The Emergence of Islamic SACCOS in Tanzania Prospects

The Emergence of Islamic SACCOS in Tanzania: Prospects and Challenges The case of TAMPRO SACCOS PRESENTER: YASSIR MASOUD VENUE: HYATT REGENCY HOTEL, DSM TANZANIA DATE: 17 -20/04/2018

CONTENTS • • • Introduction Essence of Microfinance in Islam About TAMPRO SACCOS Products Rationale and Relevance of Islamic SACCOS Challenges Facing Islamic SACCOS in Tanzania.

INTRODUCTION v Up to Aug 2016 the number of Co-operatives societies in Tanzania was more than 8780. These cooperatives are diverse in nature, however all of them are under Registrar of Co-operative Societies in Tanzania. Among them 50% are SACCOS (Savings and Credit Cooperative Society), 36% are AMCOS (Agricultural cooperatives) and 14% (Others – Transport, services, Fishing). v The main purpose of SACCOS is to empower its members through Saving and providing Credit. v Example, Kinondoni municipality currently have more than 200 registered SACCOS, Nevertheless only 3 are Shariah compliant including Tampro SACCOS.

Essence of Microfinance in Islam Micro Saving and Micro Equity • Narrated by Ibn ‘Abbas, The Prophet (Peace Been Upon Him) said, “The one who economize will not be stricken by poverty. ” Reported by Ahmad and others. • Narrated by Ibn ‘Umar, The prophet (Peace Be Upon Him) said, “The economy in expenditures is half way in attaining Prosperity in living. ” reported by Bayhaqi • Narrated by Abu Musa ash’ari that the Prophet said, “After the major sins which must be avoided, the greatest sin is that someone dies in a state of debt and leaves behind no asset to pay it off. ” Reported by Darimi.

About Tampro SACCOS v Tampro SACCOS was Registered on 23/April/2010 v Launched on 9/May/2010 at Lamada hotel v Registration No. DSR. 1257 v Started with 120 members and currently have 1, 860 members at Dsm Head Quarter. v v v Branches Dsm HQ Arusha Morogoro Mwanza Total members 1, 860 200 150 2, 460

Members, During the launch of Tampro SACCOS

About Tampro SACCOS v Up to now Total Loans disbursed Tsh 3. 2 billions approximately us $ 1, 454, 500/= v Average monthly loan disbursement Tsh 70, 000/= approximately US $ 31, 820/= v 5 permanent staff: a) b) c) d) e) Manager Loan officer Cashier Accountant IT person

TAMPRO SACCOS PRODUCTS -1 1. Qard Hassan Ø Ø Borrower is required to pay back only the principal amount borrowed. Maximum limit Tsh 3, 000/= US $ 1, 364/= Repayable on demand within 12 months Every member contribute Tsh 36, 000/= US $ 16/= per year to cover office operating expenses

TAMPRO SACCOS PRODUCTS -2 2. Murabaha Ø A contract of sale where the Tampro Saccos discloses to the member the actual cost of the item to be sold in addition to the profit margin (mark up) added, to be mutually agreed upon with the member. Ø The Saccos profit margin depend on the cost of the product and are as follows: a) Tsh 1 -2, 999, 000/= proft margin 9% pay back 12 months b) Tsh 3, 000 -6, 000/= Profit margin 12% pay back 12 months c) Tsh 6, 000, 001 -10, 000/= Profit margin 15% pay back 18 months

Islamic Microfinance Products Some Structures underlying Islamic Microfinance Products Micro credit Qardh Hasan Murabaha Micro Equity Mudharaba Bai bithaman ajil Ijarah Salam Musharaka

Order of Product Offering q q q Phase – I [1 st to 3 rd cycle] n Murabaha n Salam Phase – II [4 th to 5 th cycle] n Ijara n Diminishing Musharaka for durable assets only Phase – III [Graduated after 5 th cycle] n Mudharaba & Musharaka

Rationale and Relevance of Islamic SACCOS • Best alternative cooperative model for low - income earners who are opting for alternative Financing. • Build saving culture to members – this is in line with Islamic Saving principles • Loans are usually short term with affordable conditions. • Opening the opportunities for self-employment. • A catchment area for Highly formal Islamic Financial Institutions such as Commercial banks through referral arrangements. • Provision of Soft skills to members such as entrepreneurship skills etc. • Breeding Disciplined Entrepreneurs. • Inculcating the spirit of Mutual-help, Mutual – Cooperation, and the culture of Giving through Monthly Donations to Development Fund. .

Challenges facing SACCOS in Tanzania-1 1. SACCOS Incapability of meeting the member’s demand for its products. 2. The existence of members who are not fulfilling their obligations. 3. Lack of well trained Management team in managing strategic management aspects of the SACCOS 4. Some Members not repaying their installments timely. 5. SACCOS incapability in recruiting skillfull staff. 6. Members not buying their allocated shares, thus restricting SACCOS investments. 7. High Auditing costs that impede SACCOS’s Cost management plans.

Challenges Facing SACCOS in Tanzania -2 8. The lack of structured trainings for SACCOS Management teams. 9. Lack of Financial Discipline that is required in running Financial institutions. 10. Recruiting staff who are not competent in running SACCOS – nepotism and favoritism. 11. Some Members joining SACCOS with ulterior motive to seek finance with the intention of not repaying. 12. Lack of Shari’ah Boards or Advisors to some Islamic SACCOS. 13. Lack of Islamic Finance Knowledge in designing Islamic Microfinance products.

Thanks ASSALAAM ALAIKUM