Microfinance Services
Islamic Microfinance: Dawn of a New era?
Islamic Microfinance: Dawn of a New Era?
Microfinance is considered to be a panacea against poverty. It is being used to fight poverty in each country and region with different demographics. Every region has tailored Microfinance to its own needs, culture and requirements. Potential demand for tailor made microfinance is still largely unmet specially in countries with large Muslim population. It is not easy to integrate Microfinance in Muslim societies based on their religious beliefs. Here arises need to set up specialized institutions to cater microfinance needs of Muslims. Here we can find a case for Islamic Microfinance.
Islamic Microfinance is the provision of financial services to the poor subject to certain conditions laid down by Islamic Jurisprudence or “Shariah”. Islamic microfinance represents the confluence of two rapidly growing industries: microfinance and Islamic finance. It has the potential to not only respond to unmet demand but also to combine the Islamic social principle of caring for the less fortunate with microfinance’s power to provide financial access to the poor. Unlocking this potential could be the key to providing financial access to millions of Muslim poor who currently reject microfinance products that do not comply with Islamic law. Islamic microfinance is still in its infancy, and business models are just emerging.
Islamic Microfinance is building on core concepts of prohibition of Interest, Profit and Loss sharing, Absence of uncertainty. These are the concepts which are making Islamic Microfinance Industry different from Conventional Microfinance. Despite the fact that Islam was revealed almost 1432 years Islamic Microfinance is a very emerging Industry. Since it has recently surfaced after Microfinance revolution it has very limited Literature, Case studies, Success stories and of course client base on its credit. Like the conventional Microfinance it targets people with adequate skills but inadequate funds to raise their income levels but with a distinction i.e. with being Interest Free. Being Interest free has two implications. On religious front is saving Muslims from waging war against Allah (s.w.t) and his prophet (P.B.U.H). On marketing grounds “Interest Free” is a selling brand which can attract a huge number of devote Muslims who needs funds but they stay away from taking loans from Interest bearing Institutions.
Inspired by teachings of Islam, focus of such a program is to maximize social benefits. When Implemented such a program will be a huge success like Islamic banking because customers will be mostly devote Muslims who believe that
1. Riba is Haram
2. Cheating is Haram
3. Non repayment of loan except due to genuine reason is Haram.
Since taking loans is permissible in Islam but are not encouraged. Rather Islam encourages living within means, mutual cooperation and brotherhood. From this it can be stated that borrowers of Islamic Microfinance program will be genuine borrowers who will reveal their true credit needs and the utilizations.
In the recent past Islamic Finance industry has witnessed unprecedented growth with development of over 500 Shariah compliant institutions spread over 75 Muslim and non Muslim countries. Similarly Islamic Microfinance is growing day by day with new Institutions being set up. Research material is growing to keep the issues addressed and different products are being developed. This has already spread to different countries and different regions like Australia, Sri Lanka, Luxemburg, Indonesia, Pakistan, Bangladesh and a list of other countries. It is being converted from merely a philanthropic activity to business enterprise with aim of sustainability, self sufficiency, risk sharing and avoidance from Riba.
About the Author
Azhar
http://islamicmicrofinance.info
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