Mr Ajaz Khan, microfinance adviser for nonprofit organization Care International UK, suggests in an article on the “Poverty matters blog” on the website of the UK’s Guardian newspaper that Islamic microfinance has strong potential to support socioeconomic development. Islamic microfinance can include interest-free loans and risk-sharing agreements between lenders and borrowers. Mr Khan states that there is a growing interest among financial institutions in offering products and services that are shariah-compliant to facilitate development within Muslim communities.
Mr Khan notes that Muslims – and non-Muslims – may be attracted to Islamic finance for the following reasons: (1) there is evidence of higher rates of economic growth from Islamic microfinance because it can enable microentrepreneurs to take greater risks than users of standard microfinance products; (2) investment is only permitted in activities deemed socially beneficial; and (3) there is generally an emphasis on fostering a longer-term relationship between lender and borrower.
Mr Khan also lays out several potential challenges related to Islamic microfinance including that it is typically more time consuming, costly and complex to manage than interest-based microfinance.
By Jacqueline Foelster, Research Associate
About Care International: Care International (Care) is a Switzerland-based non-governmental organization with global poverty reduction programs aimed at developing women’s economic capabilities. Founded in 1945 with the aim of sending supplies to post-war Europe from America, it has evolved into a multipurpose humanitarian organization. As of June 30, 2009, Care reportedly supported 800 poverty-fighting projects in 72 countries that reached 59 million people. That year it reported total assets of USD 952 million.
Source and Additional Resources:
[1] The Guardian: “Islamic finance could aid development”, http://www.guardian.co.uk/global-development/poverty-matters/2011/may/19/islamic-finance-development
Microfinance Event, “International Conference on Islamic Microfinance, June 13, 2011, Islamabad, Pakistan”, https://www.microcapital.org/microfinance-event-international-conference-on-islamic-microfinance-june-13-2011-islamabad-pakistan/
MicroCapital.org Brief, March 7, 2011, “Malaysian Islamic Banking Team Visits Interest-Free Shariah Microfinance Program Developed by US-based Helping Hand for Relief and Development”, https://www.microcapital.org/microcapital-brief-malaysian-islamic-banking-team-visits-interest-free-shari%E2%80%99ah-microfinance-program-developed-by-us-based-helping-hand-for-relief-and-development/
MicroCapital.org Brief, February 10, 2011, “United Nations Economic and Social Commission for Western Asia (ESCWA): Microfinance in Lebanon Suffers from Lack of Regulation”, https://www.microcapital.org/microcapital-brief-united-nations-economic-and-social-commission-for-western-asia-escwa-microfinance-in-lebanon-suffers-from-lack-of-regulation/
MicroCapital Universe Profile: Care International, https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=CARE+International
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