Dr Zubir Harun is a champion of financial inclusion, and his organization – Amanah Ikhtiar Malaysia (AIM) – is one of the most active players in women empowerment in Malaysia. Winner of two GIFAs in 2013 and 2014 as Best Islamic Microfinance Institution, AIM is globally recognized as a national financial inclusion programme in Malaysia. The success story of AIM is covered by a number of studies and case studies, most notably by a case produced by Asian Institute of Finance, Malaysia. In this interview, we get perspectives on financial inclusion from Dr Zubir Harun who has been in the helm of the leadership in the organization.
Please tell us about Amanah Ikhtiar Malaysia (AIM), what it is, what it aims for and what are the different segments within it.
Amanah Ikhtiar Malaysia (AIM) was established on 17 September 1987 by a Deed of Agreement and incorporated under the Trustees (Incorporation) Act 1952 (Revised 1981) (Act 258). It was a direct outcome from a series of successes through a research project known as the ‘Initiative Project’, conducted by the Centre for Policy Research, Universiti Sains Malaysia from 1986 to 1987 by Prof. David S. Gibbons and Prof. Sukor Kasim. AIM became the first microfinance institution in Malaysia and the largest Grameen Bank replication outside of Bangladesh.
AIM’s main objective is to reduce the poverty rate in Malaysia by providing financing to poor households to enable them to undertake viable economic activities to upgrade their incomes.
The schemes offered can be simplified into three categories: economic, non-economic and recovery. Each category has different maximum loan amounts and repayment durations. In principle, the loans are for legal business activities, including small businesses, agriculture, manufacturing, animal husbandry, fisheries and services. To date, AIM offers 7 types of Islamic financing to its borrowers called Sahabat.
AIM also emphasizes borrowers’ well-being in coping with hardship, for example, death, accidents, chronic disease, destruction of property or project due to fire and natural disasters, among others. The Welfare and Wellbeing Fund was established towards this end in recognition of such potential disasters. A small fee is collected from each member, for the use of members and their families who find themselves in such situations.
Amanah Ikhtiar Malaysia has emerged as a very successful financial inclusion and economic empowerment programme for the least privileged segments of Malaysian society. It would be instructive for our global readership to learn about some of the success stories that AIM has been part of.
The success achieved thus far by AIM is primarily due to its microfinance concept, whereby the loans provided are without collateral, guarantor and/or legal action taken against borrowers in recovering unpaid or bad loans. Such an approach is highly appealing and, over the years, has easily attracted new borrowers to AIM. As of June 2015, 366,631 families all over Malaysia have benefited from AIM. About 70 per cent borrowers are aged between 20 and 50 years old. Collectively, AIM has disbursed over MYR13 billion while maintaining a Portfolio at Risk (PAR) percentage of 1.10, resulting in a repayment rate of 98.9 per cent. The close collaboration and warm relationship between AIM and the Malaysian government is another success story I am most proud of.
Not many global microfinance institutions are as fortunate as AIM in receiving funds from the government. The funds provided are used not only to finance the borrowers’ economic activities, but also to enhance their skills and knowledge in the form of training to better equip them in handling their business and projects effectively. This cooperation has benefited the poor tremendously as per the findings gathered by Universiti Utara Malaysia (2008), which showed that the average household income of AIM borrowers, before and after joining AIM, had increased four times. The same study also showed that about 10 per cent of AIM borrowers are now categorized as high-income.
“The close collaboration and warm relationship between AIM and the Malaysian government is another success story I am most proud of. Not many global microfinance institutions are as fortunate as AIM in receiving funds from the government. The funds provided are used not only to finance the borrowers’ economic activities, but also to enhance their skills and knowledge.”
Our people are our greatest asset – we say it often and with good reason. It is only with the determination and dedication of our people that we can serve our clients, generate long-term value for our shareholders and contribute to the broader public. AIM’s success is supported by a workforce of more than 2,200 dedicated employees, operating throughout Malaysia, in urban and rural settings. Through close mentoring and supervision, all employees are required to understand, practice and place a high level of priority into several aspects of their operations, namely:
- Operating Efficiency (OE)
- Financial Self-Sufficiency (FSS)
- Operating Self-Sufficiency (OSS)
The emphasis on the above three aspects is due to the fact that microfinance is a high-touch, high-cost business. As a business model, its greatest challenge is to lower operating costs in order to reduce service costs borne by borrowers. An analysis of the cost structure of profitable microfinance institutions reporting to the Microfinance Information Exchange, Inc. (MIX) confirms this assertion. By undertaking and placing the above operational approach, AIM employees have internalized the following:
- to measure the extent to which operating profits cover AIM’s costs; and (b) to assess how far AIM has come in covering operating expenses with operating income.
Through continuous practice and consistent implementation of such operating strategies, AIM has managed to achieve outstanding income surplus. Part of this surplus is used as repayment to the Malaysian government; the rest is injected as new capital for borrowers.
In a recent case written on AIM by Asian Institute of Finance, your leadership role is highlighted. We believe that a number of leaders in the microfinance sector would like to learn about your leadership style. In your opinion, what makes a leader a really influential change maker within an organization?
A change-making leader must keep on reinventing himself to stay successful and relevant. One must be very clear about one’s purpose and play dominant roles as a motivator, a coach and a strategist. Leadership is not just about ability. It is a combination of several fundamental elements such as knowledge, foresight, courage, determination, professionalism, smart thinking, strategic experiences and a sense of reality. This is what makes an influential leader stand out from the pack.
When I was appointed to lead AIM in 2013, I understood as with any new assignment I would have challenges to overcome before I could show a distinguished change. AIM is significantly different to what it was when it began over 25 years ago. A transformation plan was required to further strengthen the organization in terms of operations and services, in hand with national and global developments.
I set out to improve upon the vision and mission statement of the organization. At the start of my leadership, I began driving home the importance of a shared, collective vision and mission statement that provided clarity to AIM as a whole. This was to establish where AIM was heading and to provide a smooth process in achieving said vision and mission statement.
The strategy used to guide the way also needed a revamp. When something within an organization or team isn’t working, chances are there are inconsistencies. Once exposed, actions are put into place to align the internal elements that contribute to shared goals and values. In this respect, I prefer two-way communication participation where both management and staff work together to iron things out. AIM staff are highly encouraged to give ideas and to provide solutions; since they are out on the field, I trust them to understand clients’ needs better than anyone else. These ideas, solutions and issues are presented to top management, and once reviewed, we come together with the best practice to be applied to each unique situation. Hence both bottom-top and top-bottom management take place. I find this allows for a cohesive and coherent work strategy that has only given best returns so far.
The changes in the global economy, especially regarding microfinance, have led leaders to consider dynamic organizational structures as opposed to static structures. Here at AIM, we have adapted along with this development by restructuring regional management levels.
Previously, a region would cover a wide territory that included up to 16 branches under one roof. Now, there are smaller territories in a particular region, with between 5 to 8 branches only. This has resulted positively in a more effective monitoring and supervisory process, and closer staff engagement.
The system within AIM has also changed along with technological advancements. I take pride in being able to have introduced a cleaner collection system by which we have gradually moved from cash to cashless payments via e-pay facilities. This is still ongoing and is in continuous review within our organization, in line with new electronic payment methods made available in the industry, as we always look for new ways to better serve clients’ needs. Again, this goes hand in hand with the level of borrowers AIM attracts: they are becoming more technically savvy and adaptable to changes. The use of electronic channels has enhanced communications and collections which can only mean a more streamlined and efficient process overall. There is also the added benefit of risk minimization in collection processes.
I have always subscribed to this simple philosophy: everything I do – my goal is to do the best. To this end, I focus on operating fundamentals and on people-coaching, mentoring and developing the teams around me to inspire them to give their best performance.
A more holistic and structured ecosystem for AIM is inevitable for us to stay relevant as economic trends change. A change in the mindset and work culture of staff is vital to AIM’s transformation plan. This is understood by all AIM employees, as without their full support and cooperation, all plans remain a dream. In my many field visits to AIM branches nationwide, I ask for AIM staff to apply and utilize the revised vision and mission statements in their work in order to provide the best to clients.
I have always subscribed to this simple philosophy: In everything I do – my goal is to do the best. To this end, I focus on operating fundamentals and on people coaching, mentoring and developing the teams around me to inspire them to give their best performance.
In a nutshell, my guiding principles to be an effective and influential leader include:
- Establishing clear vision and missions as to where the organization is heading;
- Accepting responsibility for my actions and be accountable for them;
- Always staying and thinking positive;
- Trusting the management team and empowering them in organizational management;
- Always upholding the principle of what is right, not who is right, in a conflict situation;
- Communicating expectations clearly and setting realistic time-frames
- Listening attentively to comments and feedback with the intention to understand;
- Cultivating a corporate culture of professionalism and ethics among employees of all levels;
- Learning from competitors and never underestimating their potential; and
- Inculcating passion for learning and development.
How is AIM different from other microfinance programmes around the world, particularly the likes of Grameen Bank of Bangladesh?
For the most part, AIM receives funding from the Malaysian government in the form of soft loans. AIM acts as a distribution channel to implement the government’s efforts in getting the poor to participate in economic activities that will enable them to increase income levels and socio-economic status. The microfinance products on offer range from economic financing, educational financing and multipurpose financing. These products are offered for different purposes to suit the borrowers’ needs. All are Shari’a compliant, and we charge a 10 per cent management fee, which is actually the lowest rate available in the world.
We have also established the Welfare and Wellbeing Fund, a compulsory security that serves borrowers in terms of savings and is understood by all borrowers.
An initiative that sets us apart from Grameen Bank is our Economic Development service which offers entrepreneurship training and business development programmes, in line with national government initiatives to develop entrepreneurs from poor households and exit poverty. Borrowers are given the appropriate skills and knowledge they need to succeed and sustain their economic activities.
Moving forward, AIM is also being proactive in catering for second-generation borrowers (Gen Y) by developing a specific microfinance scheme called i-Bisnes with funding up to MYR5,000. On top of this, we offer consultant services for existing businesses that are in the process of becoming bigger and more established.
AIM has received ‘Best Islamic Microfinance Institution Award’ in 2013 and 2014 from Global Islamic Finance Awards. What does that mean to you and your organization?
I am greatly humbled and honored to receive the ‘Best Islamic Microfinance Institution Award’ on behalf of AIM for the last two consecutive years. I am sincerely grateful to Allah for his generous blessings with this recognition and would also like to offer my appreciation to the Selection Committee of GIFA for choosing AIM as the recipient in 2013 and 2014.
This award, together with others that we have won, is the result of the hard work of everyone at AIM. It constitutes a continuous team effort. The staff work in the spirit of ‘together, we can succeed and go further’, and they complement each other in carrying their responsibilities.
Winning the award, not one but two years in a row, gives us a sense of fulfilment of what we have done and achieved in the past. More hard work needs to be done. We cannot be resting on our laurels. Any way we look at it, our noble journey to assist poor households to exit poverty is still ahead of us. The trials and tribulations that we have experienced for the last 27 years is small compared to what lies ahead. The poverty landscape has changed significantly. We have to look at different strategies and think out of the box in extending our efforts and initiatives to help the needy and be with them. We must ensure that our focus is not distracted and all our efforts stay on course.
I am thankful to Allah for making me one of those who strongly uphold and prescribe to the principle that helping the poor is an act of worship; and we are the chosen ones entrusted with this noble responsibility.
Please share with our readers your collaboration with the Accounting Research Institute of University Teknologi MARA. What are the aims and what have you achieved so far?
The Accounting Research Institute is an academic research institute known for its focus on specific niche research areas, such as Islamic Finance & Muamalat, Forensic Accounting, and Islamic Financial Criminology. Their aspirations are to explore new models, new tools, new products and new methodologies that could support the prosperity of the Malaysian Islamic finance industry.
From our perspective, ARI’s expertise (in exploring new products and new methodologies) is in line with AIM’s transformation agenda, vision and mission. This collaboration will create value in terms of relationships and knowledge transfer, which includes intellectual discourse and policy debate. This will definitely put AIM in a good position to improve its internal research quality to better equip AIM in the decision-making process for addressing real issues.
AIM will also be able to increase the quality of its internal research team to engage and tackle burning issues arising from clients’ and stakeholders’ real needs.
AIM is an award-winning microfinance and economic empowerment programme. Do you have any plans to replicate the model outside Malaysia?
In a recent dialogue session with the Secretary-General of the Organization of Islamic Cooperation (OIC), Mr. Iyad Ameen Madani, chaired by the former Malaysian Deputy Minister of Finance (II), Datuk Ahmad Maslan, I have expressed our intention and willingness to collaborate with other organisations outside Malaysia, be it at regional or global level, as we have the expertise and experience to do this.
As a matter of fact, in the past, we have assigned and positioned our staff for a duration up to three years in South Africa and Timor Leste. During their stay there, they were involved in the setting up of microfinance institutions as well as providing staff training. In Indonesia, our involvement was more towards training and development to a number of microfinance institutions.
We have also received many delegates from the Philippines, Indonesia, Thailand, India, Ghana and other African countries to study and understand our business model and operations. I believe many, if not all, have returned to their own microcredit financial environment and replicated our model with much success.
Yes, we are open and willing to work together to share our experiences and expertise with interested parties. The collaboration can be done at different scales, depending on its scopes and needs.
There are numerous organizations worldwide, which are involved in poverty alleviation, especially the likes of Islamic Relief Worldwide. Would you consider cooperating with them on a global level or at least in Malaysia?
I welcome such initiatives to explore any efforts in forming cooperation, collaboration and partnership with organizations that have the same passion and focus in alleviating poverty. I believe this should be the way forward in an era that is full of uncertainties, especially affecting the unfortunate and underprivileged in the society. The platform for such cooperation can start at a smaller scale and if it is proven in creating values and mutual benefits for the parties involved, it can be developed to include wider areas of interest.
What are your thoughts on the current developments in Islamic banking and finance, both in Malaysia and globally? Why Islamic microfinance remains as one of the least developed areas in IBF?
The growth of Islamic banking and finance (IBF) in Malaysia is on an upward trend annually.
The recently released Islamic Finance Country Index shows that Malaysia stands at number two behind Iran for four consecutive years.
As part of the strategies to sustain balanced economic growth, Malaysia has developed IBF as one of the sectors that not only adds value to the economy, but offers an alternative to businesses and the public.
The future and continued progress of IBF in Malaysia would very much depend on industry resourcefulness to build and to maintain an innovative, competitive and inclusive Islamic financial industry. Empirical evidence shows the importance of an enabling environment for IBF to flourish, with tax incentives, business-friendly policies and initiatives, as well as an appropriate and robust regulatory and supervisory framework. These ingredients enable Islamic banking assets to consistently record double-digit annual growth rates since the year 2000 and now represents 25 per cent of domestic banking assets.
However, it is a different scenario for microfinance. According to the statistics released by the Islamic Microfinance Network website, as of 2013, there are more than 300 Islamic microfinance institutions in 32 countries; but they make up less than 1 per cent of the global microfinance outreach. This is a stark contrast to the report by Prof Humayon Dar that ‘almost 50% of the clients of microfinance live in Muslim countries and the demand for Islamic microfinance is very strong,’ making Islamic microfinance a huge potential growth area.
A survey conducted by Group to Assist the Poor (CGAP) associated three main obstacles to the expansion viability of Islamic microfinance:
- Better understanding of the demand for Islamic microfinance products is required, in terms of what products will be used and how best to offer them to Muslim clients. The survey noted the existence of a gap between what microfinance clients say they need and what they actually use. In relation to this, a study also highlights that Islamic microfinance lacks cash-financing products and, consequently, drives potential clients to conventional providers. Islamic microfinance providers must, therefore, look for ways to offer cash-based products. Although musharaka and mudaraba offer the financial equivalent of cash-based products, pricing and managing the risks associated with them in a sustainable and profitable manner remains a challenge.
- Most microfinance institutions are only able to offer a limited range of products and lack evidence on how to adapt traditional Islamic finance models for different scales and client base. A thorough understanding in terms of developing and implementing viable Islamic microfinance business models is needed. Equally important, the target clientele has to believe the product is Shari’a compliant.
- There is a need to create a stronger market infrastructure to assess performance on how different products are faring and what impact it has on clients. With sound infrastructure – not only for generating data but also for knowledge-sharing and capacity-building – microfinance institutions can scale up pilot programmes and reach out to new groups.
However, we can take pride as overall the Islamic microfinance sector is operating effectively, with a nearly four-fold increase in clients since 2007. With a better understanding of both the people and the numbers at the heart of Islamic microfinance, we can truly expand financial inclusion to religious Muslims at the base of the pyramid.
We heard that AIM had plans to develop a Microfinance Academy. Is it still on cards?
AIM is a firm believer in human capital development. We have our own training center to cater for employees’ learning and development needs. Every year, we put aside a budget in the excess of MYR1 million for this purpose. Additionally, we are also entrusted by the government (via grant provision) to conduct entrepreneurship programmes for our borrowers.
The planning stage for setting up a Microfinance Academy actually started in 2013. In fact, we have already identified its name and have renovated part of our office for this purpose. Discussions were also held with the International Centre for Education in Islamic Finance (INCEIF) to collaborate in module design for students. However, at the moment we have had to defer and put implementation on hold as we feel that we need to improve further in developing and acquiring the required expertise and be on a strong financial footing.
Please share with the readers a typical day of Dr Zubir Harun, how it starts and what are must on the to-do list on a daily basis.
6.00 a.m.: Whenever I am not on duty away from home, my family and I will perform Subuh (morning) prayers together before we start our daily routines.
8:30 a.m.: My driver and I head to my office in Kuala Lumpur, located about 65 km away. The journey takes about an hour. I take this opportunity to read and reply to all my messages. As AIM operates from 137 branches throughout Malaysia, I have created several separate groups via WhatsApp to discuss, deliberate, advise and exchange viewpoints on any matters regarding the organisation. Before I start in the office, I take the time to meet up with several borrowers located in the viccinity of Klang Valley. I visit the borrower’s centres, attend their weekly meetings and listen to any issues that they might have that require resolution and action.
11:00 a.m.: I begin my routine engagements with the Finance and Accounts, Operations and Human Resource management teams with regard to operation efficiencies and effectiveness that include cost management, resources of funding and disbursement, identifying and managing risks, issues and concerns from borrowers and other matters of importance.
This usually takes up the rest of the day (up to 7.00 p.m.)
7.30 p.m.: Congregational Maghrib prayers with the management teams.
8.30 p.m.: Head home once everything on my daily agenda has been completed.
Saturdays and Sundays
My Saturdays and Sundays are normally filled with programmes involving borrowers, organized by AIM’s regional and branch offices nationwide. These programmes include delivering of financial aids to those affected by floods, fires and other calamities, officiating entrepreneurship clubs, and visiting projects to gauge progress and improvement of living standards.
