MICROCAPITAL BRIEF: Farz Foundation Hosts First National Islamic Microfinance Conference in Lahore, Pakistan, Promotes Farz Methodology

The Farz Foundation, an Islamic microfinance institution (MFI) based in Pakistan, recently hosted the first National Islamic Microfinance Conference in Lahore, Pakistan, in an effort to develop solutions for the microfinance industry in Pakistan.

Among the ideas proposed to move away from lending practices that “create overindebtedness and violate the principles of customer’s ethic” is the Farz Methodology, a microfinance model promoted by Farz. The methodology, based on Islamic principles, offers free business and health education to clients, prior to offering funding, in deference to Sadqae Jariah (social responsibility). Farz offers loans to clients for the purchase of assets, such as real estate and business equipment. The loans, called murabaha, are interest-free but stipulate that the lender be entitled to a 24-percent profit on the proceeds from the asset. Murabaha are available in three classes: small, up to PKR 30,000 (USD 357); medium, up to PKR 80,000 (USD 952); and large, up to PKR 150,000 (USD 1,790). Farz also offers a takaful (Islamic microinsurance) product that provides PKR 20,000 (USD 236) to families in the event of a member’s death during the life of the loan in exchange for a one time, upfront fee of PKR 115 (USD 1.35).

Farz also aims to promote long-term planning and trust building through community savings pools that are distributed to community members based on a monthly raffle. Only after receiving business education and explaining their intentions and the utility of the project to the community can clients benefit from the pool. Clients are required to contribute PKR 200 (USD 2.34) each month to the community savings pool and one “lucky” raffle winner takes home the pool each month to use for their pre-approved business [1,2].

By John Howard-Smith, Research Associate

About Farz Foundation: Farz Foundation is an Islamic microfinance institution (MFI) based in Pakistan which provides the facility of murabaha (interest-free loans) to poor people. Murabaha are intended for the purchase of assets, such as real estate and business equipment. The loans are interest-free, but stipulate that the lender be entitled to a 24-percent profit on the proceeds from the asset.  Clients are also required to contribute PKR 200 (USD 2.34) each month to a community savings pool. One “lucky” raffle winner will collect the entire pool on a monthly basis to use for their pre-approved business: this incentive is intended to promote long-term planning and trust building. Additionally, Farz also offers a takaful (Islamic microinsurance) product that provides PKR 20,000 (USD 236) to families in the event of a member’s death during the life of the loan in exchange for a one time, upfront fee of PKR 115 (USD 1.35). As of 2010, Farz has approximately 1,180 members, and has disbursed loans totaling PKR 1.58 million (USD 186,000). Additional financial information on Farz is unavailable and it does not report data to the Microfinance Information Exchange (MIX).

[1] Farz Foundation correspondence with MicroCapital.org

[2] Farz Foundation: “Services”, http://www.farzfoundation.org/services.html

MicroCapital.org Event, January 4, 2011: “MICROCAPITAL EVENT: Farz Foundation Hosts First National Islamic Microfinance Conference 2011, Lahore, Pakistan, January 29, 2011”, https://www.microcapital.org/microcapital-event-farz-foundation-hosts-first-national-islamic-microfinance-conference-2011-lahore-pakistan-january-29-2011/

MicroCapital’s Microfinance Universe profile: Farz Foundation, https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Farz+Foundation

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