ISSUES AND CHALLENGES SURROUNDING THE ISLAMIC MICROFINANCE

5. ISSUES AND CHALLENGES SURROUNDING THE ISLAMIC MICROFINANCE

Despite being the best and effective tool to alleviate poverty and to widen the financial inclusion for the poor segment of the society, the operational wise of AIM does not escape from pertinent issues and critics. Tuyon & S. Mohammad (2011) has listed out the issues and challenges of the microfinance industry. They stated that the issues are sustainability, which is due to lack of self-sufficiency and outreach issue. This is further supported by Adejoke (2010) which stated that microfinance institutions (MFI) in Malaysia are not self- sufficient in which they overdependence and rely heavily on government subsidies, grant, donors, local financings and savings from the members. Addressing on the second issue, i.e. outreach issue, the author does not think that AIM has a big problem with it since it has a strong network and 135 branches spread in all over the country, it could be reached out easily to access for microfinancing schemes available for the hardcore poor and poor in rural area. Another issue is on the management fee imposed on the AIM Sahabat which is at 10 percent per annum, which is relatively high when AIM is using Qardh Hassan or benevolent loan to finance its client. Some scholars argue that as an Islamic microfinance organization that provides financing with no profit rate, imposing management, administrative or service fee (Ujrah) for a loan is permissible. However, Norma (2012) opined that the Qardh Hassan could only be given to the hardcore poor with a waiver on the administration fee or charged at a minimum rate as possible to reflect the true spirit and intention of Qardh Hassan.

The other issue surrounding the microfinance industry is the product diversification or product differentiation that could be offered to the clients to tailor their financing needs. According to Obaidullah (2008), most of the Islamic microfinance institutions use debt- base financing such as Murabahah, Ijarah, Bai Bithaman Ajil

International Conference on Business, Economics, Socio-Culture & Tourism 2016 (ICBEST2016)

(BBA), Salam etc. Many scholars and researchers have proposed various kind of products which are suitable to be offered by MFIs in which could attract more clients to access and finally obtain the financing for their entrepreneurship activity. For instance, Norma (2012) argued that majority of AIM members are interested in Islamic microfinancing products based on a survey conducted on 1,800 AIM members from the state of Kelantan and Perak, on their view of Islamic microfinance. She further proposed that Murabahah, Musharakah, Mudharabah, Muzaraah, Ijarah and Qardh Hassan or even Musharakah Mutanaqisah are the suitable Islamic finance products to be used as the mode of financing to finance the various economic activities of its Sahabats. Table 4 below describes the current list of AIM products and services available to its existing and potential client.

Table 4: AIM product and services

Service Product

Description

Purpose

i. Initial financing amount is up to

Economic

To finance income generating financing

RM3,000; with a maximum of

RM20,000.

activities

ii. Subsequent financing is based on existing repayment records.

Microfinance Educational

To develop skills and financing

For members and their family

(including children).

fund educational needs

House renovations/ repairs,

Multipurpose investments (fixed/ liquid assets), To increase the well-being of financing

the Sahabats

household consumption

To inculcate good savings habits and generate group

Compulsory funds. The savings are made Savings

into shares in funds

savings/group

From RM1 to RM15 weekly

KOOPSAHABAT (AIM Cooperative) which belongs to the Sahabats

To compensate for Welfare and

unfortunate events well-being Security funds

i. RM2 monthly

ii. 1% contribution deducted from

including natural disasters,

fire, hospitalization charges, (voluntary) chronic illnesses , death

economic financing

To develop 90% of active Economic Development

i. Entrepreneurship training

ii. Business development

members into entrepreneurs.

programmes Source: Asian Institute of Finance, 2015.