Microfinance Final Report in Kedah

Topics: Poverty, Poverty reduction, Poverty in the United States Pages: 9 (3247 words) Published: August 23, 2013
Umo Aly
111100101
Undergraduate student in BBA

Microfinance
Final Report

Submit soft copy on July 5, 2013.
Submit hard copy on August 13, 2013.

A. Introduction
a. This report is making with a purpose to control and reduce the number of poverty in Kedah, Malaysia as well as empowering those poor with a better chance of sustainable livelihood opportunities. This report is built up base on the investigation of those poor citizens in Kedah, Malaysia and their data will help us to understand and could be able to find a solution for them. Poverty is about not having enough money to meet basic needs including food, clothing and shelter.  However, poverty is more, much more than just not having enough money. The World Bank Organization describes poverty in this way: “Poverty is hunger. Poverty is lack of shelter. Poverty is being sick and not being able to see a doctor. Poverty is not having access to school and not knowing how to read. Poverty is not having a job, is fear for the future, living one day at a time. Poverty has many faces, changing from place to place and across time, and has been described in many ways.  Most often, poverty is a situation people want to escape. So poverty is a call to action -- for the poor and the wealthy alike -- a call to change the world so that many more may have enough to eat, adequate shelter, access to education and health, protection from violence, and a voice in what happens in their communities.” Despite the definitions, one thing is certain; poverty is a complex societal issue. No matter how poverty is defined, it can be agreed that it is an issue that requires everyone’s attention.  It is important that all members of our society work together to provide the opportunities for all our members to reach their full potential. It helps all of us to help one another. b. What is Islamic microfinance?

Islamic, more correctly termed ‘Shariah-compliant’, microfinance is the provision of financial services for low-income populations in which the services provided conform to Islamic financing principles.  In many respects, Islamic finance is simply ethical finance. Islam sets out some broad principles that govern commercial transactions in general and the provision of finance in particular. One of the most important financing principles is that money is not an earning asset in and of itself. This means that interest is prohibited under Islamic law. Many Muslims therefore refrain from using interest based microfinance services for fear of breaching their religious beliefs. Islamic microfinance programmes cannot therefore imitate conventional microfinance programmes and are obliged to provide finance without charging interest. However, this does not mean that capital is free of charge, that it should be made available without any cost, or that there should be no return on the funds provided. Rather, a return on capital is allowed, provided that the capital participates in the productive process and is exposed to business risk. Islamic microfinance providers have developed a number of financing mechanisms that can be utilized according to the nature of the commodity or business and the period for which financing is sought. These are generally known by their Arabic names as below:  Murabaha is the most popular and widely used Islamic financing instrument. This involves the resale of a commodity after the lender adds a specific profit margin (often referred to as the ‘mark-up’), which is paid by the borrower who agrees to buy that commodity Mudaraba, a second type of contract, two parties are involved – the financier, who provides all the money, and the entrepreneur who uses his or her skill to invest the money in an attractive business venture. The profit from the Mudaraba contract is shared by the financier and the entrepreneur according to a pre-determined ratio. Importantly,...
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