1

Islamic Microfinance Five Year Strategic Business Plan (2014-2019)

Expanding Financial Inclusion in Bangladesh through Islamic Microfinance

Submitted to
IRW
Revised: 10.08.2014

Submitted by Contact Person

Islamic Relief, Bangladesh Shabel Firuz, Country
House-10, Road-10, Block-K Director
Baridhara, Dhaka, Bangladesh

Contents
Executive Summary......................................................................................................................... 3
Strategic Vision for Islamic Relief Bangladesh Microfinance Programme.................................3
Background and present position of IRBs MF Interventions.....................................................4
Five Year Business Plan.................................................................................................................. 6
Budget Summary:.......................................................................................................................... 13
Narratives of IRBs Institutional Microfinance 5-year Strategic Business Plan......................14
Target beneficiaries/ clientele and Market...................................................................................14
IRBs Islamic Microfinance geographical coverage:...................................................................15
Financial products and services:................................................................................................. 16
Profit Rate Policy for investment (Bai-Murabaha):......................................................................16
Groups, methodology and delivery mechanism:........................................................................16
Monitoring and Internal Controls.................................................................................................. 18
Strategy to grow:............................................................................................................................ 18
Funding:.......................................................................................................................................... 19
Operations...................................................................................................................................... 20
Staffing:........................................................................................................................................... 20
Growth and Composition of Staffing Requirements...................................................................21
Systems and Policies..................................................................................................................... 21
Human Resource Development Strategy.....................................................................................22
Risk and assumption..................................................................................................................... 23
Efficiency and productivity........................................................................................................... 24
Financial Projection (In GBP)........................................................................................................ 25
Diagram of the business plan 2014 -2019......................................................................................288

Page 2 of 28
Executive Summary
Islamic Relief Bangladesh started its microfinance programme in 1996. These small scale
microfinance projects expanded and since 2005 the programme has been operating through
an institutional microfinance approach utilizing Islamic Microfinance principles. IRB applied
for its microfinance business license to Microcredit Regulatory Authority (MRA) but the
license from MRA was not possible due to gaps in IRBs governance/registration status and
profitability issue. However, IRB will reform its governance, update registration status and
make an effective business plan to reach its profitability within three years of its
microfinance operations for seeking re-registration (MRA license) of its I-MFI to assist in the
development of the Islamic Microfinance sector in Bangladesh and provide a demonstration
model of Islamic Microfinance through Institutional approach.

Since 2012 IRB has been piloting Self Help Group (SHG) an alternate approach to making
low-cost finance available to the ultra-poor. IRB has been strategically developing,
researching and piloting Qard-al Hasana financing using the Self Help Group (SHG) model.
IRB confidently promotes Qard al-Hasana through SHG approach on a sustainable basis as
groups manage the micro financing by themselves without any operational cost and are the
possessors of the loan revolving fund, therefore this model seems to be effective.

In the first phase of PPA-PROVED (2013-2014), IRB took different initiatives in promoting
Islamic Microfinance across Bangladesh by organizing trainings for capacity building of local
I-MFIs/MFIs and NGOs, commissioned research works on I-MF in Bangladesh, organizing
national seminar with wider stakeholders and developing I-MF networking for relationships
building with related government body, selected local MFIs/I-MFIs, academics, and Private
Islamic Banks.

Over the next five years, IRB will establish its I-MFI as one of the leading among I-MFIs to
assist in the development of Islamic Microfinance in Bangladesh and provide a
demonstration model of Islamic Microfinance through Institutional approach; in parallel IRB
shall build on its established relationships to promote I-MF across Bangladesh amongst
other established MFIs/Banks through policy engagements and capacity building initiatives
with local partners/ I-MFIs and also develop, strengthen SHG approach as an additional tool
for operating I-MF on a sustainable basis to ultra-poor target groups

Strategic Vision for Islamic Relief Bangladesh Microfinance Programme

IR Bangladesh will assist in the development and expansion of Islamic Microfinance in
Bangladesh and provide a demonstration model of Islamic Microfinance through
Institutional approaches and Self-Help Group model. Its objective is:

Page 3 of 28
Strategic Objective: To contribute to reduce poverty of the rural poor in Bangladesh by
providing Islamic Microfinance services and strengthening the Islamic Microfinance system
in Bangladesh by establishing sustainable Islamic Microfinance Institution, capacity
building, demonstrating and advocating for widening shariah compliant interest-free
financial access for small-scale entrepreneurs and ultra-poor households.

To achieve the strategic objective, IR Bangladesh will accomplish the following over the next
5 years:

Objective 1: Contribute in creating a favorable environment for the expansion of Islamic

Microfinance in Bangladesh through policy dialogues with policymakers, regulators,
funders via awareness raising, capacity building and advocacy related activities.

Objective 2: Promote Islamic Microfinance across Bangladesh by encouraging wider

private banking sector involvement, capacity building of local I-MFIs/MFIs and NGOs,
and through developing technical relationships and partnerships with selected local
MFIs/I-MFIs.

Objective 3: Register an I-MFI with the MRA to directly serve at least 10,800 low-income
entrepreneurs, especially vulnerable households, with Islamic Microfinance products and
services by the end of 2019.

Objective 4: By ensuring portfolio quality while increase outreach and efficiency with its
institutional approach, reach to financial self-sufficiency by the end of year three (2016-
2017).

Objective 5: Institutionalise and strengthen SHG model as an additional low-cost

approach of providing Islamic Microfinance to the ultra-poor.

Background and present position of IRBs MF Interventions:

Building on earlier and ongoing Islamic microfinance projects, Islamic Relief Bangladesh has
been implementing a programme namely Poverty Reduction of Vulnerable Households
through Small Scale Entrepreneurship Development (PROVED) with the aim to increase
incomes of poor households through self-help group approach by providing Islamic Shariah
Compliant Microfinance to contribute towards achieving MDG1 (reduction of poverty and
hunger) through improving livelihoods of the rural poor people in northwest part of
Bangladesh. The programme encapsulated a number of smaller Islamic microfinance
projects under one umbrella and supported capacity building of existing and new SHGs, SHG
strengthening, extending Qard al Hasanah loans to additional SHG members, undertaking
research and policy level works to raise awareness on Islamic microfinance challenges and
prospects in Bangladesh.

Page 4 of 28
Funded by DFID PPA, the programme has been ongoing since January 2013. The PROVED
project was an integration IRBs microfinance based livelihoods projects. A total number of
4509 poor families have benefited through this project in two sub districts (Mithapukur and
Pirghacha) in Rangpur district. Of them, 1501 women from Mithapukur Upazilla are the
direct beneficiaries of the PPA funded element of the project and received Islamic
Microfinance product Qard Al Hasan financing through Self Help Group approach. Self Help
Groups have been formed and operational to achieve the goal of the project. In addition to
financial supports to 1501 beneficiaries, all 4509 beneficiaries are being provided financial
services from other IRBs projects and are aware of different social issues -rights, health,
nutrition, accessibility etc.

IRB wants to continue this PROVED programme through operating Islamic microfinance
product Qard Al Hasana through community financing mechanism -SHG model (foster these
4509) beneficiaries for a certain period of time (at least for next two years) to build SHG as
strong platform for revolving based Islamic microfinance by the beneficiaries to contribute to
poverty reduction. IRB helped forming an Apex Body of SHGs to institutionalize the SHG
model. This apex body has been registered with governments local co-operative
department recently and will have overall coordination and management responsibility to
support SHGs. This apex body will be nurtured and empowered in a way that in two years
time this apex body will have capacity to manage SHG led activities including Islamic
Microfinance.

IRB will take the leading role in bringing NGOs, MFIs, the private sectors, Government
agencies, and civil society to work together to create a conducive environment for
leveraging Islamic Microfinance In Bangladesh which has a huge potential, as a good
number of poor Bangladeshi people like to practice in their economic activities through
Shariah based Islamic financial system.

The DFID PPA fund will provide significant prospect, focus and momentum to develop a
strategic direction based on different research findings, sharing and consensus among key
stakeholders to create a foundation to support establish its I-MFI to assist in the
development of Islamic Microfinance in Bangladesh and provide a demonstration model of
Islamic Microfinance through Institutional approach and to promote I-MF across Bangladesh
through policy engagements and capacity building initiatives with local partners/ I-MFIs.

Page 5 of 28
 Five Year Business Plan:

Strategic Objective: To contribute to reduce poverty of the rural poor in Bangladesh by providing Islamic Microfinance services and
strengthening the Islamic Microfinance system in Bangladesh by establishing sustainable Islamic Microfinance Institution, capacity building,
demonstrating and advocating for widening shariah compliant interest-free financial access for small-scale entrepreneurs and ultra-poor
households.

Objectives Intervention/Activities Output/Indicators of Activities will be done Critical

required to achieve Achievements Assumption
(2014-2019)
goals
14-15 15-16 16-17 17- 18 18-19

1. Organize training 1. Trained human Government

Objective 1: Contribute in on I-MF to I- resources available positive attitude on
creating a favourable
MFIs /NGOS/ for expanding I-MF I-MF development
environment for the
expansion of Islamic Islamic Banks / in Bangladesh.
Normal political
Microfinance in Policy Makers /
environment;
Bangladesh through Academics.
policy dialogues with 2. Strong Islamic Positive response
2. Develop a
policymakers, regulators, and commitment of
microfinance
funders via awareness national Islamic private Islamic
platform is created
raising, capacity building Microfinance Banks
and advocacy related to promote and
platform and
activities develop I-MF and
networking body, Commercial Banks
encourage MFI, and other private
Regular activities
NGOs and other sector positive role
to strengthen
private sector to in developing/
network body
engage in expanding I-MF.
promoting I-MF
 across Bangladesh.

3. Support created
amongst

stakeholders to
3. Organize policy address any I-MF
dialogues with policy gaps and
policymaker, contributed in
regulators drafting of I-MF
policy in
Bangladesh.

4. Identify policy 4. Policymakers,

gaps of relevant regulators and
Institutions/ other stakeholders
regularity body aware and
for l-MF and contribute to new I-
prepare MF policy
recommendation development.
s to contribute to
formulate/approv
e policy for I-MF
Objective 2: Promote 1. Workshops and 1. Increased Positive
Islamic Microfinance policy dialogues investment in I-MF, cooperation
across Bangladesh by with Private I-MF expansion by from Private
encouraging wider banking sector banking sector and Islamic Banks,
private banking sector leaders and created new positive attitude
involvement, capacity Encourage private funding source for to invest in I-MF
building of local I- banking sector I-MF. sector.
MFIs/MFIs and NGOs, expansion of I-
Creditability of
and through MFI
Local NGO to
developing technical 2. Private banking
2. Continuous Invest fund
relationships and sector have
communications
partnerships with expanded I-MF
with Private
selected local MFIs/I- projects and are
Islamic Banks and
MFIs. funding other
other commercial
NGOs to increase I-
banks through
MF clientele
meeting and
workshop

3. Support capacity 3. Increased I-MF

building of local clients through
IMFIs/MFIs and local NGOs and
evolve technical MFIs; developed
relationships to partnerships with
explore private Islamic
operational Banks for fund
opportunities generation
with private
Islamic Banks; vet
 potential of local
partner MFIs.

Objective 3: Register 1. Register a local 1. Obtained Governing body

an I-MFI with the MRA Register a new registration from composition might
to directly serve at local entity with JSC be an issue for
least 10,800 low- JSC to initiate registration process
income IRBs Institutional
entrepreneurs, I-MF activities
especially vulnerable Previous IRBs
2. Applied for MRA 2. Obtained a MFI
households, with applications and
Registration to business license
Islamic Microfinance negative impression
obtain business from MRA
products and services of MRA Authority
license
by the end of 2019. might be an issue in
3. Marketing and ensuring business
developing web 3. Receiving funding license
from local personal
based online fund
accumulation and corporate
mechanism donor

4. New branch 4. Five branch offices

office open open.
Unstable political
5. Group formation, 5. 360 groups formed
situation, natural
Beneficiaries/clie and 10800 new
disaster. Ensure
nts selection beneficiaries are
funding
served under I-MF
programme
6. Murabaha, Bi- 6. 10000 clients are Favorable political
salam and served with I-MF environment, staff
 diminishing products and efficiency and fund
Musharaka services availability.
investment and
repayment made.
7. Suitable I-MF
7. I-MF Product
products identified
selection for
and developed for
Institutional
clients
Microfinance

1. Secure grants from Stable political
1. Applied for
Objective 4: By different sources,
grants, Qard Al situation of the
ensuring portfolio Qard Al Hasana,
hasana, country,
quality while increase noriba functional,
commercial Organizational
outreach and savings collection
source for approach to the
efficiency with its from Clients to
capitalization local donor
institutional approach, ensure sufficient
reach to financial self- investment
sufficiency by the end
of year three (2016-
2017).
2. Selection of 2. Repayment of
market driven Investment will
Suitable political
easy and clients keep in above
environment of the
friendly I-MF standard ( 98%)
country, Natural
product
3. Ensure excellent disaster

3. Ensure staff repayment rate,
efficiency, strong staff efficiency,
 portfolio develop planning
management, review for risk and risk
risk and mitigation mitigation.
strategy

Objective 5: Stable political

1. SHGs sufficiently
Institutionalise and environment
1. Organize training developed and
strengthen SHG model
sessions for SHG strengthened to
as an additional low-
leaders on SHG self-manage and
cost approach of No severe
management, sustain own
providing Islamic disaster in the
financial activities.
Microfinance to the project area
management and
ultra-poor.
leadership
development. 2. SHGs capacity for
self-management Honesty and
2. Regular follow up
strengthened. integrity of SHG
and monitoring
leaders.
SHG activities

3. Capacity of SHG
Apex body leaders
3. Orientation and
developed to
Trainings for Willingness of
continue support to
SHGs Apex body Apex body
SHGs.
leaders leaders
4. SHGs as well as
4. Refine bi-laws
Apex body of SHGs
and develop a
simple have well
operational developed bi-laws

manual for SHG and operational
Apex body manual
Budget Summary:
Total budget for the two years extension period is GBP 225,000. Below table
describes the summary of budget plan.

Cost Description Percentage (%) Total L.C. Total R.C Total GBP

Personnel Cost 39.80%

11,539,191.43 89,544.81 89,544.81
Direct Charitable
54.49%
Expenditures 15,798,000.00 122,593.41 122,593.41
Assets and Non Capit.
1.18%
assets 341,000.00 2,646.18 2,646.18
Running Cost 4.54%
1,316,433.60 10,215.60 10,215.60
Office Support Cost 0.00%
- - -
Total
100.00% 28,994,625.03 225,000.00 225,000.00

** Loan revolving fund is GBP 77,600, which is merged in above mentioned row Direct
Charitable Expenditures

Detail budget is available in IRWs approved format.

Narratives of IRBs Institutional Microfinance 5-year Strategic Business Plan

Islamic Relief Bangladesh will create a locally registered I-MFI to assist in the development of
Islamic Microfinance in Bangladesh and provide a demonstration model of Islamic
Microfinance through Institutional approach. Islamic microfinance is not common in
Bangladesh, although Bangladesh is the home of microcredit, at present there are
thousands of Conventional Microfinance Institutions (MFIs) working for poverty eradication
but unfortunately still poverty is a central ailment for over all development and it has not
been declined significantly. The interest rate still high, C-MFIs are not care about the
spiritual, moral and ethical dimension of the rural/urban poor but it is the important issues
in the all aspects of human life.

As Islam has a complete code for all mankind, it might be applicable in every sphere of life
whether business, service or any other parts of human life. It has also placed central focus
on poverty alleviation to establish dignity and self-reliance through a consciously
participatory development agenda. But still Islamic microfinance initiatives in Bangladesh are
very few. Further, these few institutions are not integrated into the formal financial systems.
Islamic microfinance initiative can display wide variations in the models, instruments and
operational mechanisms. While, in terms of reach, penetration and financial ability, Islamic
microfinance institutions lag far behind their conventional counterparts they certainly have
potential to score better in terms of richness and variety. Islamic microfinance institutions
similar to conventional microfinance institutions use group financing as morale collateral,
taking women beneficiaries and aiming at alleviation of poverty.

In considering the above issues, Islamic micro-financing is an opportunity for Bangladesh,

where a good number of Bangladeshi citizens like to practice in their economic activities
through Shariah based Islamic financial system. The Islamic Microfinance models have
been formed through the concept of shariah based Islamic finance i.e. Bai- Muajjal,
Murabaha, Ijara & Bai-Salam. All these models have so far been proved as feasible way of
financing in the Bangladeshi context at the micro level.

Target beneficiaries/ clientele and Market

IRB will target the poor and marginalized women (age 18-55 years) in targeted areas. In
wealth ranking, they will be the bottom line households in community. They do not have
significant productive assets; income level is low and irregular (average 10 - 20 GBP per
week); low scope of savings and limited access to institutional micro credit.
A profile for target peri-urban and rural microfinance beneficiaries is included below. It was
determined from IRBs other livelihoods/ I-MF ( Qard Al Hasana) led Livelihood projects
experiences and also discussion with leading MFIs ( BRAC, ASA, Grameen Bank)
beneficiaries as well as their Branch office staffs.

Target Micro entrepreneur/ clients

Age 18-55 (20-40 most frequently)
 Sex Female: 100%
Marital Status Married, widow and woman headed families
Education Primary to secondary school, 75% illiterate
Type of business Agriculture production & livestock and micro enterprises
in service, production or trade
Location Rural area and peri urban location
Land 10 decimal 60 decimal in maximum HHs , very few have
100 to 150 decimal ( 5% of total beneficiaries)
Savings Savings in small amount, sometimes no savings
Repayment capacity 10 - 20 GBP per month
Reason for Loan Working capital and asset acquisition, , seeds & material
purchase for agriculture, livestock raising etc.
Effective Amount 100 - 300 GBP working capital
demanded 100 - 250 GBP asset acquisition or livestock
Access to bank credit No, due to lack of guarantors and assets
Access to NGO/MFIs Few of them, however no access to Islamic Microfinance
credit product and services
Income flows Daily, Weekly and Monthly

IRBs Islamic Microfinance geographical coverage:

IRB will start its Institutional Islamic Microfinance programme in northern district- greater
Rangpur, since north-west part of Bangladesh is one of the poorest regions among other
areas of Bangladesh. In 2005, Bangladesh Bureau of Statistic (BBS) estimated poverty rate in
north-west in Bangladesh - 34.50% (lower poverty line) and 51.20% (upper poverty line).
Seasonal unemployment is common phenomena in this area. Consequently, unemployment
creates monga (Monga is a Bangla word, means seasonal food crisis) in every year during a
particular period. People of this area needs support, Islamic MF project will be a good
opportunity for the poor people to develop their livelihoods.
Financial products and services:

a. Savings product: Mudaraba Islamic Micro Savings: IRB will collect compulsory savings
from its members/clients under a savings product named Mudaraba Islamic Micro
Savings. Mudaraba is a contract between two parties in which one party will provide
capital and other party will manage the business. Clients are capital provider -Sahib-
Al-Maal and the user of this fund ( IRB) is Mudarib. As per Shariah principles, the
Mudarib will conduct the business independently following Shariah principles.

b. Investment products: IRB will extend investment to its members/clients who comply
with set terms & conditions relating to its investment policy. The investment
product(s) of IRB is governed by the guidelines of Islamic Shariah Principles under the
particular mode of investment. IRB has selected three modes of investment to
operate its Microfinance Scheme among which Bai-Murabaha Mode of investment
will be emphasized in its day to day investment activities. However, investment under
the remaining two modes may be allowed to the clients if it is deemed viable to the
authority of IRB in the following years. Other products are i) Bai-Salam & ii)
Diminishing Musaraka/ HPSM

Profit Rate Policy for investment (Bai-Murabaha):

IRB will operate its Microfinance program under Islamic Shariah mode and follow mark-up
sale based products. IRB will add the mark-up profit with the cost price of goods purchased
against investment amount as per guidelines of Islamic Shariah prescribed for Bai-Murabaha
mode of investment. Mark-up profit for one year investment may be 12% (flat mark-up), this
rate needs to be changed in times depending on the market situation. In Bangladesh, MRA
( Microcredit Regulatory Authority) has fixed a policy for interest charging for conventional
MFIs, as IRB will operate under MRA license therefore IRBs Murabaha mark up profit will
not be more than MRA interest policy. The mark-up rate will be charged by IRB, is
determined by calculating the market-related cost of funds, long term projected operating
margin and expected loan losses. IRB changes its Murabaha mark-up as its cost structure
evolves to ensure profitability

Groups, methodology and delivery mechanism:

i. Group formation:
IRBs Islamic microfinance programme is group (samity) based, a group will be consisted of
minimum 20 members and gradually be increased up to 35 members. Community
Organizer/Laon officer of IRB will facilitate to form a Samity with the members who live in the
same village/para. To form a samity following process will be maintained:

Members who live in the same proximity can form a Samity (maximum 1 km
distance of Samity centre)
Members must know one another.
Must fulfil the membership criteria.
 The persons who are involved in small & micro business, agriculture, livestock
rearing and other IGA will be eligible to enrol in a Samity with an expressed
aim of savings and accessing investments from IRB.
A Samity will be formed on the basis of self-selecting membership method
who trust each other and fulfill the membership criteria
A Samity is to be formed with persons who are in viable and legal economic
activities.
Distance of Samity members must not be more than one kilometre from the
Samity centre.
Community Organizer/loan officer will meet the target villagers individually
and in group to discuss about the objectives and aim of IRB microfinance
program and facilitate to form a Samity whereas, branch manager will declare
a Samity after all verifications.

After formation of a samity, the members of Samity will confirm small groups, management
committee and settle functions of management committee, The Samity will conduct a
weekly meeting at the place and time agreed by all members of the Samity. Loan and savings
collection will take place in the samity meeting.

ii. .Methodology and delivery mechanism:

The group completes a short orientation on IRBs microfinance program as well as

procedure of loan and savings. At the same time, the members participate in basic business
training sessions. Afterwards, members can apply for murabaha investment. IRBs
investment committee will scrutinize the application process has been complete and
transparent; checks that the members will be able to successfully use and repay the loan
and then approves loans.
After the application is approved, clients complete a final pre-investment orientation before
receiving goods. Investment is confirmed within a week of the pre-investment training. All
members of the group who applied for investment support must be present at the branch
office to complete required signatures, sign a promissory note. A procurement committee is
form for group wise materials procurement as murabaha investment.
Immediately following investment, Community Organizer (CO)/Loan Officer( LO) and branch
staffs check to see that the goods/materials were invested in business activities are in
existence and working good way, to encourage sound management of the investment, and
ensure timely repayment. Group leaders collect the weekly repayment of each member and
deposit it at the branch office. After confirming the amounts and issuing receipts, the
branch cashier will deposit repayments at a local bank or in the branch office safe until a
deposit can be made. Throughout the loan cycle, CO/LO visit borrowers to monitor
repayment, provide support and advise on record keeping and business management.

Monitoring and Internal Controls

IRB will have a comprehensive system of monitoring at the field level to ensure high quality
and transparent services and to avoid fraud by CO/LO. Branch management will visit each
group at least twice during the loan cycle and generally more often to confirm repayment
data and monitor clients businesses. These operational checks are confirmed by financial
monitoring by the branch cashiers (including daily cash counts and confirmations of receipts)
and senior finance staff (monthly report monitoring, bank statement reconciliations, and at
least semi-annual field visits).
IRB will use loan tracking software at head office and branch level. Internal and External
audit will serve to ensure that IRBs reports are accurate and its internal controls strong.

Strategy to grow:
Geographical expansion: IRB will begin operations in Sadar Upaziall of Rangpur and
gradually open new branch office in other sub-districts of the same district. Ideally one
branch will be opened each year to make the total number of Branches 5 in the year five.
This measured growth will enable IRB to expand while maintaining strong portfolio quality.
To reach its goal of 10,800 clients, IRB will operate up to 5 separate branches in five years of
operation.
i. Growth projection:

Groups and clients Year 1 Year 2 Year 3 Year 4 Year 5

Number of branch offices 1 2 3 4 5
Number of Groups 50 100 180 250 360
Number of Active clients 1,500 3,000 5,400 7,500 10,800
Women client % 100% 100% 100% 100% 100%
Investment and portfolio
Number of Investment 1,000 2,500 5,070 7,050 10,150
Number of Bi-Murabaha 1,000 2,500 5,000 6,800 9,600
Number of Bi-Salam 0 0 50 225 500
Diminishing Musaraka 0 0 20 25 50
Portfolio Amount ( GBP) 90,000.00 240,250.00 405,600.00 709,000.00 930,200.00
Bi-Murabaha 90,000.00 240,250.00 391,600.00 675,000.00 865,200.00
Bi-Salam 6,000.00 22,000.00 40,000.00
Diminishing Musaraka 8,000.00 12,000.00 25,000.00
Operating Revenue 10,246 37,845 74,227 125,451 176,286
Operating cost 38,500 47,420 57,748 84,154 110,758

Client Retention Rate :

Due to selection and training costs, clients do not become profitable for an institution until
their second or third investment cycle. As a result, IRB will strive to provide demand driven
services that are client friendly. Nevertheless, in order to develop conservative estimates,
IRB has used an 90% retention rate in its calculations.

Portfolio Quality: IRB will track portfolio quality through three main indicators according to
the following targets:
a. Arrears Rate target 2.5% or less
b. Portfolio at Risk Rate ( PAR 30 days) target 4% or less
 c. Loan Loss Rate 1.5% or less

IRB considers that a certain portion of bad loans will not be recovered therefore a rough
assumption of 1.5% of total loan portfolio will be written off.

Funding:
Although IRB has set targets for becoming profitable in three years time, the institution will
need significant capital funding and some operating subsidies in its early years in order to
reach this goal.
IRB will begin its Institutional microfinance operation with expected funding from the DFID-
PPA. This funding allowed IRB to establish and equip a head office and branch office, train
staff and begin murabaha investment (loan disbursements). IRB expects a separate fund of
GBP 51,348 as operational grants- for staff salaries, training and running costs.

IRB estimates for its investment fund (loan revolving fund) to be mobilized as follows:
In GBP Year 1 Year 2 Year 3 Year 4 Year 5 Total
Grants
DFID PPA 77,600 100,000
Grants from Islamic Banks-
22,400
CSR
IR Middle East Fund 50,000 50,000
noriba web site fund 5,000 8,000 10,000 20,000 43,000
100,000 55,000 8,000 10,000 20,000 193,000
Qard Al Hasana funding
IR Middle East Fund 100,000 100,000
IDB 100,000 100000
Islamic Banks from CSR Fund 50,000 50,000 50,000 150,000
150,000 150,000 50,000 350,000
Commercial source
Clients savings 6,000 12,500 20,000 30,700 40,000 109,200
Bi-Moajjal from Islamic Banks 100,000 100,000 100,000 300,000
Operating surplus 181 7,929 17,407 25,517
6,000 112,500 20,181 138629 157,407 434,717
Total 106,000 167,500 178,181 298,629 227,407 977,717
Cumulative funding 106,000 273,500 451,681 750,129 977,717 977,717

Operations

i. Operational Structure, legal status, ownership and governance:

IRB will register with JSC (Joint Stock Company) Bangladesh as a local entity under the
society registration Act, 1860 as Islamic Relief Bangladesh to begin its operation
independently from Islamic Relief current legal status as an INGO. At the beginning of the
registration process IRB will seek legal aspects of governance structure, companys identity
and ownership of the company which will allow IRB to obtain MRA license to operate its
Islamic Microfinance programme in Bangladesh
 Legal Status:
In year 1 ( 2014-2015), IRB will register as a local company with Joint stock company which
will provides a clear legal status, transparent ownership and governance structure. These
features are especially important for obtaining a MRA license to operate microfinance
programme in Bangladesh. IRB will apply for its business license to MRA in year 1, subject to
MRA guidelines or timing to apply for a licence.

Governance:

The Governing body will generally pursue and carry out the objective of the organization and
will be responsible for the management administration of the organization. The Governing
body will consist of at least 15 members. There will be an Executive committee with 5-7
members who will also be the members of Governing body. The executive committee will be
assigned for regular operations of the organization, monitoring institutional performance,
developing operational strategies and managing CEO. The executive committee generally
meets quarterly while the Governing body meeting will be once a year.

Staffing:
i. The general organigram of IRB is as follows:

Governing Body

Executive Committee

CEO Internal Audit

Operation Manager Finance Manager MIS

BMs Accounts Department

Cashier
GrowthCO/LO Service
and Composition Staf
of Staffing Requirements
Staffing: IRBs staff requirements will be as per following chart. During the years following,
IR will increase staff and build capacity in its Head Office unit and expand into new branches
gradually.
Designation Year 1 Year 2 Year 3 Year 4 Year 5
CEO 1 1 1 1 1
Accounts officer/FM 1 1 1 1 1
Operations manager 1 1 1 1
MIS Officer 1 1 1 1 1
Branch Manager 1 1 2 2 3
Loan officer/ supervisor 3 6 9 12 14
Cashier 1 2 3 4 5
Support staff 1 2 3 4 5
Total staffing 9 15 21 26 31

Branch offices will serve as administrative and financial support centers for loan staff as well as
for conducting client training and meetings. Head Office will focus on supporting branch
operations providing assistance, monitoring, representation, and planning services.

Systems and Policies

IRB developed systems and policies to support Islamic Microfinance programme previously
in CAP project. In the 1st phase of PPA PROVED project IRBs microfinance manual was
reviewed and endorsed by Central Shariah Board for Islamic Banks of Bangladesh. IRB will
take IRWBs Finance and accounting and administrative policies which will be adjusting on
demand for the services.

i. Systems:
Management Information System (MIS): IRB will use loan tracking and Management
Information System as a strong portfolio management tool in the industry and through
time will cop up with new technologies responding to the needs of Microfinance
programs.
Financial (accounting) software: IRB will use quick book or/ customised software which
is in built with loan software
Administration/Management/Monitoring: IRB will develop and adapt systems to the
needs of a separate Microfinance operation.

ii. Policies:
At the beginning of Islamic Microfinance operations, IRB will use IRWBs policy and
procedures those serve as training manuals for new staff. A series of manuals outline all
policies, procedures, reporting requirements, and internal controls.
Through time and in the course of operation IRB amends and incorporates new policies for
an efficient and effective program implementation.
iii. Policies to be developed:
Personnel (hiring, firing, benefits and incentives, performance review,
responsibilities, etc.)
Administrative (filing, equipment use and maintenance, cash handling, etc.)
Product delivery (recruitment, client training, disbursement, monitoring, etc.)
 Accounting (charts of accounts, write off and reserve policy, presentation of financial
statements, etc.)
Training Manuals (training plans and modules for staff)
These policies will be updated on an as needed basis in the years following.

Human Resource Development Strategy

Recognizing the importance of training to the achievement of IRBs strategic objective staff
training will be an important on-going exercise for the institution. A general staff training
plan will be developed for each position and each staff member will have a training plan
developed that meets his/her needs. Both managers and staff members will be responsible
for meeting individual training goals and promotions will not be considered until minimum
training requirements have been met. Training will be provided by internal staff, IRBs
technical staff (when necessary). Special emphasis will be placed on building internal
capacity for training within IRB so that external training will be less necessary in the future.

General training requirements for staff are as follows:

a. Community Organizer/ Loan officers Training
Credit staff are trained through a combination of class room sessions and hands-on training.
Occasional workshops will also be organized on a periodic basis to review topics and add
new information/techniques. The initial training and refresher sessions focus on the
following topics:
Islamic Microfinance Principles and Methodology
Group training, lending and monitoring mechanism
Communication and interpersonal relationship
Monitoring and Supervision
Business analysis
Delinquency Management and Portfolio Report development and use

b. Finance Staff Training

All cashiers and financial management staff will learn to translate their financial/accounting
background to the microfinance system through orientation on the IRBs accounting and
Management Information System and formal sessions on accounting/financial management
for microfinance. In order that they understand the loan delivery process, they will also
attend new Community Organizers/ Loan officers training. Finally, to improve
management/accounting skills, select higher level staff may attend managerial training (see
below). Some of the formal training sessions that finance staff will attend include:
Islamic finance Principles and Methodology
Branch Office Record Keeping
Accounting and Basic Financial Management
Financial Projections
c. Management Training
Management training will take place through a number of methods. Formal sessions on job
responsibilities, roles and technical areas of supervision will be accompanied with extensive
time (working directly with branch and other department staff. In addition, formal sessions
on the below topics (in addition to the Community Organizer/Loan Officer training sessions)
will be organized periodically to supplement/add skills in other areas relevant for their job.
Finally, internal mentoring programs will be established to allow new branch managers to
learn from their colleagues.
Formal training sessions:
Accounting and Basic Financial Management
General Management and Administration
Islamic MF Products and methodology
Growth Management, Internal Controls
Business and strategic planning
Financial Projections (different tools)
Management Information Systems
In addition, IRB will organize periodic special training opportunities for staff on product
development, institutional development, monitoring and evaluation, etc. These training
opportunities will be held in Dhaka or when appropriate at international training institutes.

Risk and assumption

Risk is an integral part of Microfinance business. When MFIs issue loans, there is a risk of
borrower default. Any institution that conducts cash transactions or makes investments risks
the loss of those funds, microfinance institutions (MFIs) face risks that they must manage
efficiently and effectively to be successful. If the MFI does not manage its risks well, it will
likely fail to meet its social and financial objectives. When poorly managed risks begin to
result in financial losses, donors, investors, tend to lose confidence in the organization and
funds begin to dry up. When funds dry up, an MFI quickly goes out of business. However
Islamic Relief Bangladesh considers the following risk

Potential Risk level of risk Measure to mitigate risk

Governence- Governing body Low
composition, IRWs stand on
selecting governing body
members from IRW which may
create problem in operation of
the program
MRA License may not be High
obtained
Capitalization risk: If IRB does Medium
not ensure projected loan
capital, the sustainablilty
Strictictly comply Registration policy and
procedure and let IRW understand without
complying countrys policy IRB can not
operate its IMF program in Bangladesh.
Register as A MFI with JSC timely. Prepare
all required documents and submit to MRA
in time. All requirements of MRA will try to
be fulfilled so that no problen arises to get
the license.
IRB will prepare an action plan and make
all effort to ensure proper funding in time.
would be at risk
Credit risk: Default risk, loan Low
delinquncy etc
Shariah compliant: Maintain Low
Islamic shariah is a challenge
Political unrest: Unstable Low
political situation may hamper
to reach its objective in the
time frame
Staff training, strong planning, close
monitoring and supervision, compulsory
savings, loan size control etc.
Regular Shariah audit, strong monitoring
mechanism
Contingent plan to minimize risk and smoth
operation.

As an I-MF IRB consider the all potential risk like other MFIs encountered and prepare plan so
that IRB can cope up with these risks and operate its MF program.

Efficiency and productivity

Year 1 Year 2 Year 3 Year 4 Year 5

Yield on Portfolio (annualized) 22.0% 22.5% 22.6% 22.2% 21.6%

Operational self-sufficiency 25% 76% 117% 130% 139%

Financial Self Sufficiency 25% 63% 100% 107% 111%

Borrowers per Credit Agent 333 417 563 588 725

Portfolio per Loan Officer in GBP 30,000 40,042 45,067 59,083 64,300

Portfolio at Risk 0.5% 1% 2% 3% 4%

% of arrears loan 0.3% 0.5% 1% 2% 2.5%

Financial Projection (In GBP)

Yr 1 Yr 2 Yr 3 Yr 4 Yr 5
Balance Sheet
ASSETS *
Cash in Bank and Cash in Hand 11,496 36,826 12,692 32,274 49,445

Net Portfolio Outstanding 88,920 236,646 397,488 691,275 902,294

Short-term Inv. & other curr ass 0 0 40,000 40,000 40,000

Accounts receivable ( Murabaha mark 10,670 28,398 47,699 82,953 108,275
up & Fee)
Net Fixed Assets 6,650 14,376 15,875 15,490 26,121

TOTAL ASSETS 117,736 316,246 513,754 861,992 1,126,135

LIABILITIES *

Savings deposits 6,000 18,500 38,500 69,200 109,200

Qard Al Hasana Loan 150,000 300,000 350,000

Bai-Mujjal loan 100000 100000 200000 300,000

Accounts payable ( Savings profit and 1067 14350 14375 28730 40,144
financial cost of fund and operational
exp)
Short time liability (Murabaha mark up) 10670.4 28397.52 47698.56 82953 108,275

no.riba find 0 5000 13000 23000 43000

TOTAL LIABILITIES 17,737 166,248 363,574 703,883 950,619

EQUITY *

Accum. Donated equity, prev. periods 0 129,514 201,347 201,347 201,347

Donated equity, current period 129,514 71,833

Accumulated net surplus -29,515 -51,349 -51,167 -43,238 -25,831

TOTAL EQUITY 99,999 149,998 150,180 158,109 175,516

TOTAL LIABILITIES AND EQUITY 117,736 316,246 513,754 861,992 1,126,135

Total Financial Income 10,246 37,845 74,227 125,451 176,286

Total Financial Costs 180 9,735 10,710 21,231 32,352
Gross Financial Margin 10,066 28,110 63,517 104,220 143,934
Provision for loan losses 1,080 2,524 5,588 12,137 15,769
Net Financial Margin 8,986 25,586 57,929 92,083 128,165
Program Operating Exp 38,500 47,420 57,748 84,154 110,758
Net income from operations -29,514 -21,834 181 7,929 17,407
Grant Income 29,514 21,833 0 0 0
Excess of Income over Expenses 0 -1 181 7,929 17,407
Annex A

Acronyms

IGA : Income Generating Activities

CAP : Community Action Project
CSR : Corporate Social Responsibility
CO : Community Organizer
IICO : International Islamic Charitable Organization
JSC : joint Stock Company
SAFOLLO : Strengthening Peoples Actions for Food and Livelihood Security
SHG : Self Help Group
NGO : Non Government Organization
MFI : Micro Finance Institution
LGI : Local Government Institutions
LO : Loan Officer
MRA : Micro-credit Regulatory Authority
I-MFI : Islamic Micro Finance Institutions
I-MF : Islamic Micro Finance
IRB : Islamic Relief Bangladesh
IRW : Islamic Relief worldwide
MIS : Management Information System
BDT : Bangladeshi Taka (currency)