Microcredit Through Bai-Muajjal Mode of Islamic Banking Financing
This presentation provides an overview of the 'Bai-Muajjal' mode of microcredit, as per the Islamic banking financing. This overview is based on studies in Sudan, Turkey, Cyprus, and Bangladesh.
The presentation highlights the key characteristics of Islamic lending systems:
- Eliminates interest-based transactions and establishes profit or loss sharing principles;
- Establishes a just and balanced socio-economic order, free from exploitations;
- Encourages a trust based bank-clientele relationship;
- Is characterized by in-kind lending policies.
Further, the presentation identifies the sources for small industry financing in Bangladesh, whereby the majority of financing is through friends and relatives (52%) and moneylenders (33%). The author suggests 'Bai- Muajjal' mode of financing for microfinance to such small and cottage industries.
The paper also presents:
- Differences between Islamic 'Bai-Muajjal' mode of financing and conventional lending;
- Contributions and constraints of Islamic lending.
Finally, the paper identifies the various challenges faced by Islamic lending procedures and lists the considerations before applying Islamic microfinance to other countries:
- Carefully studying the societal sector institutions;
- Educating small industry owners about the 'Bai-Muajjal' mode;
- Holding preliminary researches on small industry sector;
- Promoting bank-customer relationships;
- Assessing viability by experimenting on a test basis with a few customers.
This presentation was made at the first annual conference of Sanabel on December 15, 2003.