Empowering Islamic Microfinance: Lesson from Group-based Lending Scheme and Ibn Khaldun's Concept of ‘Asabiyah'

Case study
Date Published: 
Nov 2006
Author: 
Dusuki, A.
Publisher: 

Paper presented at "4th International Islamic Banking and Finance Conference"

This paper examines the potential of microfinance group-based lending schemes from an Islamic perspective.

The paper reviews the group-based lending model in the light of Ibn Khaldun’s social solidarity concept. It states that:

  • Microfinance enables the poor, who have traditionally been excluded from mainstream banking services to benefit from various products and services;
  • Microfinance can be examined from an Islamic perspective;
  • Social capital is critical for the successful design of group-based lending programs;
  • Microfinance’s concern about credit provision and access to finance for the poor is very relevant to Islamic banks;
  • Islamic banks place great importance on social welfare responsibilities and religious commitments to achieve Islamic economic objectives;
  • Islamic principles include social justice, equitable distribution of income and wealth and promoting economic development;
  • Group-based lending is not alien to Islam and has been described in Ibn Khaldun’s concept of ‘Asabiyah or social solidarity.

Finally, Islamic banks could adopt group-based lending approaches to offer Islamic financial products and services without compromising on institutional viability and sustainability.

Type: 
Case study