ISLAMIC BANKING AND FINANCE

ASSIGNMENT: MICROFINANCE CREDIT

TEKUN NASIONAL

PREPARED BY :

MARYAM KHALILAH BINTI KADRI (3140356)

LECTURER NAME : PROF. DATO' DR. MUHAMAD BIN MUDA

COURSE CODE : MBA 8033

Introduction

Microfinance is a broader concept which refers to loans, savings, insurance, transfer services,

microcredit loans and other financial products targeted at low-income clients. While Microcredit is a

very small supply of loans (microcredit) to the poor who usually lack collateral, steady employment

and a valid credit history.. It is designed to enable the poor to start small businesses

(microenterprises). This concept is founded in Bangladesh in 1983 through the establishment of

Grameen Bank. Micro is very important in economic growth in Malaysia. Thus, starting from 2006,

the Malaysian government has partnered with the National Bank to encourage more financial

institutions offering micro-credit products. Tabung Ekonomi Kumpulan Usaha Niaga (TEKUN)

formerly known as the National TEKUN Foundation is one of the examples of microfinance agency.

Background of TEKUN

It is an agency under the Ministry of Entrepreneur Development and Cooperatives established on 9

November 1998. The goal of the National TEKUN is to provide financing facilities to Bumiputera

easy and quick to start and develop their businesses. Now, TEKUN is under the Ministry of

Agriculture and Agro-based Industry.

Starting in 2008, TEKUN have made changes and reforms in line with the current requirements to

make this institution as an institution of strategic business development and not only provide business

capital alone. TEKUN now become an institution that provides business opportunities as well as

opportunities to generate income, capital financing business, guidance and support and entrepreneurs

network.

It is hoped that with the new direction and re-branding, TEKUN will become a participating

institutions (executing agency) dynamic and able to play its role more effectively to meet its target in

line with the government's intention to establish a Bumiputera Commercial and Industrial Community

(MPPB). With the success of this MPPB, Malaysia desire to uplift the Malays and Bumiputeras in the

economy will be achieved.

Microfinance product offered

There are five types of microfinance product offered by TEKUN. The first is National Financing

Scheme. This financing scheme is responsible for providing small business loans (micro credit) easily

and quickly.

The total financing offered consists of three categories. There are:

Types of financing Total Payment duration

Micro finance scheme RM 1,000 – RM5,000 3 years

>RM 5,000 – RM10,000 5 years

Small finance scheme >RM 10,000 – RM50,000 5 years

Medium finance scheme >RM 50,000 – RM100,000 10 years

Business areas that can be participating by entrepreneurs are agriculture and agro-based enterprises,

service, manufacturing, sub-contracting and business online.

The eligibility conditions of applicants to apply National Financing Scheme are as follows:

1. Bumiputera, and Malaysian citizens

2. Aged 18-60 years (tenure expires up to 65 years)

3. The applicant is not a bankrupt

4. company 100% Bumiputera ownership and citizen

5. Has license / permit / List of Business valid (SSM)

6. Have a place / location specific business / trade the move (mobile)

7. directly involved and part-time

8. The funding for a single household (unless a separate business and business register (SSM)

are different and good payment records for households.

9. Minimum paid-up capital not exceeding RM300.000

10. Financing existing business (example: MARA, AIM, SME, civil servants and so on) not

exceeding RM100,000.

11. The applicant was doing business. As for applicants who want to start a business deal

required to have a minimum capital of its own cash contributions from 20% funding as a

commitment to conducting business deal ( project progress).

12. For the purchase of a commercial vehicle / heavy equipment, the amount of funding is 10

from the price of a commercial vehicle / big machinery (subject to cash flow and financial

position of the applicant).

13. For Enterprise (Partnership), must obtain a letter of authorization allowing partners to create a

funding applicant and partners must be Bumiputera and Malaysian.

14. For Private Limited Company (Sdn. Bhd) shall provide the Company pursuant to Resolution

format which gives permissibility.

15. Finance portfolio on behalf of the Company for the financing of RM20,000 and above.

16. Financing approval on behalf of Enterprise (Sole Proprietor) for the financing of RM20,000

and above can be considered feasible by using the current account of the individual applicant

or Enterprise.

To overcome the Non-Performing Loan, the second product that is offered by TEKUN is Teman

Financing Scheme. This product uses the concept of group to provide financing more easily, quickly

and efficiently to the needs of businesses. The process on implementing this financing scheme is;

Firstly, the entrepreneur must self-select members into group of five. All members have to identify

the purpose of their loan. And finally, after all process done, TEKUN will disburse the loan to their

personal account. This is the advantages of implementing the Group Financing model. All the process

is within 7 working days. TEKUN started implement TEMAN TEKUN only on March 2015 and as to

date, the loan disbursement are RM 45,043,500.00 and create 1,361 groups. Based on the

achievement, the repayment rate is 197%.

The eligibility conditions of applicants to apply Teman financing scheme are as follows:

1. Bumiputera aged 18-60 years

2. Has been doing business or have a business proposal or plan that has the potential ventures

and viable.

3. Have a license / permit / Business Register (SSM) are valid.

4. Has a place / location specific business or trade for a move (mobile)

5. Financing existing business does not exceed RM50, 000.

Briefly, the financing conditions of Teman Financing Scheme are:

1. Repayment period up to 5 years.

2. Form a group with 5 members who believed (male or female) and running basic training of

Teman Financing Scheme.

3. Attending meetings every week in the business / branch office TEKUN / where appropriate

with TEKUN officer.

4. Repay a weekly basis.

5. Protection under Insurance Financing and Life and Accident Insurance.

Customers from these two types of financing are asked to pay a contribution of TEKUN Management

Fund, 4% from the total funding each year during the term of the financing. Besides that, the

entrepreneurs were asked to make savings of 5% of the loan each year. Both of this payment and

savings should be made together with repayment of loans.

Thirdly, I-Factoring Financing Scheme is offered by TEKUN which is a process to finance and

supply contracts directly obtained from the Federal Government, State Government, Government

Agencies and Statutory Bodies. It is also a financial instrument that allows a company to obtain

financing by pledging service and supply contracts. In other words, this instrument can help keep the

cash flow turns of the business entrepreneur. Financing through factoring aimed at providing

immediate financing to entrepreneurs who have obtained an employment contract but lack capital. In

addition, receivers no need to wait for payment from the owner of the contract until the contract is

completed. The amount of financing offered is from RM 1,000 to RM 100,000 and contract funding

period must not be more than 6 months. Entrepreneurs are asked to pay TEKUN management charge

of only 1.5% per month of the total financing until the end of the financing period. The benefits from

this scheme are no guarantor, flexible financing terms, low management charges and no deposit

needed.

The eligibility conditions of applicants to apply Financing Scheme I-Factoring are as follows:

1. Malaysians and bumiputera

2. age of 18-60 years only

3. To have a license / permit / list of legitimate business.

4. Have a place / location specific business / businesses run full time.

5. Existing funding cannot exceed RM 100,000.

6. Business ownership is 100% Bumiputera-owned and paid-up capital must not exceed RM300,

000.

7. The offer letter must be from the Federal Government, State Government, Government

Agencies and Statutory Bodies.

8. Have a license from the Ministry of Finance, Construction Industry Development Board

(CIDB), Treasury (PMS), the Contractor Service Centre (PKK), Bodies licensing or other

relevant valid registration.

9. The Company is the main contractor appointed by the Federal Government, State

Government, Government Agencies and Statutory Bodies.

TEKUN aims to contribute towards further improving the living standard of the Bumiputeras, through

their involvement in business and entrepreneurship. The objectives and roles of TEKUN are to

provide small loan financing to Bumiputeras in a quick and easy way. Bumiputeras, on the other hand,

may start and develop their businesses with the loans that are provided by TEKUN.

At present, TEKUN has been an institution that provides business financing, entrepreneurship

information, business opportunities and profit making opportunities. In addition, TEKUN also helps

these entrepreneurs with guidance and support, to help these entrepreneurs grow their business. Based

on TEKUN’s experience in implement Islamic Concept, TEKUN are established in 1998 as a

company limited by guarantee (non-profit organisation) under the Ministry of Entrepreneur. Since

1998 – 2013, TEKUN are running the program with conventional practices. In 2013, TEKUN

implement Qarhul Hasan and start the awareness of implementing Tawarruq. Starting 2015, TEKUN

are looking to implement Tawarruq concept.

In simple word, Tawarruq means cost plus mark-up. Meaning to say that tawarruq is purchasing a

commodity on a deferred price in a form of murabahah, later selling it to a third party with the

objective of obtaining cash. While Qardhul Hassan means benevolent loan which is a debt or

borrowing contract between two parties in which repayment of the borrowed amount must be of the

same. The diagram of tawarruq is as follows:

1. Tekun purchase commodity from Bursa Suq Al Sila (Broker A)

2. Tekun pay Bursa Suq Sila (Broker A) in cash

3. Tekun sells the commodity to entrepreneur

4. The entrepreneur sells the commodity to Bursa Suq Sila (Broker B)

5. Bursa Suq Sila (Broker B) pay the entrepreneur in cash

6. The entrepreneur pays Tekun on deferred payment.

Ar-Rahnu TEKUN

TEKUN also offering Ar-Rahnu scheme which is Islamic pawn scheme using Shariah compliance Al-

Qardh and Ar-Rahn which are very flexibility and allow gold jewellery accepted as collateral for cash

loans "Gold Change to Cash". This scheme will keep gold jewellery as security and storage. Wage

Charge (Ujrah) for storage services will be charged according to the value of gold (marhun).

Ar-Rahnu TEKUN will lend to customers where the amount granted will be assessed based on the

current market price of gold. Total loans and advances depend on the value of gold and margin loans

are determined by this scheme. Jewellery storage period and storage shall be determined prior six

months and agreed by both parties (Ar-Rahnu and Customers).

The syariah concept applicable is Qard Al-Hassan, safekeeping with guarantee (Wadi'ah Yad

Dhamanah) and Ujrah. In term of Wadi'ah Yad Dhamanah, Ar-Rahnu TEKUN provides gold storage

service. Customers are obliged to pay storage wages (Ujrah) 50 cents per RM100.00 value of gold

(marhun). The storage period is 6 months and no extension had previously provided the storage fee is

paid in full. The minimum storage period is not less than 15 days. All items are kept fully insured by

Ar-Rahnu TEKUN. This scheme provides a secured storage for all the gold as an alternative to the

safe deposit box. Moreover, margin up to 70% of the marhun. The minimum amount is RM 100 and

total maximum Ar-Rahnu financing for individuals is up to RM100, 000. Ar-Rahnu financing period

is 6 months and the extended period of 6 months.

The eligibility conditions of applicants to apply this scheme are as follows:

1. An Individuals aged 18 years and above as follows; Malaysian; or Becoming a permanent

resident;

2. Must have valid identity cards / documents.

3. TEKUN employees, including spouses, mothers, fathers and children are not allowed to apply

for this facility.

Standard Gold Fund:

GOLD QUALITY CONTENTS OF GOLD

24.0 Karat 99.90%

22.8 Karat 95.00%22.0 Karat 91.60%

21.0 Karat 87.50%20.0 Karat 83.50%

18.0 Karat 75.00%

Conclusion

Since 1998 until 2015, TEKUN has disbursed USD 844 million to 322,474 entrepreneurs. With the

strength of 970 staff all over Malaysia and 222 branches in parliamentary constitution, TEKUN will

be successful microfinance provider that will help in increasing the economics of Malaysian.

References

TEKUN Nasional (2016), Pengkalan Data TEKUN Nasional; Ibu Pejabat TEKUN Nasional,

Kuala Lumpur, Tel: 03-9058 8550 / 9058 8999.

Skim TEKUN. Retrieved 13 May, 2016, from TEKUN TV Saluran Pilihan Usahawan:

http://tekuntv.com/tekun-media/

Usahawan Tekun. Retrieved 13 May, 2016, from TEKUN Nasional: https://www.tekun.gov.my/ms/

Ar-Rahnu TEKUN Skim Pajak Gadai Islam. Retrieved 18 May, 2016, from Ar-Rahnu TEKUN:

http://www.arrahnutekun.com.my/

Appendix

1. Repayment schedule for National Financing Scheme

2. Repayment Schedule For Teman Financing Scheme

3. Repayment Schedule For I-Factoring Financing Scheme.