Impact of Islamic

Microfinance on
Households
by:Hafiz Zahid Mehmood, Kausar Abbas,
Mehreen Fatima
Abstract
 Study was conducted to measure the impact Islamic Microfinance on
households.

 Study is based on primary data

 T-test and Regression analysis were used for this study

 Respondents were selected from three Islamic microfinance institutions i.e.

Akhuwat foundation, Farz foundation and NAYMAT.
 IMFIs not only increased income, expense of food, health, education but also
borrowed amount of loan.
Background

 Unequal distribution of wealth

 Strong and well built intermediaries take most of profit margin
 Most of the Muslim population in Muslim countries living below poverty line
 For this purpose IMFIs were found to control the poverty
 MF took roots in Pakistan in 1970 with the establishment of Agricultural
development bank of Pakistan.
 Basic objective introducing MF was welfare of poor people.
 Different NGOs like Agha Khan Rural Support Program, Punjab Rural support
program, and SRSO took roots in the field of MF
 Estimated global assets of IF industry are $500.5 billion.
Background

 SBP is also promoting Islamic banking

 Study shows that 72% people of Muslim majority countries avoid financial
services.
 59% women are beneficiary of IMF.
 Study of ADBP shows that 80% of the respondents claimed to avoid the
interest, b/c it is haram
 MF activities are performed by 11 MF banks, 11 MFIs, and 5 Rural Support
programs in Pakistan.
 IMF products are Qarz e Hasna, Murabaha, Mudarabah, Musharakah, Istisna,
and Bai salam etc
Objectives of study

 To determine the impact of IMF services by target organization on poverty

level and socio economic of households

 To observe the association b/w poverty and other variables of interest.

 To test the impacts of management attributes on poverty alleviation.

Literature Review

 The purpose behind the developing MF was to access the funds to the poor
Laila (2005)

 IF has some ethical characteristics in it, that can be successfully used for the
wellbeing of oppressed people. Ab Rehman (2010)

 Those people have less risk of falling below poverty line if they have enough
opportunities to get and use productive assets like tube well, tractors etc.
Malik (1996)
Literature Review

 poverty level can be reduced by lessening the family size, getting the
education level of poor better, increasing the contribution of females in labor
force. Chaudhry (2009)

 The higher number of family members, the higher chance of household to fall
below poverty line. It is better to invest in people in terms of education.
Gender and age also played a significant role in generating activities. Malik
(1996)
Methods

 Three IMfIs were selected namely Akhuwat, Farz and NAYMAt

 Proportionate sampling method was adopted for the population i.e. 475 of the
clients

 112 out of 320 from Akhuwat foundation, 31 out 85 from Farz foundation ,
and 25 out of 75 were selected from NAYMAt were selected on the basis of
size of each particular organization.

 Clients of the institutions were selected with purposive non probability

technique.
Methods

 Data is collected through face to face interview.

 T- test were used to measure the difference in pre and post borrowing
scenarios

 Moreover regression analysis were used to observe the relationship between

demographic indicators, loan amount and management attributes etc.

 Binary logit model was also used to guage the probability of respondents
being poor.
Results and Discussion

 T test and regression analysis were used to highlight the result of studies.
 57%, 96 of the clients were fully illiterate out of 168.
Regression Analysis

 Regression analysis is applied in order to find out the impact of two different
outcome variables i.e. income and poverty.
 In order to test the impact of independent variables over dependent variable ( total
income)
 Results of multiple linear regression contain 5 independent variables.
Conclusion

 IMF activities affects positively the lives of poor.

 This positive impact is depicted in positive difference in income and the
resultant expenditure before and after taking loans.
 Collective finding suggest that IMFIs are not gender biased.
 Loans should be provided in smaller amount over the period of time, as the
smaller loan increase the level of income
 The more loan amount, the higher chance of spending it somewhere else.
 Providing trainings to clients like book keeping brings positive impacts.
 IMF creates value to promote economic and social development, employment
and growth through the support of micro entrepreneurs and small businesses.