MICROCAPITAL BRIEF: Biniog Sathi Banking Model Employs Islamic Concept of Zakat in Effort to Minimize Credit Default

Mabroor Mahmood, who operates the online “Ideas for Development” think tank, recently began selling his Biniog Sathi banking model, which incorporates Zakat, a Muslim practice of giving charity, to protect against credit default [1]. In the Biniog Sathi system, a charitable fund will partner with a bank and provide financial assistance to borrowers who might otherwise default on their repayment obligations to that bank. In this way, both borrowers and banks are insulated from the risks that normally come with lending and borrowing. Biniog Sathi follows the principles of money lending set out by Shariah law, which includes a prohibition on charging interest in favor of concepts like sharing profit and loss. Mr Mahmood created the Biniog Sathi model in 2006 and began promoting it in publications and at conferences in 2012.

In order to be recognized as adopting the Biniog Sathi model, banks must enter into a long-term agreement with the organization, show compliance with the model’s standards and pay up-front and ongoing fees [2].

By Benjamin Krupp, Research Associate

Sources and Additional Resources

[1] Biniog Sathi: Biniog Sathi Starts Its Journey

[2] Biniog Sathi: Biniog Sathi Website

MicroCapital, May 6, 2014: “Dynamic Effects of Microcredit in Bangladesh,” Published by the Development Research Group of the World Bank

MicroCapital, May 6, 2014: Responsible Equity Exists in Microfinance; Greenfield Microfinance Models in Africa; Mobile Financial Service Usage Among Rural Women in India, Philippines

MicroCapital, August 8, 2013: World Council of Credit Unions Publishes Islamic Operations manual for Shariah-compliant Credit Unions

MicroCapital, March 11, 2011: Thailand’s Ministry of Finance Launches Community Banking Program Based on Microfinance Model of Grameen Bank, Bank for Agriculture Cooperatives (BAAC) Sets Aside $321m for Lending, Staff Training

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