What is Micro-Credit?
 

Currently, the term ‘Micro-Credit is increasingly being used, to refer to providing small amount of loans to the poorest of the society. The purpose is to make the poor self-reliant. Its special characteristics is that it has no collateral (Security). The recipients are put into a small group and the group as a whole is treated as a basic unit for all purposes. It has attracted the attention of most Western capitalist leaders, including President Clinton. So much so, that between the 2^nd and 5^th of February 1997, a Micro-Credit Summit was held in Washington, in which most of the United Nations organisations including the World Bank and UNDP took part. It was attended by 2500 delegates from 100 countries approximately. At the Summit the sessions were co-chaired by Sheikh Hasina Wajed, Prime Minister of Bangladesh, Hillary Clinton and Queen Sofia of Spain. The Summit decided to create a fund of $20 billions by the year 2005. The fund is to be used to provide small amounts of credit to 100 million poor families of the world.
 
 
 
 

State of the Ummah

During the last 30 years, unjust wars have created millions of refugees. Muslims are now the major portion of the world’s refugees, driven from their own homes for no fault of their own, except that they are Muslims. To meet the situation in recent years several international Muslim charities have emerged. They are collecting sadaqah and zakah money and trying to reach the victims of wars and other natural calamities. During the last 50 years a good number of Muslim countries were freed politically but economic exploitation has carried on. As a result, the common people of these countries, with only a few exceptions, are becoming poorer day by day. For example, no one knows how many people die every year in Bangladesh due to starvation or malnutrition. Landlessness in the country is ever increasing and the number of rootless people is rising rapidly. Apart from the politicians and a small business and professional class, the majority of the population are living under the poverty line. The Western formula of micro-credit, providing loans based on interest to the poor is another form of exploitation.

In Bangladesh the NGOs are spending billions in the name of development. But in an article written by a noted economist and recently published in Bangladesh, it was made clear that the achievement is so low that it will take 1000 years to eradicate poverty from the country.

After a close observation of all these years of charity, given to the Muslim victims of wars and natural calamities, one cannot but conclude that the time has come for us, the Muslims, to become pro-active and start a movement of self- reliance for the poor Muslims of the Ummah. Instead of charity, our poor Muslim brethren, deserve help at the micro-level to become self-reliant. This should be based on the action of our Prophet (Sallallahu Alaihi Wa Sallam) that when a poor Muslim came to him for help he did not give him anything in charity. Instead he provided him with an axe as a tool for self-reliance; to earn his living by using the axe. The Noble Prophet (Sallallahu Alaihi wa Sallam) also said, "Poverty is nearer to Kufr". It is the demand of our time that MICRO-FINANCE institutions, within the Islamic frame-work be developed.
 
 
 
 

Bangladesh

In Bangladesh, small development groups run by concerned Muslims are mushrooming in various parts of the country. They work on their own, managing with the very little funds that they collect. One case , for example, is of a homeopathic practitioner, who spends all that he earns through his practice, for his development group. A small amount of money and management training would help them make significant progress.

An organization is needed to work in networking/ partnership with some of these groups. A survey of these groups, to analyze the processes they are now using and the problems they are facing would be very helpful. Based on that survey a final proposal then may be prepared to provide small amounts of funds to all those groups, whom we find reliable and efficient. Management training of the leaders of all these groups will make them more efficient and effective.

Now that a great part of the Ummah is suffering from poverty, while Muslims in some of the countries are rich, it is time that we, the concerned Muslims, take the initiative in persuading rich Muslims to spend for their poor brethren; not by simply giving charity. Because charity only increases the number of beggars in the Ummah. The time has come that all the main Muslim charities prioritise their work. They should ‘second-rate’ the present charity work and give first priority to Micro-Finance schemes, LOANING basic capital to the poor Muslims, who through their own labour can make themselves self-reliant, while returning the loaned capital according to the agreed terms, without hampering their efforts to stand on their own feet.
 
 
 
 

The Way Forward

The question arises as to what should be done. According to a study undertaken over past years, to start with, we should have a special fund for helping those small groups of Bangladeshi Muslims who are trying to implement their own development programs in different parts of the country. There should be an organisation (NGO) to provide management training and supervision, and to disburse the funds. This way the work can be extended countrywide within a short space of time.

Given the present situation of the charities it is clear that we need a special fund exclusively for this purpose. If any international appeal for such a fund is launched, it could be a great success. Once it is explained to the donors that this is going to be a long lasting fund, to be used as ‘Sadaqah al- Jariah,’—that the money will be used as a recycling capital, the donors may contribute generously.

There are several international charities, who want to enter into MICRO-FINANCE development programme. But they want some one else to do the experiment on their behalf, and come up with a model complying with the rules of the Shari'ah. True, once such model is available, it can be used on a large scale basis by all those who want to involve themselves in development activities.

Our model will largely be based on Murabaha mode of finance. This is implemented in the following way. The receiver is not given any cash, but always in kind. Supposing that a fisherman is to be provided with a fishing net, if the net costs 1000 takas (the name of the currency in Bangladesh), and a service charge of 10% to be added to it, then after handing over the fishing net to the receiver, an agreement is made with him to pay 1100 takas at an agreed amount of instalments spread over a period, that would enable the receiver to repay. According to well-known Islamic economists and Shari’ah experts this is a halal method of transaction.

One of our partner organisations in Bangladesh, working in this field, had a good research as to what mode of Shariya-Based transaction would be appropriate. This was baesd on their own development work for 3 years.. They found that musharaka(Partnership) and Mudharaba, (profit and loss sharing), are practically difficult. They listed the following problems.

In Musharaka and Mudharaba mode of financing, the experience r;.veals some basic problems:

FINALLY, ONCE WE HAVE MADE PROGRESS IN BANGLADESH,

WE CAN THEN GIVE ATTENTION TO OTHER COUNTRIES, LIKE INDIA, SOMALIA, BOSNIA AND SO ON. We would need to share our work with other charities.

A MOVEMENT TO UNIFY THE EFFORTS OF ALL THE MUSLIM CHARITIES IS THE CRY OF THE DAY.

If a model of comprehensive development program, for poverty alleviation, is developed successfully, funds to the extent of several hundred million pounds might be mobilised for the Ummah primarily and for the rest of the human race, gradually.