Sadaqah In addition to zakat Islam also encourages sadaqah or voluntary charity

Sadaqah in addition to zakat islam also encourages

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Sadaqah. In addition to zakat, Islam also encourages sadaqah or voluntary charity. Sadaqah is not subject to any conditions, and it may be given at any time, in any amount, and to those entitled to zakat as well as others. Qard al Hasan (benevolence loan). It is an interest-free lending given out to alleviate the sufferings of the needy. (b) Internal resources Internal resources that can be mobilised for microfinance can be divided into two, namely: Deposits. This includes various forms of deposits such as Wadiah (safekeeping), Qard al Hasan and Mudharabah (profit sharing). Equity. Mobilisation of funds through participatory models such as Musharakah and Mudharabah. In terms of Islamic microfinance models, there are three major non-profit modes – zakat, awqaf and Qard al Hasan – that can be adopted for Islamic microfinance. Besides this, there is the for-profit model, which uses Kafalah as a guarantee mechanism at the group or individual level.
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12 © KFH Research Ltd Islamic Microfinance Non-Profit Model for Microfinance Notes: 1. Islamic MFI or Programme creates a Zakat Fund with contribution from muzakki. 2. Programme facilitates waqaf of physical assets as well as monetary assets. The physical assets are used to facilitate education and skills training. The monetary assets may be in the form of a cash waqaf, or simply as ordinary sadaqah. 3. Programme carefully identifies the poorest of the poor and the destitute who are economically inactive and directs a part of Zakat Fund towards meeting their basic necessities as grant, seeks to provide a safety net. 4. Programme provides skills training to economically inactive, utilising community-held physical assets under waqaf. 5. Beneficiaries graduate with improved skills and managerial acumen. 6. Beneficiaries are formed into groups with mutual guarantee under the concept of Kafalah. 7. Financing is provided on the basis of Qard al Hasan to the group; also to individuals backed by guarantee under the concept of Kafalah. 8. Group members pay back and in turn, are provided higher levels of financing. 9. Additional guarantee against default by the group is provided by the Zakat Fund and actual defaulting accounts are paid off with Zakat Funds; this is indeed the distinct feature of this model. 10. Group members are encouraged to save under appropriate microsavings schemes. 11. Group members are encouraged to form a Takaful Fund to provide micro-insurance against unforeseen risks and uncertainties resulting in loss of livelihood, sickness and so on. Source: Introduction to Islamic Microfinance, Mohammed Obaidullah, IBF Net (P) Limited, India (2008) Donor/ Waqif/ Muzakki Cash Waqaf Physical assets Micro- sa vings Qard al Ha sa n microfinance Micro-takaful 6 Self Help Group econo micall y active 10 8 7 11 Skills training Safety net Guarantee Zakat Fund Economi call y inactive 1 4 3 9 5 2
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13 © KFH Research Ltd Islamic Microfinance For-Profit Composite Model for Microfinance Notes: 1. Islamic MFI or Programme creates a Zakat Fund with contribution from muzakki.
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