Microfinance financial institutions need to produce accurate and comparable data on financial and social performance. At Islamic microfinance and poverty alleviation for very basic level, the disbursement of collateral-free loans in certain circumstances is an example of how Islamic finance and microfinance share common aims.
Conventional microfinance adopts interest-based financing while Islamic microfinance adopts a profit and loss sharing approach. The rationale behind this argument is that interest charged is rather oppressive for the borrowers, thus which in effect is contrary to the noble objectives of microfinance.
Regulatory environment For Islamic microfinance programs to be successful, governments should provide for a policy environment that allows diverse and competitive Islamic microfinance service providers to emerge and flourish.
Another feature of microfinance is the cap on maximum amounts of financing or investment and a short time period that generally does not cross a few months. The entrepreneur may settle the selling price on an instalment basis. This close relationship would not only provide obvious benefits for needy entrepreneurs, who would otherwise be left out by credit markets, but also would give investors in banks an opportunity to diversify their investments.
Where the entrepreneur has worked with negligence or has committed dishonesty, he shall be liable for the loss so caused.
Conducive policies should also support and provide incentives for the private sector to introduce innovative funding channels to support the poor. A microfinance provider trains the group regarding the basic elements of the financing or investment and the requirements they will have to abide by as a group in order to continue to have access to funding or investment.
Islamic microfinance represents the convergence of two rapidly growing industries: A good policy environment supported by the Government would allow a range of financial service providers to coexist, compete and offer lower cost but higher quality services to large number of poor clientele.
The entrepreneur, as the lessee, will be responsible for the safeguarding of the asset whereas the lessor will monitor its usage.
A Consultative Group to Assist the Poor CGAP study by Karim, Tarazi and Reille reported that large numbers of poor Muslims in various countries reject all forms of loans, including Grameen-style microfinancing, on religious grounds.
Although the entrepreneur exercises full control the bank can still undertake supervision as part of risk mitigation. The bank may be exposed to minimal risk for ijarah in which case the bank, as the owner of the asset, should have the right to repossess the asset.
This limits microfinance to focusing on the cash-generating capability of the underlying financing or investment. Where there is a profit, it will be shared based on a pre-agreed ratio, and where there is a loss, it will be shared according to the capital contribution ratio.
Islamic microfinance products Islamic finance with its emphasis on risk sharing is compatible with the needs of micro-entrepreneurs. He can be reached via shamilsm gmail. Investors who use their wealth for Islamic microfinance projects only involve themselves in halal projects which benefit the community at large.
The nexus Many elements of microfinance could be considered as being consistent with the broader objectives of Islamic finance. However, as stated, this principle is subject to a condition that the entrepreneur work with due diligence which is normally required for that type of business.
Ijarah Muntahia Bitamleek is more suitable for micro finance schemes especially for micro entrepreneurs who are in need of assets or equipment.
Money is not an asset by itself and can increase in value only if it joins other resources to undertake productive activity. The most widely known characteristic of the Islamic financial system is the strict prohibition on giving or receiving any fixed, predetermined rate of return on financial transactions.
Mudarabah is where the capital provider or microfinance institution rabbul mal and the small entrepreneur mudarib become partners. Potential challenges and strategic responses Even though Islamic microfinance has high potential to expand, the industry is yet to validate the fact that it can actually provide financial services that meet the needs of the poor on a larger scale.
The profit-sharing ratio on mudarabah is pre-determined only as a percentage of the business profit and not as a lump sum payment. Experts from 15 countries including Morocco, Kenya, Yemen and Pakistan had taken part in the symposium.This is the reason; Islamic microfinance should be given a proper place in the modes of poverty alleviation through which both Muslims and non-Muslims can take benefit.
He added that there are various non Muslim countries where Islamic micro fiancé has been used so effectively to alleviate poverty. Islamic microfinance institutions similar to conventional microfinance institutions, use group financing as a substitute to collateral, have a high concentration of women beneficiaries and aim at alleviation of poverty in all its forms.
This study was conducted to examine the role of Islamic microfinance on poverty alleviation. The four indicators of poverty alleviation were used: income levels, children’s education, health. Islamic Microfinance: An Innovative Tool for Poverty Alleviation: Islamic Microfinance Management and its Implications on Poverty: A Client Oriented Approach from Pakistan [Mehreen Fatima, Hafiz Zahid Mahmood] on mint-body.com *FREE* shipping on qualifying offers.
This book is based on the research work which is conducted to find out the. The present study was conducted to analyze the role of Islamic microfinance to alleviate poverty in Pakistan its impacts, people satisfaction level and assess the future of it in Pakistan.
An Empirical. Microfinance could be one of the ideal approaches to alleviate poverty in the Islamic world. Moinuddin Malim questions why there have as yet been no significant attempts or successful implementations in the sector.Download