Muslim Aid Sri Lanka’s Islamic Microfinance programme is being running with the vision of alleviating both, poverty and dependency syndrome existing within the conflict affected poor. Muslim Aid Sri Lanka believes that Muslim world, especially the poor is pushed to be with interest (Ribah) by the various factors and poor Muslims have no other options for financing than interest based conventional microfinance provision for their livelihood development.
The clients belongs to all communities are selected from the segment of the entrepreneurial poor who were affected by Tsunami devastation, poverty and the civil war. Providing the selected beneficiaries with micro loans, the Micro Finance Team then focuses on inculcating the spirit of competition and excellence within those individuals or groups by providing market linkages, business development services and close field officer – client relationship that motivate beneficiaries to repay their loans.
MASL focuses on sectors such as, agriculture, livestock, fisheries and many more sub sectors. MASL is working with many organizations like Al Asmakh Qatar, IICO Kuwait etc. Different skill training development programs and community awareness programs are being conducted by MASL Micro finance team to make awareness on Islamic Micro Finance and products offered at Muslim Aid Sri Lanka. In 2015 LKR 4.9 Million loans have been distributed for 1458 Clients and the number of active clients for the end of 2015 is 2117.
In a mudaraba contract when a profit is realized, it is shared between the financier and the entrepreneur according to a pre- determined ratio. Importantly, profit- sharing rates must be determined only as a percentage of the profit and not as a lump sum payment. In the case of a loss, providing it has incurred in the normal process of business and not due to neglect or misconduct by the entrepreneur, the financier loses all his or her money, while the entrepreneur merely loses his or her time and effort. In cases of proven negligence or mismanagement by entrepreneurs, however, they may be held responsible for the financial losses. For this reason mudaraba contracts are considered to be very risky and require a great deal of confidence in the borrower. The entrepreneur does not invest anything in the business save his or her labor and should not claim any wage for conducting the business. These types of contracts are most common in investment projects in trade and commerce that are capable of achieving full operational status in a relatively short period.
A diminishing musharaka is a resent innovation. Its popularity originates from the fact that classical musharaka aims to involve bank as a permanent partner in the venture. This may not be a desirable idea for a financial intermediary. A financial intermediary likes liquidity in its investments or at least a finite maturity of its investments. In a declining musharaka, the bank’s share in the equity is diminished each year through partial return of capital. The bank receives periodic profits based on its reduced equity share that remains invested during the period. The share of the client in the capital steadily increases over time, ultimately resulting in complete ownership of the venture.
Murabaha is probably the most popular and widely used Islamic financing technique, perhaps because it is relatively simple to apply, certainly when compared to other Islamic financing techniques which, require more elaborate arrangements for their application. Murabaha involves the resale of a commodity, after adding a specific profit margin (often referred to as a ‘mark- up’) by the lender to the borrower who agrees to buy that commodity for the new offered price. Usually, repayment is made in installments to the financier, who pays the price to the original supplier of the commodity.
Ijarah in simple terms; implies leasing or hiring of a physical asset. It is a popular debt- based product in which the Islamic bank assumes the role of an ajir or mujir (lessor) and allows its client to use a particular asset that it owns. The client or mustajir (lessee) is in need of the asset. Through Ijarah,it receives the benefits associated with ownership of the asset against payment of pre- determined rentals (ujrat). Ijara is for a known time period called Ijara period.
A Salam is deferred delivery contract. It is essentially a forward agreement where delivery occurs at a future date in exchange for spot payment of price. Unlike earlier mechanism of murabaha and ijara, Salam was originally designed as a financing mechanism for small farmers and traders. Under a Salam agreement, a trader in need of short- term funds sells merchandize to the bank on deferred delivery basis. It receives full price of the merchandize on the spot that serves its financing need at present. At a pre- agreed future date, it delivers the merchandize to the institution. The institution sells the merchandize in the market at the prevailing price. Since the spot price that the institution pays is pegged lower than the expected future price, the transaction should result in a profit for the institution.
Literally Wakalah means protection or remedying on behalf of others. Legally Wakalah refers to a contract where a person authorizes another to do a certain well-defined legal action on his behalf. It is a contract of agency which means doing any work or providing any service on behalf of any other. An agent is someone who establishes contractual and commercial relations between a principal and a third party, usually against a fixed fee. An action performed by an agent on behalf of the principal will be deemed as action by the principal. Agency is necessitated by the fact that an agent has to perform certain tasks which the principal has neither the time, knowledge nor the expertise to perform himself. The need for agency arises where a person has no ability or expertise to perform a certain action due, for example, to distance or size. The main features of agency are service, representation and the authority to act for the principal. An agent may obtain a certain wage for services rendered within the incentive structure of the principal.