Islamic Microcredit is the Way of Alternative Approach for Eradicating Poverty in Bangladesh: A Review of Islami Bank Microcredit Scheme

This study reviews existing empirical evidence on the impact of Islamic Bank's microcredit scheme on borrowers poverty alleviation in Bangladesh.

Islamic microcredit is still an emerging concept in Bangladesh. Islamic Bank Bangladesh Limited introduced an Islamic microcredit model called Rural Development Scheme (RDS) in 1995, with the objective of eliminating rural poverty. RDS aimed to provide financial access to rural people to create opportunities for income generation. Findings indicate that:

• Islamic Bank microcredit borrowers have reduced vulnerability and poverty and improved socioeconomic status after accessing RDS;
• RDS has played an important role in socio-economic development and improving the living standard of the poor without charging interest;
• Borrowers have used their loans in productive income generating activities;
• Borrowers have exhibited satisfactory loan repayment performance, with small borrowers being the best in repayment followed by medium and large borrowers.

The study suggests that RDS could be used to provide services for all those living below the poverty line including the extreme poor. It affirms that interest free loans can be used as a powerful tool against poverty.