ISLAMABAD: The Ehsaas National Poverty Graduation Initiative is using interest-free loans (Qarz-e-Hasna) for poverty alleviation, WealthPK reported.
Loans ranging from Rs20,000 to Rs75,000 are being disbursed among 80,000 existing and new entrepreneurs every month. A maximum of Rs3.8 million loans are expected to be generated under this initiative, potentially affecting 14.7 million people.
Speaking to WealthPK about the interest-free loans, Ahmed Ali Siddiqui, a scholar and practitioner of Islamic finance at the Center for Excellence in Islamic Finance at the Institute of Business
Administration, Karachi, said, “Loans have proven to generate more positive externalities than charity in some cases… they encourage the borrower to stay proactive, hence protecting productivity and motivation”.
Micro finance comparables. A number of organizations, both for-profit and nonprofit, are offering micro-finance products in the domestic market, including but not limited to: Finca Microfinance Bank Limited, U Microfinance Bank Limited and Akhuwat.
Finca Microfinance Bank Limited provides KarobariKarz, loans for small businesses ranging from Rs25000 to Rs500,000. The markup on the loan varies between 26% and 30%, depending on the principal amount. The loan facility is available for existing entrepreneurs.
An alternative is SunheriKarz, a loan issued against the gold. 80% of the value of the gold is given as loan with interest 17% and higher depending on the principal amount.
U Microfinance Bank Limited is another alternative. Apna Karobaar Loan – a loan facility for small scale entrepreneurs – lends Rs50,000 to Rs350,000. A markup of 30% is applied on loans from Rs50,000 to Rs150,000. The markup decreases as the principal amount increases, capping at 27% on loans upwards of Rs150,000.
Naturally, a guarantor is required for the loan to be processed, with the requirement of guarantor not being a blood relative being an added clause.
The institution also offers SunehraSarmaya Loan, a loan generated against gold. A loan of Rs1 million to Rs3 million can be obtained via this program at interest rates varying between 15% and 19%.
Akhuwat Islamic Microfinance. This non-profit organization provides interest-free loans to low-income borrowers. The Family Enterprise Loan, which is offered to entrepreneurs looking to enter the market or expand an existing business, ranges from Rs10,000 to Rs50,000 with 0% markup.
Welfare Economics. “Interest-free loans are the cornerstone of changing the economic system from capitalist to welfare”, said Ahmed Ali Siddiqui.
The scheme is in line with the Government of Pakistan’s vision to transform the economic system into a welfare one, much like that of Denmark and Canada, with the guiding principles based on Islamic Finance.
Amongst other tools, principles of Islamic finance propagate economic empowerment via Qarz-e-Hasna.
“In Islamic finance, if the lender wants to earn an income on a loan, he/she has to become a profit/loss sharing partner in the business… sale of debt or charging of interest (Riba) is not allowed. The laws and rulings are clear”, stated Siddiqui.
Responding to criticism of credit losing value due to lack of interest, Siddiqui said, “Cash return on investment is not the only way to measure return on investment… social impact is an equally important variable” before adding, “The modern world has only recently started to include sustainable development in economic growth. Islam’s financial model has been conscious of sustainable development since inception.”
The residents of 375 rural union councils are currently eligible to enroll for the Qarz-e-Hasna program in this phase of the project. – INP
