ENHANCING%20FOOD%20SECURITY%20WITH%20ISLAMIC%20MICROFINANCE - PowerPoint PPT Presentation

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ENHANCING%20FOOD%20SECURITY%20WITH%20ISLAMIC%20MICROFINANCE

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Dompet Dhuafa Indonesia. Islamic Social Finance Report. How can Zakat and Waqf be integrated with Microfinance to enhance Food Security? 1. Wasil, Pakistan – PowerPoint PPT presentation

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Title: ENHANCING%20FOOD%20SECURITY%20WITH%20ISLAMIC%20MICROFINANCE


1
ENHANCING FOOD SECURITY WITH ISLAMIC MICROFINANCE
  • Insights from Some Recent Experiments

4th Global Islamic Microfinance Forum 1st
November 2014
2
Islamic Social Finance Report
  • How can Zakat and Waqf be integrated with
    Microfinance to enhance Food Security?

Dompet Dhuafa Indonesia
1.
Wasil, Pakistan
2.
Abu Halima, IRADA, Sudan
3.
Wad Balal, IRADA, Sudan
4.
Strategic Food Reserve (IRADA), Sudan
5.
Summing Up
6.
3
1
Dompet Dhuafa Republika
Community Empowerment Model for Farmers (P3S)
The Problem
  • Limited land
  • Declining soil fertility
  • High input prices
  • Limited capital
  • Human resources with low and limited skills
  • Fluctuating crop prices
  • Continuously declining terms of trade

4
1
Dompet Dhuafa Republika
Community Empowerment Model for Farmers (P3S)
The Program
  • Introduction to integrated and environment-friendl
    y farming
  • Holistic approach involving adjustment of
    cropping patterns
  • Change in farmers attitude and preference from
    conventional farming to green farming system
  • Gradual assistance, guidance for production
    facilities that are safe, locally made ??and
    affordable

5
1
Dompet Dhuafa Republika
Community Empowerment Model for Farmers (P3S)
The Program
  • Finance funded by zakat lease of land loans
    to cover working capital for one growing season
  • Technical guidance to and capacity building of
    farmers
  • Agricultural production facilities (saprotan) to
    produce bio pesticide that is local-based,
    affordable, and environment friendly
  • Marketing support

6
1
Dompet Dhuafa Republika
Community Empowerment Model for Farmers (P3S)
The Empowerment Process also involves
  • Helping farmers get organized as formal
    communities - combined farmers groups (gapoktan)
  • Exit when gapoktan have developed the capacity to
    manage the formal organizations independently
  • With partnerships with other stakeholders in
    place
  • Improved bargaining power towards market
    structure
  • Savings of produce through the FGs

7
1
Dompet Dhuafa Republika
Community Empowerment Model for Farmers (P3S)
8
Wasil
2
More value through better products
The Problem
  • 93 per cent of 5.1 mil farms are small and
    marginal accounting for 60 per cent of the total
    cultivated area
  • About 70 percent of farmers participate in the
    credit market source funds from middlemen
  • Farmers believe that they can save up to 25
    percent in costs if they purchase inputs on cash
  • Farmers usually return the money after the sale
    of the crop
  • Farmers are traditionally skilled but lack capital

9
Wasil
2
More value through better products
The Program Salam Financing
  • Finance for small farmers who need money to grow
    their crops and to feed their families up to the
    time of harvest
  • Payment of agreed price in advance against
    commitment to deliver agreed quantity of produce
  • Lower cost compared to other alternatives
  • Collateral in the shape of guarantee from
    community members or charge on whatever available
    assets available with the farmer, e.g. livestock.

10
Wasil
2
More value through better products
The Program Ijara Financing
  • Wasil takes agriculture land on ijara from the
    owner of the land
  • Wasil sub-leases it to a farmer for agreed period
    of time
  • In case of fruit/vegetable/flower farms, the
    farmer pays monthly rental to Wasil Foundation as
    agreed at the time of the contract
  • In the case of wheat or rice, the farmer pays in
    the form of crop to Wasil Foundation as
    pre-agreed.

11
Wasil
2
More value through better products
The Program Master Ijara Financing
  • Combines the concepts of Ijara and Salam and
    bases the whole return on the principles of salam
  • Farmer gets land on rental as well as cash to
    grow the crop and agrees to deliver a given
    quantity of the crop to Wasil
  • The subsequent cycles of financing are based on
    salam alone.
  • After two additional salam cycles the contract
    comes to an end.

12
3
IRADA Microfinance
Financing the value chain
The Problem
  • Dwindling agricultural production
  • Reduced livestock production and productivity
  • Adverse effect of climate change
  • Conflicts created over the use of scarce natural
    resources, land access
  • Economic factors that affect the livelihoods of
    the various groups
  • Need for institutional strengthening

13
3
IRADA Microfinance
Financing the value chain
A Partnership to create and nurture partnerships
  • Provide financing to farmers who need productive
    assets for developing income generating
    activities or overcome short-term cash needs to
    smoothen consumption
  • Assist clients procure the required physical
    assets, while developing banks own capacity for
    sourcing the common assets
  • Undertake investments to support the funded micro
    projects, e.g. retail centers, warehouses,
    purchase collection centers and others.

14
3
IRADA Microfinance
Financing the value chain
A Partnership to create and nurture partnerships
  • Safety net to clients till the project starts
    generating adequate returns
  • Use of zakat for the indebted
  • Murabaha financing at modest 15 percent
  • Declining Mudharaba ending with ownership of
    project by beneficiaries in a finite time period
  • Extensive business development services

15
3
Abu Halima, IRADA
Financing the value chain
Financing Green Houses
1. Financial partnership between Ministry of
Finance and BoK 2. Nomination of agriculture
graduates for the project by Ministry of Social
Affairs 3. Mudaraba agreement between IRADA (BoK)
and the microentrepreneurs (agriculture
graduates) 4. Setting up of Abu Halima
greenhouses 5. Technical consultancy to
microentrepreneurs 6. Technical consultancy to
greenhouse establishment and operation 7.
Provision of fertilizers and other services by
Ministry of Agriculture 8. Sale of vegetables
output to Sana Hypermarket and others 9. Sharing
of profits (40 for 5 years and 100 after that)
by microentrepreneurs 10. Sharing of profits
(60) by IRADA-BoK for 5 years
1
10
Min. of Finance
IRADA - BoK
3
9
2
Min. of Social Affairs
Graduates
4
5
6
Abu Halima
Tech Consultant
Sana Hypermarket
Min. of Agriculture
7
8
16
4
Wad Balal, IRADA
Financing the value chain
Financing Cattle Fattening
1
1. Diminishing Musharaka Agreement between BoK
and Wad Balal Company (WBC) to create Fattening
Facility 2. Bok helps farmers form Wad Balal
Association (WBA) 3. Murabaha agreement between
BoK and farmers represented by WBA to finance
purchase of calves 4. Ijara agreement between
Musharaka and WBA to use Facility in lieu of
payment of rentals 5. Use of fattening facility
by farmers to make the calves grow 6. Technical
consultancy and training by WBC Delivery of
cattle by farmers to WBC 7. Sale of cattle by WBC
in overseas markets
IRADA - BoK  
Wad Balal Company
8
2
Fattening Facility
OVERSEAS MARKET
3
Wad Balal Association
4
7
5
Farmers
6
Tech Consultant (WBC)
17
5
IRADA Microfinance
Ensuring Food Sovereignty
Financing the Building of Strategic Food Reserve
  • To efficiently purchase goods from farmers for
    sale to the Government of Sudans strategic food
    reserve
  • To replace the middleman and to give farmers a
    better price for their produce based on official
    advance purchase rates determined by the Ministry
    of Agriculture
  • To ensure that the farmers incomes will increase
    and more farmers will be motivated to produce for
    livelihood instead of only for subsistence


18
5
IRADA Microfinance
Ensuring Food Sovereignty
Financing the Building of Strategic Food Reserve
  • In collaboration with Ministry of Agriculture,
    Ministry of Social Welfare, Zakah Chambers, World
    Food program
  • Salam financing with a tenor of max 8 months
  • Target beneficiaries 73,000 smallholders under
    878 Farmers Association in 7 states (23,677
    through direct contract, and 48,396 through
    Mudaraba with other commercial bank)
  • Technical feasibility study and linking the
    farmers with other partners (Bank of Khartoum)


19
5
IRADA Microfinance
Ensuring Food Sovereignty
Financing the Building of Strategic Food Reserve
  • Technical assistance for product quality (Min. of
    Agriculture extension service)
  • Food for farmers during the planting period
    (World Food Program)
  • Grouping the farmers to associations (Farmers
    Union, IRADA)
  • Coordination and monitoring of partners
    activities (IRADA)
  • Building the capacity of farmers group in
    management and follow up (Min of Agriculture
    extension, IRADA)
  • Link farmers to local, regional, and global
    market (IRADA)


20
6
Summary
How can Islamic MF enhance food security?
Insights from Case Studies
  • Is salam financing the best we can offer in the
    field of agriculture for greater outreach?
  • Partnership-based agri-finance may require large
    upstream investments perhaps placing them in a
    distinct category of social impact investment and
    not in that of microfinance (USD12K for Abu
    Halima)
  • Can the upstream investments be taken care of in
    full or in part through awqaf?
  • Impact of zakat on wilful default need to be
    studied
  • Search for new solutions must continue

21
Thank you
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