Performances of Interest Free Financial Services in DMFI

Transcription

1 DIRE MICROFINANCE INSTITUTION S.C Performances of Interest Free Financial Services in DMFI Presented On Agribusiness Fair on Nov. 7/2014 at Haramaya University

2 INTRODUCTION Dire Dawa provisional administration is chartered administrative city. It is found in the Eastern part of the country at a distance of 505 km from national capital Addis Ababa. Besides, it is found at 311km distance from the nearby neighboring country- Djibouti. The economic activities of the region are relatively diversified. The dominant mode of economy of the urban area encompassed trade, manufacturing, services and public employment. Mixed farming and agro-pastoral are the major economic activities of the rural area.

3 CONTINUED. According to the 2007 population and housing census result, the total population of the administration was 342,827. Out of this 232,854 (67.9%) are urban dwellers while 109,973(32.1 %) are residing in the rural part. The annual population growth rate of the urban area is 4.31 and it is 2.33 for the rural area.

4 OWNERSHIP AND GOVERNANCE DMFI was established in May 2, 2003 by 7 shareholders with paid-up and subscribed capital of Birr 1 million as per the proclamation number 40/1996. In 2013 three additional share holders joined the share company purchasing shares. As of Sep.30/2014 the Institution administers a total asset of Birr million out of which 45.1 million is its net equity. DMFI is a legal share company whose governance includes General Assembly Board of directors and managing Director.

5 VISION OF THE INSTITUTION The vision of DMFI is to see the institution become competent microfinance service provider at national level.

6 MISSION OF THE INSTITUTION To provide need anchored and client focused credit and saving financial services for low income households especially women who are engaged in or wish to engage in micro and small earning business to enhance their economic power.

7 OBJECTIVES Provide micro financial services to low income women, unemployed youth, farmers and pastoralist. Provide demand, saving and time deposit services Provide local money transfer services Provide counseling service to its client. Promote saving culture in the administration.

8 Values Treat clients with utmost respect Provide quality credit services Serve clients with honesty and loyalty Provide fast and efficient saving services We respect all good governance rules and regulations Follow the culture of change to promote growth and Transformation We follow zero tolerance principle

9 Credit Services Saving Services SERVICES OFFERED Fund Administration Credit life insurance - Conventional micro insurance - Islamic micro-insurance/tekaful Teawuni/ Training Other payment and collection services

10 TYPE OF LOAN PRODUCTS Group Loan Business (Individual) Loan Cooperatives Loan Consumption Loan Housing Loan Interest free loan - Murabaha - Ijara

11 TYPES OF SAVING Mandatory Voluntary Door to door Piggy Bank saving Pass book saving -Individual saving -Joint account -Children /miners/account - Corporate saving Fixed time deposited Non interest bearing saving -Wedia -Mudarabah

12 INTEREST RATE, SERVICE CHARGE, PROFIT MARKUP AND RENT FEE Taking Administrative Expense, Loan loss provision, cost of fund, the designed capitalization rate and Investment income in to account charges:- On Conventional Credit Services: Interest rate 12% and 3% service charge. Interest rate for saving 5% / year On Islamic Financing:- Mark-up on Murabaha 1 st Year % 2 nd Year % 3 rd Year % Rent on Ijara 1.25 % of loan per month

13 1. DMFI INTEREST FREE FINANCING Above 70% of the inhabitant of Dire dawa City Administration are the worshipers of Islamic religion. Nevertheless, Dire Microfinance Institution couldn t diversify its financing modalities to address the needs of Muslim populations in the previous operational years. It remained self excluded which rejected interest free financial services along with the provisions of conventional credit and saving services. Since the mid 2013 DMFI starts to deliver interest free financial services along with the provisions of conventional financial services opening Islamic/Interest free/ Windows.

14 INTRODUCTION OF ISLAMIC WINDOW What is an Islamic window? An Islamic Window is a separate department within a conventional bank, which operates under strict guidance by an independent Shari a Advisory Board (comprising Muslims scholars of repute, credible and due social recognition) to develop and offer Islamic financial products to the clients that demand such products. An Islamic Window may offer its products and services through conventional branches or dedicated Islamic branches of the conventional bank.

15 ORGANIZATIONAL STRUCTURE AND LOCATION DMFI has three structural layers that stretch down to the grass root level of society Head office, Brach office and sub branch offices Location Dire Microfinance has 6 branches and and 3 sub branches in Dire Dawa town and also two branches in rural kebeles(wahil&biyo Awale). For conventional financial services 4 branches and and 3 sub branches For Islamic(interest free) financing 4 branchs

16 PARTIAL ORGANIZATIONAL STRUCTURE AT HEAD OFFICE LEVEL General Manager Conventional Cr. & Saving Core Process Manager Interest Free Financing Service Manager Customer Relation Coordinator Support & Monitoring Coordinator Support & Monitoring Coordinator

17 ORGANIZATIONAL STRUCTURE OF ISLAMIC WINDOW Sheriah Supervisory Board General Manager Sheriah Auditor Interest Free Financing Service Manager Branches Senior Support & Monitoring Officer

18 ORGANIZATIONAL STRUCTURE AT BRANCH LEVEL Branch Manager Senior Customer Service Officer Customer Service Officer/Clerk/ Customer Service Officer /Cashier/ Senior Customer Relation Officer Customer Relation Officers Sub Branch - Customer Relation Officers - Cashier Senior Credit Risk & Audit Officer

19 INTEREST FREE FINANCIAL PRODUCTS 1. Interest free/islamic/loan Products : Murabah:-The institution buys goods through its agent and resells them to entrepreneurs for the cost of the goods plus a fixed markup for administration cost.

20 STEPS IN PERFORMING MURABAHA 1. Promise:- the client request loan by mentioning the asset to be purchased. 2. Agency:- the Institution and the client make an agency agreement 3. Acquiring possession:- the institution will receive the items purchased by the agent/clients as agent/ 4. Execution of Murabaha:- by signing the loan agreement the client purchase the item with fixed markup on credit bases to repay on the specific period.

21 LOAN PRODUCTS Ijara (Lease Agreement) CONTINUED. A type of loan product in which the institution acquire fixed assets such as machineries, motors, vehicles and other properties not prohibited by sheriah for loan clients in the form of rent in short and long term period. The right of the ownership title remains in the name of the institution till the total cost of the asset and the markup added is fully paid.

22 2. SAVING PRODUCTS Voluntary Saving - Wadia Saving Deposit : the saver deposits in the institution and earns neither profit nor share any losses. - Mudaraba Deposit : In this case the saver invests his/her deposit in the institution with the intension to earn profit and share losses too.

23 OPERATIONAL PERFORMANCE OF DMFI AS OF SEP. 30/2014 Activities Conventional Islamic Total 1. Credit Performance No. of Served Clients 20,794 1,570 22,364 No. of Active Loan Clients 2,565 1,479 4,598 Amount Disbursed 129,655, ,778, ,433, Values of loan outstanding 29,141, ,427, ,989, Recovery rate 98.45% 90.59% 97.56% PAR >30 Days 5.55% 11.88% 5.82% Percentage of women Clients 63.11% 57.71% 62.73% 2. Saving Performance No. of Voluntary Savors 11, ,146 Amount of Net Saving Mobilized 18,680, ,525, ,205,

24 SAVING MOBILIZATION FROM 2002/ /2014

25 LOAN DISBURSEMENT 2002/ / ,583,550 45,000, ,000, ,000, ,000, ,000, ,000, ,981,274 15,000, ,000, ,000, ,118, ,461,

26 PORTFOLIO AT RISK(PAR >30 DAYS Year PAR>30 Days June 30/ % June 30/ % June 30/ % June 30/ % June 30/ % Sep. 30/ %

27 INSTITUTIONAL PROFITABILITY FROM2002/ /2014

28 OPERATIONAL SELF-SUFFICIENCY/ 2002/ /2014

29 CHALLENGES DMFI faces the following challenges : Repayment of loan: poor loan repayment culture and high dependency syndrome of people in the rural area, Market distortion by NGO driven SACCOS which provide loan with very low/free/ interest rate. Very High clients drop out rate due to poor clients selection, lack business skill, aversion of group guarantee, nature of the loan (consumption), availability of other cheapest credit options, etc Absence Government credit guarantee scheme on the rural area

30 Lack of adequate knowledge and trained manpower about interest free financial services The administrative cost of interest free financial service is very high and challenging Sheriah noncompliance that some client assigned as agent fell to deliver the commodities they purchase. Lack of staff commitment and high staff turnover