CASE STUDY-3
AKHUWAT BANK
ANSWERS
ANSWER :1
Microfinance Institutions are the monetary body which facilitates the poor gentry of the
country to eliminate poverty. Its main aim is to provide small loans to people and help them to
start up their own businesses like helping in buying sewing machines, Street carts, rickshaw and
so on against which they charge interest from them. They mainly focus women and encourage
them for businesses as not every one can get loan from commercial bank on easy terms. Micro
finance bank give loan to poor on assumptions that they could manage financial affairs. They
are based on social collateral.
Dr. Muhammad Yunus came up with the idea of Microfinance bank with the name “Grameen
Bank’’ in year 1983 in Bangladesh to help people by providing loans on easy terms. By seeing
him other countries also get fascinated by this idea.
Business model of Microfinance Institutions is a combination of NGO and Commercial Bank.
They provide loans to help people in return of which they charge interest. Microfinance
institutions works way that, they received applications from people they evaluate the
applications among which they select the suitable and deserving applications, they then provide
loan to them on social collateral, their Officers inspect the and get the detailed background of
every borrower and also help people to apply for this loan. Most of the capital equity MFIs
received from financial institutions or government organizations to lend money, with the
function of lending loans MFIs also provide Insurance, savings and current accounts facility as
well.
ANSWER: 2
Akhuwat in a Microfinance Institute established by Dr. Amjad Saqib in year 2001, for the
alleviation of poverty, by this his aim was of promoting tolerance, compassion, voluntarism and
happiness. It is the first Interest Free Microfinance Institute in the world, Dr. Saqib think its
unfair to poor to bear the burden of high interest rates, which also not allowed in Islam so he
introduce the (Qarz-e-Hassan) meaning literally the best form of a loan.
The Uniqueness of Akhuwat was that firstly it was Interest free Microfinance Institute and
secondly it has a very unique Business Model. It started with a single loan of Rs 10000 in year
2001, which was invested by Dr. Saqib himself. Most of the capital of Akhuwat generated from
Government Organization, Funding, Charity and Fund-raising Organizations. Dr. Saqib worked in
PRSP program and also served in Civil services so he has many contacts and relations which
took participate with him in this initiative and help him for the capital. Akhuwat expand only 7
percent of its expenses on its operations by keeping very low staff, no luxurious offices or
furniture, mostly their activities and disbursement of loan happen in religious places like
mosque and church, where they take presentation from borrowers regarding their plan for the
provided loan amount, encourage and tell people about Akhuwat loans. They usually make
group of people with similar interest and then provide them loan in groups by this way they do
social collateralization.
ANSWER: 3
There are two types of Collateralizations adopted by banking system, one is conventional
Collateralization and other is social Collateralization, usually Microfinance banks adopt social
collateralization as it is easy for people to apply for loan as compare to conventional
collateralization documentations. In Social Collateralization bank gives loans on assumptions
and on people and neighbor’s guarantee for the borrowers.
It is a good practice as most of the people wont access the loan to conventional banks just
because of its collateralization, which makes loan difficult for poor people, and as the main aim
of Microfinance institutions are to help poor and provide loans on easy terms. In Akhuwat Bank
case once the borrowers get loans they spread and encourage other people and their friends
for it which is a good marketing in its self.
ANSWER: 4
One of the success reasons behind Akhuwat Bank was that, they spend only 7 percent on their
Operational expenses. As Dr. Saqib thinks its unfair to charge operational expense from the
borrowers. So, they maintain very simple atmosphere and culture of their branches with no
luxurious Furniture, no Air conditioners, their staff usually sits on floor, stationary they use were
very cheap, most of the branches or shop they acquire were donated. Mostly their loan
disbursement or counseling activity held in religious places like Mosque and church.
Beside the low operational cost Akhuwat bank still maintain high recovery rates. Which totally
depends on their goodwill and Loan recovery strategies. Their staff or volunteers assess the
borrowers and their need of loan, get information about them from their areas and
surroundings and took presentation of their future plan with the loan, they make policy that if
any person fails to startup business after 30 days of giving loan the loan will get cancel.
They also take follow-ups from the borrowers and call them randomly for taking feedback
regarding their services, if they have been treated well, their staff treat them fairly or not. By
this they help to get the trust of the borrowers.
ANSWER: 5
Akhuwat was the first Microfinance bank working on Interest free policy. Dr. Saqib started
Akhuwat with his own investment by giving Loan of Rs: 10000, after that his friends and other
people with the same aim and motive join hands with him. Most of the Akhuwat Capital
generated by Fundings, Charity, Government Support programs and Donations. They lend
money on social collateralization and charge 0 percent interest on it.
Most of the Financial Expert thinks that this Business Model is not sustainable and are against
it. They think that Capital generated by Funding, Charity and government support are not very
help full for long term Businesses.
ANSWER: 6
Although Akhuwat all the measures of Akhuwat of assessing its performance showed the
excellent signs with 99.5 recovery rate, but still Dr. Saqib was concerned that weather the
actual aim and motive of Akhuwat bank is fulfilling or not. Dr. Saqib’s aim is to provide and
promote tolerance, compassion, voluntarism and happiness. Akhuwat vision is:
To alleviate poverty by empowering socially and economically marginalized families through
interest-free microfinance and by harnessing entrepreneurial potential, capacity building and
social guidance.
By this time Akhuwat has manage to help 40000 families and to establish their own business by
financing them, and Akhuwat is growing more day by day. As being in a Muslim country people
encourage these loans and borrower also feel burden free.
