A project report based on the principles of Islamic Microfinance

Designed for the development of muslims in the Kamari Neighbourhood of the Gwadar District of Pakistan.

 

Introduction

In light of the World Bank’s sustainable development goals, based on the principles of Islamic microfinance, the following is a project report designed for the development of Muslims in the Kamari neighbourhood, situated in the district of Gwadar, in Pakistan. This neighbourhood has approximately 5000 residents and reports suggest that approximately 25% of the residents are living under the poverty line (Government of Balochistan, Pakistan and IUCN, 2007).

The content of the project report focuses on the following issues:

 

  • An evaluation of the possibility of implementing a project proposal outlining how the project proposal will be implemented.
  • Specific references made to the necessary entrepreneurial skills for successful implementation of the project.
  • A simulation of the proposed project through which sustainability and viability of the project can be analysed.

 

The project report is split into four sections. Firstly, the project report provides an outline of the project proposal and how it will be implemented. Secondly, the project report elaborates on the necessary entrepreneurial skills required for successful implementation of the project. Thirdly, a simulation on the project proposal has been produced analysing the sustainability and feasibility of the project. Lastly, there is a conclusion summarising the project report, coupled with an explanation on the limitations of the proposed project.

 

An outline of the project proposal and how it will be implemented

This is a project report to establish a microfinance institute in a neighbourhood in Pakistan, called Kamari, which is situated in the district of Gwadar. The aim of the microfinance project is to respond to the needs of poverty and hopefully with time, eradicate poverty as per the first goal of the sustainable development goals (United Nations, 2015). As part of the microfinance institute, from amongst the tools of Islamic microfinance, a project will be set up utilising the Murabaha tool, which in essence is a cost plus sale agreement. Instead of providing money directly to the clients in the form of loans, the clients, who will be fishermen residing in the Kamari neighbourhood, will be provided with good quality fishing boats and top of the range fishing equipment that will cost £1000 in total for one fisherman. The reason fishing boats and fishing equipment will be used for this project is because fishing remains the predominant means of livelihood in this region (Government of Balochistan, Pakistan and IUCN, 2007, p.36). Furthermore, due to poverty and unsuccessfulness, the fishermen either do not have such fishing equipment or do not have efficient fishing equipment, hence such provision has been proposed in this project so that the new boats and advanced fishing equipment will make it more efficient for the fishermen in their production of fish. The fishermen will use the boats and fishing equipment to successfully catch fish, which they can then sell, earn a living and become self-sufficient. There will be an assessment and training by holding meetings, where the fishermen will have to attend at the main Mosque of the neighbourhood. Through this, awareness will be created. The fishermen who come forward to be accepted for this project will be investigated by relevant microfinance institute officers, coupled with having a testimony of good reputation within their community of being hardworking and honest. Once the microfinance institute is satisfied with taking on the fishermen, there will be an agreement in place which will be signed by both parties, specifying that after purchasing the boats and fishing equipment, they will remain in the legal ownership of the microfinance institute. However, the fishermen will be able to use the boat and fishing equipment as part of this project and until the fishermen do not pay £1500 based on Murabaha, the microfinance institute will be classified as the owners. This agreement will be in place for two years, where the fishermen will pay monthly instalments of £62.50. At the end of the agreed period, the microfinance institute will have received £1500, while the fishermen will get to keep whatever they have earned above the monthly instalments and also, after paying the £1500 in full, they become owners of the boats and fishing equipment, valued at £1,000. This will empower them and sustain them and their families for many years. Bear in mind that there will be separate agreements for each fisherman. In the first two years of this project, 10 such fishermen will be chosen by the microfinance institute. This is because the microfinance institute will have a fund of £15,000 to start with. Each fisherman will receive a good quality boat and top of the range fishing equipment valued at £1000 each, totalling £10,000. The remaining £5,000 will be used to cover costs, such as microfinance institute officers’ costs and admin costs. The microfinance institute officers will be experts in relation to fishing. The reason for selecting 10 fishermen only is because of the restricted budget. However, as will be mentioned later on in relation to the simulation of this project, other scenarios can be created and implemented. Additionally, the currency in this project proposal that has been used is the pound sterling (GBP). However, the costs reflect the Pakistani rupees (PKR).

 

Necessary entrepreneurial skills for successful implementation of the project

Not everyone in the Kamari neighbourhood will have the necessary skills to be a part of this project. As such, this project is targeted at the fishermen of this Kamari neighbourhood, who have experience and knowledge about this trade. When awareness of this project is created in the main Mosque of the neighbourhood, those fishermen that choose to come forward and apply for the boats and fishing equipment, will be investigated and screened by relevant microfinance institute officers, who will be experts in the fishing trade and also be aware of the local culture and language. The fishermen will need to provide a testimony of good reputation within their community of being hardworking and honest. The relevant microfinance institute officers will assess the local Kamari neighbourhood fishermen that apply for this project to see if they have the right skills to be accepted. Some of the skills that will be required are:

 

  • Controlling and operation skills: effective control of equipment.
  • Communication skills: communicate with others effectively to convey information etc. This skill is very important for selling.
  • Active Listening: able to give full attention when others are speaking. Able to ask appropriate questions and not unnecessarily interrupt.
  • Decision Making and Judgment: able to consider costs and benefits of possible actions to select the most suitable one.
  • Critical Thinking: able to use reasoning and logic to recognise strengths and weaknesses of alternate solutions to problems.
  • Time Management: able to manage time.
  • Negotiation skills: able to sell at reasonable prices and negotiate with customers.
  • Problem Solving: able to identify problems and review associated information to progress and assess options and implement solutions.
  • Coordination: able to modify actions relative to others’ actions.
  • Knowledge about types of fish: have knowledge of fish so that they can be identified when selling to customers.
  • Quality Control Analysis: able to inspect products such as fish, to evaluate quality.
  • Equipment Selection: able to determine the type of tools required for a job.
  • Equipment Maintenance: able to perform timely maintenance of equipment and able to determine the type of maintenance needed.
  • Repairing: able to repair the needed tools.
  • Assessing: able to assess own performance to make progress or take remedial action.
  • Government laws: Have a basic understanding of laws relating to fishing and selling fish.
  • Good practical ability

 

(My Majors, 2015) (Canal & River Trust, 2018)

Furthermore, training will be given to further enhance the fishermen’s skills, coupled with monthly meetings, where the fishermen will have to attend at the main Mosque of the Kamari neighbourhood. The meetings will enable to assess the state of the fishermen and see that everything is operating smoothly.

 

A simulation of the proposed project

 

In relation to this project discussed thus far, the microfinance institute will have a fund of £15,000 to start this project. £1000 will be used for each fisherman to purchase a good quality fishing boat and top of the range fishing equipment. As such, that will be a total of £10,000 to be used to buy the fishing boats and fishing equipment because the project will initially accept 10 fishermen. The fishing boats and fishing equipment will be distributed amongst them in light of the aforementioned detail. The remaining £5,000 will be used to cover costs in relation to the relevant microfinance institute officers and experts who will be working on behalf of the microfinance institute to train and conduct meetings with the fishermen of the neighbourhood, and admin costs. Bear in mind that these relevant microfinance institute officers and experts will be working on behalf of the microfinance institute and will not be residents from the neighbourhood. Like mentioned at the start of this project report, based on current data, the Kamari neighbourhood consists of approximately 5000 residents and approximately 25% of the residents are living below the poverty line. This means that from the 5000 residents of this Kamari neighbourhood, approximately 1250 residents are facing poverty.

 

After 2 years, through empowering 10 fishermen, the microfinance institute will receive an extra £15,000. This will be gained from the 10 fishermen that were helped based on the Murabah-based microfinance tool. Each fisherman will end up giving back £1500 each, in monthly instalments of £62.50, to the microfinance institute, by the end of the two year period. As such, that £15,000 can be used on another 10 fishermen in the same neighbourhood for another 2 years according to the Murabah-based microfinance tool, exactly according to the same conditions and in the same manner. This can be a reoccurring mechanism for the next 30 years and this will result in a 150 people (fishermen) being assisted and empowered. This has been demonstrated in the table below as scenario 1.

 

Scenario 1:

Years Fishermen Costs (Boats, fishing equipment) Officers /Admin costs Total net costs
2 10 £10,000 £5000 £15,000
4 10 £10,000 £5000 £15,000
6 10 £10,000 £5000 £15,000
8 10 £10,000 £5000 £15,000
10 10 £10,000 £5000 £15,000
12 10 £10,000 £5000 £15,000
14 10 £10,000 £5000 £15,000
16 10 £10,000 £5000 £15,000
18 10 £10,000 £5000 £15,000
20 10 £10,000 £5000 £15,000
22 10 £10,000 £5000 £15,000
24 10 £10,000 £5000 £15,000
26 10 £10,000 £5000 £15,000
28 10 £10,000 £5000 £15,000
30 10 £10,000 £5000 £15,000
Total Total Total Total Total
30 150 £150,000 £75,000 £225,000

 

Bear in mind that nearly all people of the Kamari neighbourhood are living with their families. Very few people are single, without any sort of family. Hence, helping one fisherman will be akin to helping a family because the fisherman will not only be sustaining himself with the income he receives from selling fish, but rather, his family too. On average, helping one fisherman will be akin to helping 3 people as estimates suggests that majority of the residents of the Kamari neighbourhood have at least 3 family members (Government of Balochistan, Pakistan and IUCN, 2007). Hence, if 150 fishermen are empowered and given assistance in the next 30 years through the microfinance institute based on the Murabaha tool then approximately 450 people will be relieved from poverty. This will result in alleviating nearly two fifths of poverty from the Kamari neighbourhood. If the same project is carried on for 60 years then 300 fishermen could be helped, resulting in helping approximately 900 people who are facing poverty. As such, if the project is carried on for 80/90 years, poverty can completely be eradicated from the Kamari neighbourhood.

 

To speed up this process, if the microfinance institute is given more funds for this project and the budget is increased, resulting in starting with a bigger pool of money then poverty could be eradicated from this village more quickly. This has been demonstrated in the table below as scenario 2.

 

Scenario 2:

Years Fishermen Costs (Boats, fishing equipment) Officers /Admin costs Total net costs
2 20 £20,000 £10,000 £30,000
4 20 £20,000 £10,000 £30,000
6 20 £20,000 £10,000 £30,000
8 20 £20,000 £10,000 £30,000
10 20 £20,000 £10,000 £30,000
12 20 £20,000 £10,000 £30,000
14 20 £20,000 £10,000 £30,000
16 20 £20,000 £10,000 £30,000
18 20 £20,000 £10,000 £30,000
20 20 £20,000 £10,000 £30,000
22 20 £20,000 £10,000 £30,000
24 20 £20,000 £10,000 £30,000
26 20 £20,000 £10,000 £30,000
28 20 £20,000 £10,000 £30,000
30 20 £20,000 £10000 £30,000
Total Total Total Total Total
30 years 300 £300,000 £150,000 £500,000

 

In the above table, a second scenario has been simulated. In this scenario, the microfinance institute has £30,000 to start with and therefore can help 20 fishermen in the first 2 years. This is because £20,000 will go towards 20 fishermen, to buy their fishing boats and fishing equipment at £1000 each, and the remaining £10,000 will go towards the microfinance institute officers and admin costs. Within 2 years, on a monthly basis, the fishermen will give £62.50 to the microfinance institute. After 2 years, the 20 fishermen will have given back £1500 each to the microfinance institute, resulting in the microfinance institute receiving £30,000, the same amount used to start up the project 2 years prior. The microfinance institute can reinvest this in another 20 fishermen for another 2 years and this project can be repeated for the next 30 years. This will result in nearly four fifths of poverty being eradicated from the Kamari neighbourhood. If this project was carried on according to this second scenario for approximately another 10 years, making it approximately 40 years in total then poverty can totally be eradicated from the Kamari neighbourhood.

 

If the microfinance institute is given an even bigger budget than demonstrated in scenario two and scenario one, to start the project with, then this will result in a more swift eradication of poverty from the Kamari neighbourhood. This has been shown in the table below as scenario 3.

 

Scenario 3:

Years Fishermen Costs (Boats, fishing equipment) Officers /Admin costs Total net costs
2 40 £40,000 £20,000 £60,000
4 40 £40,000 £20,000 £60,000
6 40 £40,000 £20,000 £60,000
8 40 £40,000 £20,000 £60,000
10 40 £40,000 £20,000 £60,000
12 40 £40,000 £20,000 £60,000
14 40 £40,000 £20,000 £60,000
16 40 £40,000 £20,000 £60,000
18 40 £40,000 £20,000 £60,000
20 40 £40,000 £20,000 £60,000
22 40 £40,000 £20,000 £60,000
Total Total Total Total Total
22 years 440 £440,000 £220,000 £660,000

 

The above table demonstrates scenario 3 of this project. The project proposal is the same as outlined previously. The only difference is that in this scenario the microfinance institute has £60,000 to start the project with. In this scenario, 40 fishermen can be provided with boats and fishing equipment, based on the Murabaha tool in the first 2 years. £40,000 will be used towards buying boats and fishing equipment for each fisherman, costing £1000 each. The remaining £20,000 will be used towards the microfinance institute officers and admin costs. The fishermen will give £62.50 monthly and by the end of 2 years they should have given £1500 each, back to the microfinance institute, resulting in the microfinance institute receiving £60,000 back again, which is the exact same amount it started the project with. Thereafter, the project can be repeated likewise, for the next 22 years. Upon the end of 22 years, 440 fishermen would have been empowered and helped, resulting in the existing 25% poverty in the Kamari neighbourhood, completely being eradicated. This is because as projected before, every fisherman has an average of at least 3 family members to look after and 1250 are facing poverty. Hence, if 440 (fishermen) is multiplied by 3 (family members) then over 1250 people are positively impacted and poverty is alleviated.

 

Conclusion and Limitations

Upon conclusion, this report provided a project proposal that could be implemented for the development of Muslims in the Kamari neighbourhood of Gwadar district, Pakistan, in order to respond to the needs of poverty and hopefully with time, eradicate poverty as per the first goal of the sustainable development goals. From amongst the tools of Islamic microfinance, the project proposal utilised the Murabaha tool through buying good quality fishing boats and top of the range fishing equipment for fishermen residing in the Kamari neighbourhood to sell fish, with efficiency. The Murabaha tool was used for a number of reasons. Firstly, it will satisfy the clients due to its compliance with Shariah rules and its efficient and effective operation, which will assist clients in improving financial inclusion of people living in the Kamari neighbourhood. Secondly, the Murabaha tool is simple and easy to understand because the client just pays an agreed profit amount which remains unchanged. Contrarily, other tools such as Mudharaba and Musharaka could create confusion when it comes to splitting the profits, coupled with the hassle in these tools in keeping on top of figures, which would probably require an accountant, depending on the figures involved and could add further admin costs for the microfinance institute, hence would not be as feasible as the Murabaha tool. Finally, Murabaha is one of the most commonly used modes of finance by Islamic financial institutes and Islamic banks (Center of Islamic Banking and Economics – Pakistan, 2013).

 

The report elaborated on the necessary entrepreneurial skills required for successful implementation of the project. Furthermore, a simulation of the project proposal was also produced to analyse how feasible and sustainable the project will be. As part of the simulation, three scenarios were provided. The third scenario is the most effective in eradicating poverty in the quickest time possible. Though ultimately, it depends on the amount of funds available to the microfinance institute. Hence, scenario one and scenario two were also provided.

 

There are many limitations to this project. Firstly, the restricted budget the microfinance institute has to work with is a clear limitation, limiting the timescale of the process in terms of the amount of people that could be helped. Secondly, due to this restricted budget, the length of time it could take to alleviate poverty would also be prolonged. Thirdly, finding out the exact number of residents and the exact number of members in each family of the region is very difficult. As such, microfinance institutes can only work based on approximate figures, such as was used in this project report and this could affect the overall outcome and expected results. Fourthly, there is no known timescale for the screening process and the process of accepting applications from the fishermen of the Kamari neighbourhood. This could potentially delay starting the project. Fifthly, the prices of goods are known to increase every day. As such, the longer the project takes to complete, the goods, which in our case are the boats and fishing equipment will bound to increase in price, affecting the structure and proposed plan. Microfinance institutes need to be aware of this and be prepared. Sixthly, if something negative happens to the fishermen that are approved for this project proposal, then it can have an impact on the proposed project plan in terms of the microfinance institute receiving the money back and in terms of long term poverty alleviation. Finally, as the microfinance institute is using the Murabaha tool for this project, the microfinance institute will be classified as the seller of the fishing boats and fishing equipment, i.e. after purchasing the fishing boats and fishing equipment from the suppliers and before selling to the fishermen, who will be classified as the buyers, the microfinance institute shall be responsible for any risks, losses and Takaful (insurance) relating to the boats and equipment, even though the boats and equipment (goods) be in the hands and custody of the fishermen because they will be classified as mere agents, during such period (Center of Islamic Banking and Economics – Pakistan, 2013).

 

There were limitations in relation to this project report itself too. The report had a word limit, hence not every minute detail regarding the project could be mentioned and analysed. Furthermore, as part of the project report, it would have been ideal to provide more project models and analyse them, along with comparing and contrasting them. However, the rigid word limit made that too difficult. Moreover, the deadline to complete the report made it hard to carry out more detailed and refined research, such as conducting interviews with Islamic microfinance institutes and their recipients of similar models like presented in this report, which would have given more clear-cut and insightful information.

 

Bibliography

 

Khan, A. A. (2008). Islamic Microfinance, Theory, Policy and Practice. Birmingham: Islamic Relief Worldwide .

 

Avdukic, A. (2017). Unpublished lecture notes taken from lecture on “The Sustainable                                                                    

Development Goals and the Role of Islamic Microfinance” held on 08/03/2018 at  MIHE.

 

Canal & River Trust. (2018). Get fishing in six easy steps. Available from :

https://canalrivertrust.org.uk/enjoy-the-waterways/fishing/fishing-skills/get-fishing-in-six-easy-steps (Accessed 8 May 2018)

 

Center of Islamic Banking and Economics – Pakistan. (2013). Market Research Report – Islamic        

Microfinance Products in Yemen. Yemen: Yemen Microfinance Network. Available from : http://yemennetwork.org/en/wp-content/uploads/2015/02/Islamic-Micorifnance-products-study-eng.pdf (Accessed: 8 May 2018)

 

Ghose B (2014) Fisheries and Aquaculture in Bangladesh: Challenges and Opportunities. Ann

Aquac Res 1(1): 1001.

 

Government of Balochistan, Pakistan and IUCN. (2007). GWADAR Integrated Development

Vision. Available at: http://www.ndma.gov.pk/Publications/Gwadar%20integrated%20development%20vision.pdf (Accessed: 8 May 2018).

 

 

Hurlburt, K. (2012). What is Islamic Microfinance. Broomfield: Shuraako.org.

 

Khaled, M. (2011). Islamic Microfinance Challenge: A Summary. Retrieved April 04, 2018, from cgap.

 

Khan, A. A. (2008). Islamic Microfinance, Theory, Policy and Practice. Birmingham: Islamic Relief Worldwide .

 

Malim, M. (2011, December). Islamic Microfinance: Solution to Poverty Alleviation? . available at eurekahedge: http://www.eurekahedge.com/Research/News/222/Islamic_Microfinance_Solution_to_Poverty_Alleviation (Acessed: 15 April 2018)

 

My Majors. (2015) What skills are required for Fishers and Related Fishing Workers?.

Available at: https://www.mymajors.com/career/fisherman/skills/ (Accessed: 5 May 2018).

 

Segrado, C. (2005). Islamic microfinance and socially responsible investments. torino: University of Torino.

The Sustainable Development Agenda. (2016, January 1). Retrieved April 15, 2018, from UN: https://www.un.org/sustainabledevelopment/development-agenda/

 

United Nations (2015) Sustainable Development Goals. Available at:

https://www.un.org/sustainabledevelopment/sustainable-development-goals/ (Accessed: 1 April 2018).

 

 

Share Button
Article By:
Print Print
Join Our Mailing List
Get updates and latest articles in your inbox!

Tayyib HMC FInder

Munadil Islaam

Comments...

Sorry! there is no comment posted.


Leave a Reply