Farz Methodology

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Farz Methodology

Pakistan
Project Summary
Elevator Pitch

Concise Summary: Help us pitch this solution! Provide an explanation within 3-4 short sentences.

Farz Methodology is a social performance based, Sharia Compliant poverty alleviation system with an integrated approach of providing Health & environment awareness, business education, and Market linkages to the SMEs to sustain their businesses for long term profitability of the SME sector at international level.It provides rapid economic growth through scalable and sustainable mechanism.

About Project

Solution: What is the proposed solution? Please be specific!

It is unique in so far as it links the clients directly to the markets by skipping the middle men usually responsible for the failure of whole exercise. Provision of assets instead of cash, further minimizes the misuse of the facility extend. An other exclusive feature is introduction of committee mechanism (similar to Rasca) which binds the clients with the provider, that mitigates the risk of default to almost 0%.Apart from building assets for the clients. It also develops an other source of income for the clients to ensure long term sustainability of SMEs, business education and health& environment awareness and market linkages services are offered to the clients prior to the extension of Sharia Compliant micro enterprise facility. Another innovative component of our solution is to develop SME villages throughout the world, in potential urban semi urban and rural areas, under the umbrella of Farz Foundation and partner organizations. The concept of Farz SME Village is a scalable, sustainable and profitable project. SME villages will produce, pack and export the different products like dairy, vegetable, leather, embroidery, fruit, poultry, garments, jewelry etc. to the local, national and international markets. This model SME village would consisted of a minimum 500 skilled and productive households. These villages can be established through out the world in hundreds. It will be a SME community, productive, independent and cultured, equipped with latest business technology and alternative energy resources and will connect at least 10 sectors as agree, live stock, housing, dairy ,embroidery, handicraft, banking, import export,energy, and microfinance. It will be an ultimate productive, scalable and sustainable model of the history af mankind.
Impact: How does it Work

Example: Walk us through a specific example(s) of how this solution makes a difference; include its primary activities.

The Farz foundation, using Farz methodology, approached a limited number of people owing to financial restraints, but the outcome was so encouraging as in the areas declared red zones by conventional players showed a tremendous turn around with the 100% recovery. The outcome empirically demonstrated the huge potential of this methodology. This experience, even in its embryonic form, lays bare its potential. The social change is always an outcome of economic empowerment as it creates faith and hope in the future. Our existing members keep introducing us to potential clients who anxiously await help. The concept of SME village carries a potential with it which can grow rapidly by involving a considerably large number of people. It can socially and economically knit together at least 500 households in related economic activity. That is the method through which we can rapidly grow in the most backward areas where people desperately seek help from the microfinance sector. As far its social impact is concerned, we can lift hundreds of people out of poverty and ignorance by giving them hope and economic uplift simultaneously. The Farz foundation also intends to provide them health and environment awareness through its nonfinancial programs. Our focus on women empowerment further makes this exercise useful.One SME village will engage at least 500 households directly and almost create employment for at least 7000 individuals indirectly.
About You
Organization:
Farz Foundation
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About You
First Name

FARHAT

Last Name

SHAH

Your Organization

Farz Foundation

Country

, P

About Your Organization
Organization Name

Farz Foundation

Organization Phone

+9237556194-5

Organization Address

office No. 327/3rd Floor Eden Center Jail Road Lahore

Organization Country
Organization Type

Non-profit/NGO/Citizen-sector Organization

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Your solution
Country your work focuses on

, P

If multiple countries, please list them here. If your solution targets an entire region, please select it below

The world at large and in particular the Muslim countries.

Region(s) your solution focuses on:

Africa, Middle East and North Africa, South Asia.

Range of turnover in your target firms, in USD

More than 50 Million.

Average turnover in USD of your target firm

10.2

Number of employees in your target firms

More than 150.

Average number of employees of your target firm

90

Specify the size, average and range of expected loans or investments in each target firm

We will do our business through microfinance organizations, which will target skilled households as an individual client. The average size of the loan will be 1000 USD, one branch will cater 800 clients. One organization will open 20 branches within five years,as par four branches yearly.
According to the Farz SME village at least 500 skilled house holds will be targeted with the loan size of 2500 USD per client. one organization will cater 5 Farz SME villages average within five years.

What stage is your solution in?

Operating for less than a year

Innovation
How does your proposed innovation leverage public intervention in catalyzing private SME finance?

Farz SME Village Project has the productive capability to pull out the world from the recession by leveraging public intervention in catalyzing private SME finance. Set backs in the previous experience of microfinance and SME sector clearly demonstrates that the poor of the region under discussion were handed over certain amounts of money and were left alone(similar as sub prime loans ) to develop their businesses to pay back the part of their dividend as interest. What we the sector ignored were the peculiar state of their need/ poverty that rendered them un able to make a productive use of the extended loans. The clients, in their sheer desperation used them in making their both ends meet and for fulfilling their immediate needs. This instead of retrieving their situation further threw them in a bottom less pit of poverty. And now their began a desperate effort on the part of providers to recover the lost amounts. For public intervention to catalyze SMEs we need to enable the clients through education for making productive the facility extended. Having realize this, we (Farz Foundation) took pains to empower the clients, although it incurred more expenses. But the out come demonstrated it was the money well spent. During the times when conventional microfinance’s plummeted to a dangerous low, we managed about 100% recoveries, that too during the deepest recession of our history. Supposedly negative impact of the public intervention owes it self to the failures at clients level. Now all that we need is ensuring the success at clients level which would ultimately be transformed into the positive impact of public intervention. In other words the success story would only travel from bottom to the top. Unfortunately the success stories were confined to the middle tiers failing the top providers and the client at the receiving end. Instead of public (Pakistan Perspective) financial services provider, the capacity building institutions are far productive in this regard. The capacity building and the skill developming role of the public sector can also be appreciated by connecting and streamlining it with the human resource of SME sector. It will not only leverage the public sector facilities but also catalyze private SME finance. Public sector can be positively engaged by influencing the market intelligently.The public SME financing institutions could get the partnership with private institution and could also expand their scope in spite of their limited resources to cate the SME potential market.

What barriers does your proposed solution address?

Asymmetry of information, Informality, Lack of collateral, Lack of financial capacity, Lack of SME access to skills / knowledge / markets, Unavailability of financial products tailored to SME needs, Lack of institutional capacity of financial intermediaries, High transaction costs for financial intermediaries to serve SMEs, Lack of competition / incentives for financial intermediaries to serve SMEs, Underdeveloped local capital markets (term local currency funding, exit options for SME equity), General barriers to SME development related to investment climate, Lack of financing to women entrepreneurs, Specific barriers to fragile and weak states.

If you checked any of these barriers, describe how your solution addresses them

Asymmetry of information and informality stem from ignorance. The prior education how to conduct business and market intelligence can effectively deal with these obstacles. We only approach our clients because of the lack of their collateral and financial capability. We provide market driven and need based assets according to their businesses. On going capacity building of the staff is part of our vision. Farz Methodology focuses on the capacity building of the staff and the clients. This concept has been elaborated in Farz Methodology manual. High cost only make itself felt where loses are incurred at the clients level. By insuring profits at clients level the transaction cost can successfully be met. The profit margin in Farz Methodology ranges from 24 to 27%, which enough to cross the barrier. General barriers to SMEs are first of all in their being unbanked in the areas plagued with poverty. Only way to counter this to formalise their businesses through training and transparent practices on the part of providers. This can also be addressed through directly linking the clients to markets by eliminating middle men who incidentally are the main beneficiaries. Our 80% clients are female entrepreneurs who demonstrated a great sense of responsibility. Our strategy aims at giving strength to the state from bellow through empowering the poor. Ironically the weakness of the states is due to a rampant poverty.

Impact
Provide empirical evidence of your proposed solution's success/impact at present. If your project is in the idea phase, please provide evidence that speaks to its potential impact

Given below is the success story of a woman who had been pushed to the edge owing to lack of finances. The Farz Foundation empowered and change her life

My name is Rubina wife of Ejaz Ahmed and I live in Chungee Amar Sidhu Lahore. My husband is earning only Rs 2, 000 as a driver in a factory.

I used to work at a beauty parlor as an assistant. I was making some money, but could not meet my expenses. We have three children and could not afford their education. I was taking loans without knowing how I would repay them. I had no idea how I could get rid of this vicious circle. One day my friend who was working at some other Parlor, told me about the Farz Foundation, which lends assets and gives business training to women so that they could be self-sufficient. I visited where there was a training session being held by the Farz Foundation. There I met Nomana sister, a trainer at Farz Foundation. I had a five-day course of business development. There we were taught that to be self-sustained and we need to start our own business. And we also need a business education to be successful.
They taught us book keeping, preparation of feasibility and estimation of income and expenses. After the training they offered certain productive assets to us to start our business. I wanted to establish my own beauty parlor. They bought me assets worth Rs 10,000 . I started a little parlor from my own home.

In accordance with the education given by the Farz Foundation, I introduced my beauty parlor in the neighboring area. Within one month I shifted my beauty parlor to an independent place. Now I look forward to further development of my business. I now earn about Rs 15,000 to 20,000 a month and can easily meet my expenses, including school fee for my children, apart from paying my installments to the Farz Foundation. Thank you Farz foundation.

How many firms do you expect to reach?

We primarily aim at reaching out to Islamic Microfinance organizations at international level, who can replicate the methodology successfully owing to its inherent potential. It would be minimum 10 organizations.

What is the volume of private SME finance you aim to catalyze?

It depends upon the procurement of funds as their lies a huge untapped market in the regions specified earlier. If we go for Farz SME village then we required. minimum 30 Billion USD.
And if we go for individual HBME clients, then we need 20 billion USD to catalyze.

What time frame will be required to reach these targets?

one year for planing, Research, staff hiring and training, one year for pilot project and then five years for first phase.Second Phase will be consisted of 20 years.

Does your solution seek to have an impact on public policy?

Yes

What would prevent your solution from being a success?

The success of free market economy lies in making a positive use of capitalism inherent capacity to embrace positive change, which ensured its survival in the face of apparently insurmountable challenges. The new and innovative products should be whole heartedly encouraged to meet the millennium goal of eradicating poverty. However, the rigidity on the part of local providers(existing intermediaries) is and has been the sole factor that could prevent intelligent and honest efforts. Un successful players of conventional financing consciously or un consciously tend to replicate their failures through thwarting such efforts by their non cooperation. But, thankfully, the international players seem alive to their responsibilities. Sociopolitical instability and wars could also damage the efforts.

Sustainability
List all the funding sources that are required for the sustainability of this solution

All Islamic mode of funding,Equity,Social investment, grants, and development, funds etc.

Demonstrate how your proposed solution has the capacity to graduate from dependence on public finance. What is the time frame?

To begin with, the public institutions in Pakistan at least have complex procedures. With a low literacy rate SMEs are invariably intimidated by them. Secondly, these institutions do not have enough resources to facilitate SMEs at required level. On the top of it, the rampant corruption also defeats the very purpose of the whole exercise. The state of the sector bears enough testimony to the submission made here.
The idea of the Farz Methodology took its birth in the wake of these failures. To graduate them, we would first asses their financial needs, evaluate their repayment capacity, judge their skills and intent, and then would give them business education and training, along with providing financial services to them like Murabaha, Musharka Mudarabah and Takaful as well. We also graduate our successful clients every year on performance basis, as we have the performance indicators and measurement tools as well. At a lager scale, it is also viable by getting large market share and by becoming a market leader through innovative, need based and market driven products, which is lacking at this time. Particularly, in Muslim countries the Ribah(interest) free financial services for SME sector are the need of the day and when we incorporate non financial services as Farz Methodology implements, it increases the comfort as well as the effort level of the clients towards success and profitability. All this progression leads the clients towards graduation and independence.

Demonstrate how your proposed solution will survive a potential loss of its largest private funding source

Farz Methodology, instead, is closer to the community because of being interest free. It also shuns complications that are created by cold and distant business relation. What brings them further close to the provider are the non-financial services which are free of charge. For, instance, healthcare, environmental awareness and Social performance (customer code of protection and incentive system) makes the bond even stronger. It even inculcates a sense of loyalty to the provider. The more subtle point to be noted here is that Farz Methodology comes without any political or religious sensitivity. It is purely a microfinance method in line with cultural traditions. It will even drag SMEs away from hazardous political and religious ideologies through giving them income generating and asset building facilities at their door step. Moreover, it will further build their other sources of income through Farz Committee (Rasca). Takful (Islamic )is also a preventive measure through which the project makes secure itself from the loss.

Please tell us what kind of partnerships, if any, could be critical to the greater success and sustainability of your innovation

We need partnership of Social Performance Task Force, Social Performance Management Network, Technical assistance in developing a customized IS, CGAP, Development sector, Donors and socially responsible investors etc.

Are there non-financial issues that could threaten the sustainability of your proposed solution?

Farz Methodology, instead, is closer to the community because of being interest free.It avoid from the sensitivity of Interest in the Muslim societies. It also shuns complications that are created by cold and distant business relation. What brings them further close to the provider are the non-financial services which are free of charge. For, instance, healthcare, environmental awareness and Social performance (customer code of protection and incentive system) makes the bond even stronger. It even inculcates a sense of loyalty to the provider. The more subtle point to be noted here is that Farz Methodology comes without any political or religious sensitivity. It is purely a microfinance method in line with cultural traditions. It will even drag SMEs away from hazardous political and religious ideologies through giving them income generating and asset building facilities at their door step. Moreover, it will further build their other sources of income through Farz Committee (Rasca).

Please tell us if your proposed solution aims to scale up through a high growth sector, expand immediately to multiple sectors, and/or scale up geographically

A huge untapped market in the Muslim world desperately awaits such a solution in the first instance. As far rapid growth is concerned, we have already done two pilot projects with amazing rate of success with 24 percent profit rate. We have already developed our Sharia-based systems and procedures. We can even initiate immediate trainings of individuals as well as institutions regarding implementation of Farz Methodology at international level. Particularly, the concept of Farz SME Village has the potential to grow at a large scale. There are millions of the poor households are waiting for any opportunity, which could drive them towards a productive, secure and sustained life. Because the economic insecurity is threatening the whole world. Farz aims to turn this insecurity into a strong motivation along with skillful productive efforts and outcomes as well. Farz believes that the idea of SME village would transform the world into a SME Global Village in productive and sustainable manners.It expands straightway to multiple sectors like Home based Micro entrepreneur, Agriculture, Garment, leather and handicraft, food, live stock, Poultry, microfinance , Banking, Employment, along with the private and Public sectors. It also addresses the SME and social value in a way that will ensure that the
SME sector makes an ongoing contribution to the important matter of socio-economic progress and progress out of poverty. More over it bridges the SME sector and development sector to create a strong impact on growth.