It strengthened a concept that “Economy cannot be run without interest base banking system”. Addition to the situation there is a horrible income disparity amongst the masses. The ratio of rich and poor is almost 20/80 all over the Muslim world. This uneven distribution of wealth invited a cut throat competition and wide spread corruption which lacked the golden Islamic values of benevolence, truth, honesty, trust, brotherhood, etc. Spiritualism is an integral part of Islamic economics which bases on trust and answer ability to GOD for ones all worldly deeds. Whereas, Poverty hampered these all and made a man wild for worldly needs.
Secondly, the product developers ignored the concept of trust and materialized the things only in context of tangible guaranties and mortgages. If we are not selling Islamic finances we cannot get an Islamic customer at all. It needs both hands together to clap.
Islamic banks should offer real profit and loss accounts along with the concept of muzarbah and Musharka. It should be a share in profit and loss for lending and borrowings rather than giving fixed amount or fixed ratio on equity. The business advisors should educate the borrowers about the right business and on the other hand an account holder of the bank should be aware of the investments which bank makes out of their savings.
Islamic Banking is a revolution and I believe it takes some time to come but I am sure that shall come definitely.
ROE = 62%. Very high/good. I
ROE = 62%. Very high/good. I wonder what pro cent of issued financing is based on Musharakah and/or Mudharabah?
With the introduction of
With the introduction of Islamic commercial banking last decade. We see Islamic Banking dedicated branches and Islamic commercial Banks in Pakistan. Its the time for a Islamic Micro Finance Banking in Pakistan. This is the call of this decade.
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