Tuesday, January 29, 2013
Monday, July 23, 2012
Saturday, April 7, 2012
Entrepreneurship and SME Management (MGT 502)
Final
Project
on
Mr. Farhat Abbas Shah
and
Farz Foundation
Submitted to
Iqbal M. Khan
Submitted by
Sana Sayed
Section: A
6th April’ 2012
| |
Reason For Selecting Farz Foundation
Farhat Abbas Shah along with the co-founder Rafay Mahmood founded Farz Foundation but the initial idea and Farz Methodology was reinvented by Farhat Abbas Shah and Rafay Mahmood only helped him implement it. Therefore I have chosen Farhat Abbas Shah as the social entrepreneur. Farhat Abbas Shah was selected as a social entrepreneur because he is meeting an unmet demand of the society, to not only alleviate poverty but to make them productive, in the form of providing microfinance services based on Islamic principles for the first time. It is an innovative idea because previously organizations like Kashf Foundation and Akhuwat are providing microfinance services but not introduced on Islamic principles. Moreover, the vision supports poverty alleviation by bringing a social change and mission supports the idea of innovative products to fulfill the vision therefore, both of these completes the definition of a true entrepreneur. In addition an article by Iman Bibars, who is a part of senior leadership at Ashoka, highlighted Farz Foundation as a new social player with an innovative idea in the form of farz methodology in social entrepreneurship along with other social organizations in the world. The vision of Ashoka states that Mission “Ashoka strives to shape a global, entrepreneurial, competitive citizen sector: one that allows social entrepreneurs to thrive and enables the world’s citizens to think and act as change makers.” The efforts of the social entrepreneurs should be recognized and for this purpose the information was collected in the form of primary data gathering through interview and online information was used as part of the secondary research.
Farhat Abbas Shah – Profile and Achievements
Farhat Abbas Shah was born on the 15th of November 1964 in Jhang district Punjab. He received his primary education from Jhang and later continued studying there till he received his master’s degree in MSc Psychology, and moved to Lahore for further education. He completed his master’s degree in Philosophy in Lahore.
For the first time nationally, he was recognized as a martial artist and became the first young master in the Burmese Martial Arts after being trained by a grand master Ashraf Tai. Now there are around 200,000 who have learned martial arts from Mr. Shah. He taught the youngsters peace and love for human dignity through martial arts by communicating self control, tolerance and helpfulness towards the mankind. Later in 1990 national Horse and Cattle show he broke 11 blocks of Ice for the very first time in the world and till now it is a world record.
As a child he was observant and sensitive and used Urdu medium to express his feelings. At the age of 13 his poetry started to publish in leading literary magazines of Pakistan. “Shaam Kay Baad” was published in June 189 and became the most popular book of Urdu language and it had the quality of being published in 200 editions in a time of 16 years. Moreover, Mr. Shah is the only poet in the entire world who had the achievement of publishing 68 collections of poetry had at the age of 40 only. The Punjabi poetry of Mr. Shah also received attention and gratitude from critics.
After the changing state of the world he diverted his attention towards anti-war and peace and was acknowledged. He wrote poems on the after-math of 911 and US-Afghan war. Then Mr. Shah started his journalistic career as a feature and column writer and shortly after that he started publishing his monthly magazine “Political Scene” and “Shaam Key Baad”.
At TV channel Uni Plus he conducted a show named Political Scene and interviewed some important personalities namle; Imaran Khan, Benzair Bhutto, Nawaz Sharif and Farooq Leghari. Later he worked as director news and current affairs at a private radio channel and also conducted a popular talk show Waryam at radio in Pakistan.
Mr. Shah has always raised his voice for the poor of the society, the neglected, and the oppressed and for peace, human rights and tolerance in the world on both the national and international forums. He started his studies in Microfinance in 2007 and reinvented microfinance by designing an Islamic microfinance model named Farz Methodology in 2009 on the basis of partnership with the poor and established Farz Foundation as a legal entity in September 2009. Mr Shah emphasized on making the 3 trillion poor of the world productive partners on profit and loss sharing basis by developing their skills, providing them resources and establishing their micro business.
Motivation
The motivation to start Farz Foundation was that Mr. Shah has devoted his life for the poor people around the globe and had a strong desire in his heart and soul to change the world economic system through his “Twist Up Economy Theory”, as the current has financial systems declared to be a big historical economic flaw. Moreover, poetry as his passion helped him feel the misery and deprivation of the people and after some thought and research he was completely convinced that microfinance was the ultimate tool used as a remedy for the current circumstances and the situation. Then he studied the microfinance system and structure and after the in-depth study he was able to invent Farz Methodology without disturbing the existing strategies. He wasted no time and Farz Methodology came into practice and he believed that it can even undo the certain miss adventures done in the past.
Problem and Proposed Solution
Poverty is the problem faced by the world and the entire civilized world is trying to alleviate it. It has continued to exist in our society because there is a lack of system and structure built up to eliminate it or to reduce it. Microfinance is the proposed solution as it can be used as a tool that not only change the lives of the poor but also bring a social change in the society. Mostly the microfinance institutions have forgot the main aim of poverty reduction in the race of making profits. Therefore, microfinance tool has also failed over the years. If the borrowers are marginalized poor then the situation is more difficult. Social performance based microfinance is not commercial based and believes in socio productive profits which resulted as a product of important social change at a larger scale. It is not needed to simply extent credit but advised to make the clients productive and self-sufficient. Moreover, other than providing credit, raw materials should be provided to start a business that can result in more advantage. The suggested method is not giving direct cash to the poor but to educate them along with providing necessary tools to initiate economic activity. Another problem is that the Pakistan economy is growing at only a 2% rate therefore, business activity and entrepreneurial projects are mostly needed. Now the economy can be pushed start by integrating the poor with the provision of non-financial services as well as financial and bring them nearer to the institution of microfinance.
Farz Foundation – Profile
Farz Foundation is a multi faceted social organization with microfinance and social uplift as its focal enclave and core business founded in 2007 is a registered community performance based nongovernmental organization with highly committed, self-motivated, innovative and enthusiastic grassroots experts as its founding members. In 2009 it was registered under the Societies Act but later the registration was converted into Companies Act 1984. It is the first Islamic microfinance Institution of Pakistan (Shairah certified) and an Islamic Microfinance asset-based provider. The Foundation's multi dimensional approach to poverty alleviation is grounded in out of box and creative solutions with embedded ground realities compatibility. Farz Foundation was recognized to achieve the real goals and objectives of microfinance sector, which at present are neglected to an enormous extent. It is an innovative economic mechanism that ensures long term profitability of microfinance.. Basically Farz Foundation has ensured that the lent money is made productive over the period of time. Through this the rate of profits of the home-based entrepreneurs will further increase. Moreover, they arranged free eye camps and also picked some of the poor families and took responsibility of paying for their children’s education. All an all it is a first microfinance organization of Pakistan form its first day with a full fledge Islamic vision of trade and business.
Vision: To bring social change through poverty alleviation by improving productivity and capacity of clients and staff.
Mission: Empowering the poor through innovative products and diverse business opportunities, by integrating social performance focused microfinance with collaborative community health and education partnerships.
Primary Objective: To provide the microfinance facilities (both Islamic & traditional) to the deserving people for developing of human resources, promotion of social and economic well being of the masses, improvement of social status, social mobilization for prosperous society and elimination of gender discrimination in the rural area of Pakistan.
Products & Services
Financial Products:
1. Zakah is the obligatory payment that should be made by all the Muslims. Other than that charity is also a financial product
2. Murabaha refers to a repayment credit agreement for the sale of substantial goods. The seller acquires an asset which on the other hand buyer agrees to purchase in future.
3. Mudharbha which is a partnership in profit between capital and efforts.
4. Musharka which is also a partnership based on profit and loss sharing
5. Bai-Salam is a process of advance payment for goods delivered at a later date
6. Bai-Istisna is a manufacturing contract
7. Farz Committee is a method of committee and lucky draw system
8. Takaful is an Islamic concept of insurance
Non-financial services:
1. Business Education.
2. Future Protection Program
3. Health Services - Eye care facilities along with spectacles and Health care Awareness
Geographic Location
The head office and social center branch of Farz Foundation is located at H-13 B, Haq Bahoo Street, Judicial Colony, Raiwind Road, Near Thokar Niaz Baig, Lahore Pakistan
Business Model
In the market there are three segments namely; Upper, Middle and Lower Class. Farz target market is the lower class that is further divided into non-poor, poor, moderately poor and the poorest of the poor. Now they target each of the sub segments with different product and services. Moreover, its target markets are Home Based Workers, particularly women that are low income entrepreneurs, People living with HIV, Sex Workers, “Heejras” (Transgender Persons), helpless Beggars and impoverished. It has unexploited market of home based and low income workers to be seen as very fertile clientele for microfinance in Pakistan. These could also benefit from increased productivity through the magnificent power of microfinance focusing on social performance.
In the first steps the target households request for membership at Farz Foundation or through the process of mobilization they identify potential clients and potential businesses. Then they are offered membership according to the criterion like Member s age should be between the range from 18 to 59 and Married, widow, divorced or unmarried women at 35 years minimum etc. All this is carried out in a community meeting which helps the organization introduce the program along with the eligibility criteria, procedures and responsibility of managing social performance at both the ends. After that they are offered “Takaful” which is life insurance policy and for starting up a business Murabah is offered after the verification of applicant’s criteria fulfillment and home related information. Other than that Mudarbha and Musharkah are also being offered after business screening process which includes financial analysis, business information and most importantly verifying the client’s business according the criteria set by the organization.
Then for the particular business that the clients want to start proper training is provided known as business education which encompass everything required to run that business successfully and later the generated profits are used to meet the business as well as household expenses, reinvestment in the business and lastly installment given to the farz committee. Farz committee facilitates its members to increase the income through Murabaha along with making them to survive on themselves through savings and be independent.
The process of the Farz committee begins 14 days receiving Murabaha. A social gathering is arranged for this process to begin and it is administered by the social officer of Farz Foundation with the support of group leaders. The sum required to initiate the committee Group members determines the sum of committee after every fourteen days, which arranges from 100 to 1000 rupees. In the social gatherings all the members give the sum of committee to the social manager. When the total sum of committee is gathered the money is sent to one member after carrying a lucky draw in the first month and the process is carried to further months.
Moreover, the clients are provided with health care awareness and future protection programs about their children education through “Children Awareness Programs”. Ultimately they have sustained clients by providing business education, financial services and health care which resulted in long term profitability of the sector.
The area of operation is selected after a screening process which includes the area of social center and product need assessment. The target for one social center branch in the first year is to provide 1080 clients with small Murabaha that is of Rs 50,000 to Rs. 30,000, 180 clients should be given medium Murabaha that is in the range of Rs. 31,000 to Rs. 80,000 and no target is given for the large Muarabaha that is from Rs. 81,000 to Rs. 150,000 to make it achievable for the social center.
Then they also follow a procedure to hire staff which starts from giving an advertisement in a local newspaper to conducting the first interview and then the final selection. After that the selected candidates are given comprehensive in house training to make them familiar with the Islamic banking, farz methodology, and client appraisal training and monitoring etc which continuous to three days.
Accessing the Business model
The used business model has a positive impact on the target audience and it has created social value in terms of making the poor productive and also making themselves realize that they need to work hard in order to enjoy a better standard of living. In this way there is an increase in th economic activity through positive social change. Farz Methodology in the form of business model can be easily replicated and it has been replicated by Cameroon Halal Microfinance (Cameroon, Africa) and The NGO World Foundation (Pakistan). The business model has been proved to be sustainable because it has been followed by the organization for the previous five years and it has borne all the macroeconomic changes as it is purely based on the Islamic laws and principles. With the growth and expansion in the business activities the model has been proved to be effective as there are no significant changes made to the initial working of the system. Lastly, it can be termed as reliable because the previous records and statements of Farz Foundation have shown consistent results without any major changes.
Financing
Farz Foundation is financed only through equity. Directors have provided the initial capital investment. Other than that they have received donations from institutions like Akhuwat Foundation, Al-Umer Academy and Bazm-e-sher-o-sukhan Bartania and also from individuals. The individuals providing donations are Bashir Saqib, Dr. Nikhat and Majeed Butt etc. As the foundation is based on Islamic laws they have completely refused to take any loans on which they have to make interest payments therefore, the element of debt financing is eliminated.
Earned Income
The total income or revenue generated by Farz Foundation is Rs. 1,845,950 and Rs. 9,530,597 for year 2010 and 2011 respectively. The percentage of earned income is 0.92% and 0.88% for 2010 and 2011 respectively. The earned income includes income on Murabaha and project’s income and this percentage is very low because the foundation is mostly operating on donations which is around 98% as an average for the previous years. This analysis is supported by the annual audited reports. Moreover the annual forecasted budget is approximately Rs. 700,000,000 for year 2011 and the actual came out to be Rs. 6,739,850.
Management Policy (Appendix) – FIND AREA STRUCTURE AND PAGE 25
It is a flat structure with a wide span of control. There is direct communication among all the partners involved. All the people involved in their areas of expertise do what they are best at like delivering education services, health services, and financial services. When the full partnership is developed with the clients, then all directors and the senior staff managers of each organization will be meeting to discuss the operations of each department for working with the targeted group. The central office structure is the most comprehensive as compared to area office structure and branch office structure which are fairly simple. Central office is basically the head office of Farz foundation. Every department and area comes under the CEO which but the internal audit committee is not under him. It is supervised by the executive committee/ Board of Directors. Under the CEO, different departments are working and the chief officers of different departments namely, marketing, human resource, finance and operations work as independent and responsible for each of their department with full delegation of powers.Then the layer of managers comes into the structure and lastly, the officers of all the defined areas. On the other hand branch structure is fairly simple with only two layers including one branch manager, accountant and the social officer for different type of products along with two separate purchase and delivery officers where needed
Achievements:
· Farz Foundation is the first organization which has been succeeded in developing A Shariah Compliant Microfinance Business Model in the history.
· Farz Foundation has developed Shariah Compliant as well as Shariah based microfinance products with the required manuals.
· Farz Foundation started Micro entrepreneurship in livestock with a high profit ratio for poor partner, organization and the investors.
· Farz Foundation signed a memorandum of understanding (MOU) with World Congress of Muslim Philanthropists (WCMP). WCMP works globally with a strong network of well heeled individuals along with socially responsible corporations and foundations.
· MOU between Farz and University of Veterinary and Animal sciences is proving a vital fruitfulness for the poor partners of Farz Foundation in the field of livestock micro entrepreneurship.
· Farz Foundation and Aik Hunar Aik Nagar (AHAN) also signed Memorandum of Understanding (MOU) to assist with each other in achieving their goal of poverty alleviation. Both of the organizations has done a USAID project in Jhang, where the Farz Foundation played the implementing partner.
· The NGO World Foundation and Islamic Saving and credit Cooperative of Cameroon has adopted Farz Methodology.
· Awarded Bolan Award for their efforts carried out to help the flood victims.
· Awarded the Shariah Certificate
· SMEDA has now issued a letter of support to Farz Foundation
Success Story
Asia Bibi’s husband was mentally retarded and she was the sole earner of the family. She was a daily wager of sewing clothes and took a loan from a microfinance institute but used it to meet immediate need. She was introduced to farz foundation through community gathering and she told her needs to the organization and they provided her with asset based financing according to her needs rather than giving her cash. They bought cloth for bed sheets according to her demand of worth Rs. 15,000. She already had a sewing machine and in three weeks time she was able to generate extra Rs. 15,000 which is using to pay her previously taken loans as well as to farz foundation. Also used to meet her needs and reinvested in the business.
3 year plan
They will enhance will enhance their products, access to the poor, projects, areas and partnerships in coming three years. However a team of Oxford University is working on a 10 years strategic planning that is aiming at expanding the Farz Methodology Model to the African and Arab countries along with Russian states and Afghanistan, where this Methodology can work and create a high impact.
Challenges: Exploring new markets at the level of micro entrepreneurship because the demand and supply of these also needs attention as Home Based Women Entrepreneurs are under the control of the middleman, who is earning more than HBWE. Trust building the microfinance sector is another major challenge as various microfinance institutions have annoyed the poor community. Although poverty alleviation objectives support the innovative mechanism like Farz Methodology at every level government as well as institutional level but the microfinance donors are not encouraging these organizations.
Impact
Farz foundation had a constructive impact on the targeted sector of the economy as well as the areas. They started their operations in an area known as “Kacha Jail Road Chungi Amar Sidhu” 16 km away from Lahore. This specific area is not developed with low living standards in the form of poor health, education and environment. This area was categorized as semi urban and the other category is the rural area located in district Jhang at two different locations. Now according to a report that covered the activities from January 2010 to 30th June 2011 stated that it had Farz Foundation has 1700 Members, 166 clients of Murabaha with Business Education & Takaful, 20 (140 partners) of Mudharbha through livestock, 69 clients of Qarz-e-Hasna, 116 clients of Farz Committee, 911 beneficiaries of Zakah and Business Education service, 409 beneficiaries of our health service and 9 beneficiaries of child education program. (Appendix)
People’s Perception
In Borgen Projects blog the efforts of Farz Foundation was recognized. Borgen Project believes that the leaders of the most powerful nation on earth should be doing much more to address global poverty. They are the innovative, national campaign which is working to make poverty the focus point of U.S. foreign policy.
Observation
Mr. Shah has in-depth knowledge about his area of expertise that is microfinance. He was willing to provide all the required information because he strongly believed that social entrepreneurs need such platforms and recognition. He was unable to provide me with a personal interview, but the online conducted interview clearly delivered all information. This was in a form of a comprehensive question and answer session which lasted for two and a half weeks. Overall he is a motivated individual who wants to prosper in the selected field.
References
Online Interview on Gmail
Profile of Farz Foundation (2010-2011)
Farhat Abbas Shah – A brief Introduction
http://farzfoundation.org/html/about.html
http://borgenproject.blogspot.com/search/label/Farz%20Foundation
Sunday, April 1, 2012
Implementation of Islamic financial system
The satisfied women customers of the Farz Foundation also presented their case studies at the Conference.
Organised by eTeaM, Pak Finance is Iqbal Academy Pakistan's first major event of the Iqbal Year, as declared by the Prime Minister of Pakistan.
Dr Javid Iqbal said that 'Riba' is haram according to Islamic law but it has been adopted in financial system of a country, which has been set up in the name of Islam.
He said Iqbal was against capitalism but he was not in favour of its complete omission from the society.
In his letters to the Quaid-e-Azam, Iqbal has stressed upon the need for a just social and economic system for the Muslims of the sub-continent.
Consulate General of Iran Bani Asadi was the guest of honour.
Muhammad Suheyl Umar, Director Iqbal Academy Pakistan said that Pak Finance is a step in the right direction as Iqbal's economic thoughts are usually not deliberated upon.
He said Iqbal had wanted the Muslims to attain a better financial status.
Quaid-e-Azam and Allama Iqbal were also in favour of adopting Islamic financial system.
Dr Anis Ahmed, VC Riphah University, Munir Mansuri (Joint Director SBP), Kashif Siddiqui (Joint Director SECP) and Ms Humour Owais Shahid, spoke about academic, regulators and executive roles and their responsibilities.
Mansuri informed the audience that SBP has provided clear guidelines on different sectors touched upon by the conference eg.
Agriculture, Microfinance and SME.
Humaira agreed to the point of view that the enforcement of legislation in the real challenge that can only be fulfilled with collective efforts of all stakeholders.
Tairq Chaudhry (GM Pak Qatar Takaful) informed the audience how Takaful can protect their lives and assets in an Islamic Way.
Dr Tahir Tanoli (Head Academics Iqbal Academy) and Dr Zeeshan Ahmed (Director Finance LUMS), touched upon the academic areas of the subject matter enlightening the audience about the thought of Iqbal and teaching of Islam that have clearly outlined the social welfare-based Islamic Financial System.
Muhammad Ayub (Director Research RCIB) said that although Pakistan has 98 percent Muslim population but Islamic Banking overall share is just 8 percent and a lot needs to be done in this regard.
GM SMEDA Sultan Tiwana informed that in developed world SME contributes up to 50 percent share in GDP and 70 percent of workforce employment.
Without SME growth, Pakistan cannot progress.
Munir Chaudhry said that unemployment of youth could be eliminated through adoption of Modarba system.
Ubaidullah Naushahi, Executive Director eTeaM said that the aim of the eTeaM is to inculcate Iqbal's teachings in the lives of common Pakistanis enabling them to stand against corrupt system and strive o have a Halal financial system at all levels.-PR