Islamic Microfinance Theory, Policy, and Practice

Paper
Date Published: 
Feb 2008
Author: 
Khan, A.
Publisher: 

Establishing microfinance programs based on Islamic financing principles

This paper provides practical advice on establishing a microfinance program based on Islamic financing principles. It draws on Islamic Relief’s experiences in implementing microfinance programs in countries like Bosnia and Herzegovina, Kosovo, Pakistan, and Sudan. The paper hopes to encourage the provision of microfinance services that conform to Islamic financing principles and the use of these services by microentrepreneurs. It discusses a theoretical framework outlining the principles of Islamic financing and practical advice on program structure, implementation, monitoring, and evaluation to organizations that wish to provide Islamic microfinance services. It states that:

  • There are very few Sharia compliant microfinance initiatives, despite huge demand from Muslims worldwide;
  • Unavailability of Islamic financial services has constrained the growth of many Muslim owned small businesses;
  • Sharia compliant microfinance is feasible and may offer other advantages, such as higher economic growth, efficient allocation of resources, and higher levels of trust;
  • Sustainable Islamic microfinance will use several Sharia compliant financing methods according to the type of activity financed, economic status, ability, and trustworthiness of potential borrowers;
  • Ultimately, an Islamic microfinance program needs to be tailored to meet complex local realities.
Type: 
Paper