How to give loans interest-free to the poor and still be profitable ?
Al-Khair Cooperative Credit Society Ltd is an exemplary model
The Patna based Al-Khair Cooperative Credit Society Ltd is an exemplary model of providing interest-free finance to improve the lives of some of the most improvised members of society irrespective of their religion, caste, or creed, while at the same time being a sustainable business model.
The story of Al-Khair began in 1998 when some members of Patna's Muslim community formed a charitable trust to help the disadvantaged members of their society. But they soon realised the enormity of the task at hand, and after a great deal of deliberation, the founders decided to set up a micro-finance cooperative.
In 2002, with initial capital provided by some 20 odd persons, the Al-Khair Cooperative Credit Society was registered under the Multi-State Cooperative Societies Act of 2002 (Government of India). Its unique feature is that it is a completely interest-free micro-finance institution.
According to their website,alkhairsociety.com, their main objectives are:-
- To fight poverty through cooperation.
- To defeat the cruel system of interest-based privateer money-lending which is eroding the productive capacity of micro-entrepreneurs.
- To finance enterprises that create self-sustainable economic system and helps in reducing poverty.
- To provide all kinds of social benefits to its members in order to enhance the lives of their members.
Al-Khair has seen a tremendous response from all sections of society. What started a decade and a half ago with a small office in Patna and two employees, today has 100 employees in 13 branches spread across the states of Bihar, Jharkhand, Uttar Pradesh and Delhi.
In that time, it has disbursed interest-free loans in excess of Rs 50 crore to nearly 20,000 people, most of whom are micro-entrepreneurs on the very bottom of the economic pyramid.
What makes Al-Khair an attractive option to the poor, many of whom are not literate, is that unlike banks, Al-Khair was conceived to serve the poor and requires minimal paperwork to open an account.
More importantly, when people are unable to secure a bank loan, which is quite often in the case of underprivileged and low-income people, they are forced into the clutches of private money-lenders who charge cripplingly high-interest rates. Al-Khair has proven to be a low-risk alternative to the private money-lenders.
From its very inception, Al-Khair intended to be an inclusive organisation by offering its facilities to all sections of society irrespective of ones cast or creed. And so it has been a great boon for large sections of marginalised people, skilled and unskilled, from unorganized sectors such as small traders, roadside shopkeepers, marginal farmers, and women.
"Even a small amount of five to ten thousand is significant for people who don't have access to banks," said Nayiar Fatmi, managing director of Al-Khair Society.
"Interest-free loans may be a concept associated with Muslims as Islam prohibits interest as its terms are unjust, but it has a universal appeal and can benefit all, not just Muslims," said Shamim Rizvi, a retired bank officer closely associated with Al-Khair Society for nearly a decade.
Fatmi goes on to add: "nearly 50 percent of the beneficiaries of interest-free loans (given out by Al-Khair) are Hindus. Most of them use the money for earning livelihoods that empower them." That 50 percent, amounts to nearly 9,000 Hindus who were able to free themselves from exploitative moneylenders thanks to interest-free loans from Al-Khair.
One such person is Kamla, in her mid-40s, and a shop owner in the Mir Shikar Toli neighborhood. She says: "I used to sell potatoes and onions in a small roadside shop. I was often exploited by moneylenders for a small amount of Rs 2,000 to Rs 5,000 that I needed for my business. But a few years ago, I was surprised when someone informed me of interest-free loans from Al-Khair Society. It helped me expand my business from a vendor to a wholesale trader."
Kamla first took a loan of Rs 10,000 to run her shop. She followed this up with loans ranging between Rs 20,000 and Rs 50, 000. She is now doing financially well enough to fund the education of her two sons, with one getting admission in an engineering college and the other in a B.Ed. college.
Another example is of Sanjay Singh who used to sell garments on a bicycle. He now owns a small garment shop run by his wife, even as he continues to sell clothes on his bicycle. He favours Al-Khair over banks because he feels that banks have no time for vendors like him and they have no interest in giving out small loans. Furthermore, he adds: "banks charge interest and there is a lot of paperwork involved that only discourages and frustrates the poor."
The Al-Khair Cooperative Credit Society is managed by its board which consists of 21 members. The board is elected by the general body in an annual general meeting of the members. The tenure of the board is for five years and is headed by a chairperson.
The Board appoints the chief executive of the society. He is assisted in his work by other full-time staff such as branch managers, accountants, deposit collectors, etc.
To become a member of the society, one has to purchase shares in the Society. Each share is of Rs 10 and minimum ten shares are required to be purchased initially by a member. In addition, it is also mandatory to pay an admission fee of Rs.25 and a donation of Rs. 15.
To generate income, so as to pay the permanent staff members, office rent, and other expenditures, Al-Khair society collects a nominal service fee from those who take interest-free loans to pay salaries of its employees.
At the end of the 2016-17 financial year, Al-Khair had 16,875 members holding over 1.77 crores of shares, which when compared to 550 members and 2.13 lack shares of FY 2002-03, shows an increase of over 80 times the initial shareholding in a span of 14 years. In the same time period, Deposit Balance grew from 3.91 lakhs to 8.54 crores, Loan Amount grew from 4.26 lakhs to 11.60 crores.
In FY 2016-17, the number of people availing loans reached 3,037, an increase of nearly 30 times the initial year. The loan recovery stood at an impressive 95 percent of the loans disbursed. The profit was at 8.85 lakhs, and the society has been largely profitable over the past 7 years.
The Al-Khair Cooperative Credit Society of Patna is indeed an exemplary model of an entity that is both profitable, as well as contributing to social good, to the betterment of some of the most disadvantaged in society to become self-sufficient, proud, and contributive members of society.
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Rupee falls 8 paise to hit all-time low of 84.50 against US dollar
Mumbai, Nov 21: The rupee depreciated 8 paise to settle at an all-time low of 84.50 against the US dollar on Thursday, dragged down by massive sell-off in domestic equity markets and surging crude oil prices amid a volatile geopolitical situation.
According to forex traders, the American currency strengthened due to safe-haven appeal amid escalating tension between Russia and Ukraine, while the continuous outflow of foreign funds also put pressure on the domestic unit.
At the interbank foreign exchange, the rupee opened at 84.41 and touched the lowest-ever level of 84.51 against the greenback during intra-day. The unit ended the session at 84.50 against the dollar, surpassing its previous all-time low closing level of 84.46 recorded on November 14.
On Tuesday, the rupee had settled flat at 84.42 against the US dollar.
The foreign exchange market was closed on Wednesday on account of assembly elections in Maharashtra.
"We expect the rupee to trade around 84.5 against the dollar by end December. A strong dollar continues to create a depreciating bias for currencies globally and is likely to sustain FPI outflows from Indian markets in the near-term.
"However, interventions by the Reserve Bank of India (RBI), supported by India's healthy foreign exchange reserves, should help keep rupee volatility in check," said Rajani Sinha, Chief Economist, CareEdge Ratings.
FPIs have withdrawn approximately USD 4 billion from Indian markets in November, following a record USD 11 billion in outflows in October. While high US Treasury yields and a strong dollar have contributed to these outflows, other domestic factors have also been at play, such as muted corporate earnings and high valuations.
"Over the medium-term, we expect the rupee to trade around 84 by the end of FY25, supported by India's strong fundamentals, including a manageable current account deficit, inclusion in global bond indices, fiscal consolidation and stronger growth relative to other emerging markets. These factors should help maintain India's attractiveness as an investment destination," Sinha added.
Sinha further said "going forward, it will be crucial to monitor the implementation of Trump's policies and China's response, as these will play a key role in shaping market dynamics."
Meanwhile, the dollar index, which gauges the greenback's strength against a basket of six currencies, was trading lower by 0.02 per cent at 106.66.
Brent crude, the global oil benchmark, surged by 1.84 per cent to USD 74.15 per barrel in futures trade.
Jateen Trivedi, VP Research Analyst - Commodity and Currency, LKP Securities, said the rupee weakened as pressure mounted due to the dollar scaling higher above 106.65 amidst renewed global uncertainties with geopolitical tensions between Russia and Ukraine adding to global risk aversion.
At the same time, sell-off in domestic equity markets was fuelled after the Adani Group faced bribery and fraud charges in the US. "This has further fuelled FII outflows, continuing the trend of capital flight from Indian markets," Trivedi said.
In the domestic equity market, the 30-share BSE Sensex tumbled 422.59 points, or 0.54 per cent, to close at 77,155.79 points, while Nifty tanked 168.60 points, or 0.72 per cent, to settle at 23,349.90 points.
Foreign Institutional Investors (FIIs) were net sellers in the capital markets on Thursday, as they offloaded shares worth Rs 5,320.68 crore, according to exchange data.
