 In this module, we shall continue with our discussion on Islamic Microfinance. In the previous module, we look into a model of Islamic Microfinance which was based on Mudarapa. In this module, we shall look at a Musharka-based model. Obviously, there would be close similarities between Mudarapa-based model and Musharka-based model, given that both Mudarapa and Musharka, they lie within the same genre of Islamic contract, i.e., they are investment-related contract. In case of Mudarapa, there is profit-sharing. In case of Musharka, there is profit and loss-sharing. So, in case of Islamic Microfinance based on Musharka, the finance provider provides hash to the recipient on Musharka-based. So, this is a feature quite similar to the Mudarapa model as well. And at that time, we said that this feature of Mudarapa model is quite similar to the interest-based conventional Microfinance as well, i.e., provision of hash. Finance provider contributes normally a higher share of investment because the finance recipient, the other partner, is actually quite poor. His predicament is that he does not have money. So, if you say, let us go for 50-50 or an arrangement like this one, this would not be attractive for the finance recipient. So, normally the Microfinance provider on the basis of Musharka would provide 90% of the money required to do the business, and the remaining 10% which is a nominal kind of amount, this is provided by the finance recipient. This is used instead of Mudarapa because the Mudarapa-based Islamic Microfinance company may want to have some kind of commitment of the finance recipient. So, if there is no commitment, then there is quite a possibility that the party would be losing the money provided by the Microfinance company. So, these two partners, they share profit in accordance with a pre-agreed profit distribution ratio, which could be 50-50 or it could be any other ratio as well. At the end, the Musharka entity is wound up and at that time it is an expectation that the finance recipient would have sustained their business. So, let us look at a generic model of Islamic Microfinance based on Musharka. So, we have Islamic Microfinance provider. It offers 50,000 as finance to a recipient who also contributes 10,000 in the business. So, the 60,000 is the total Musharka capital, 50,000 provided by Islamic Microfinance company and 10,000 provided by the recipient. Of course, in this case, the recipient does the business. Islamic Microfinance provider could be a silent partner. Remember, there is a provision in case of Musharka for one of the parties or if there are more than two parties, there is a provision for some of the parties to a Musharka to remain silent partners i.e. they do not get themselves involved in running of the business. Now, after one month, if the income revenue generated by the business is 120,000 and if we take away the cost which were 60,000 then if the profit distribution ratio is 50-50 between the Islamic Microfinance provider and the recipient then 30,000 would go to Islamic Microfinance provider and the other 30,000 would be retained by the recipient. Of course, as I mentioned, this is an exaggerated example. In real practice, the share of the profit going to the Islamic Microfinance provider is far less than 50%. So, in this example, where 60,000 was used as Musharka capital and if the revenue was 100,000 after one month and if we take away 60,000, 40,000 is the profit. So, the profit distribution ratio could be such that 5,000 goes to the Islamic Microfinance provider and 35,000 is kept by the recipient. Like in our previous example on Mudarabah, if this continues for 12 months, I am using 12 months, it could be 12 months, 18 months because normally there is fluctuation in this profit or revenue. In some months, the profit share of the Islamic Microfinance provider could be only 3K. So, it can take 12 months, 15 months, 18 months. In other words, a time which allows Islamic Microfinance provider to retrieve its capital plus a decent return could be 10%, could be 20%, could be 30%, whatever is the target. At that point in time, Islamic Microfinance provider would like to exit. And the exit takes place in a very compassionate manner. Islamic Microfinance provider would not like to insist on getting its share in the investment back. Why? Again, because the objective is to help this recipient to have a sustainable source of income. Now, this kind of usage of Islamic Microfinance is bringing a lot of goodwill to Islamic banking and finance industry. Especially, if you go to Indonesia, there are a number of Islamic Microfinance institutions with different names. One form is called Baitulmal Watamuil. All over Indonesia. Indonesia is a huge country. By the way, if we take into account the sea as well, Indonesia is probably bigger than United States of America. It has got so many islands. So, a lot of its land is actually in the form of sea. It has pre-time zones within the country. So, in Jakarta, there could be different time and in a distant island, there could be another time. So, in Indonesia, Islamic Microfinance is becoming very popular and actually this is playing a very important role in bringing change in the lives of the poor people.