Case Study "Islamic Microfinance and Socially Responsible Investments"

This paper aims to focus on the following issues:

• The influence of religious belief on economic behavior;
• The role of Islamic finance in Muslim societies;
• Its potential to fight poverty in the developing world in the context of microfinance.

The paper finds that:

• There is a lot of interest regarding Islamic finance and microfinance in Muslim developing countries;
• However, there are few examples of actual microfinance institutions (MFIs) operating in the field of Islamic finance and Islamic banks involved in microfinance.

The paper lists the following reasons that point towards the need for Islamic microfinance:

• The flexibility of microfinance as a tool;
• The existence of large, unmet potential demand for tailored microfinance services;
• The existence of a high demand for Islamic banking in low-income Muslim societies;
• Shared qualities between microfinance and Islamic banking, such as:
  • Prohibition of economic activity that is morally or socially injurious;
  • Egalitarian approach;
  • Focus on the well being of the poor;
  • Advocacy of entrepreneurship;
  • Participatory approach;
  • Risk sharing;
  • Unconventional but effective solutions to financial needs.

The paper concludes that:

• Islamic banking and microfinance share common aims;
• Islamic banking and microfinance programs may complement one another in both ideological and practical terms;
• They have grown in similar ways - from a marginal position to growing popularity.