Islamic Microfinance And Islamic Institutions

In both developing and emerging economies, microfinance has vastly and increasingly been seen as one of the most important means for enhancing the lives of the poor and therefore a major tool for economic and social development mostly in rural areas. Lately, contrary to this widespread belief, critics have raised eyebrows against this growing popularity of microfinance as a major tool for enhancing economic development. Contrary to belief, they are of the opinion that microfinance is a ‘make-belief’ that is hindering economic and social development rather than enhancing it.

The concept of microfinance is not something new. In fact, the history of the microfinance goes back as early as the 15th century. It was in Europe where the concept of pawn shops – an institution by the Catholic Church against the people who were charging exorbitant

Micro credit is the process of helping the “poorest of the poor” obtain loans. Since big time banks rarely help people who need help acquiring loans, micro credit is another source that makes it possible for the lower class to achieve that. They focus on they call the “real economy,” where they are on personal relationships with their clients. They want them to succeed and help their clients change their own life. Compared to the big banks, they are not looking to make huge amount of interest back off their loan (paper chasers).

Becoming an expert in Islamic economics and finance field is one of my long-term goals in life. I started to organize and made a plan towards achieving that dream since senior high school. The concern towards Islamic economics and finance concept, and its application for society and the country began when I was reading a book entitled Islamic banking-theory and practice. After finishing reading the book, my interest in Islamic economic and finance topics rose and strengthen my own determination to become the expert of Islamic economics and finance. The main principle of Islamic economics and finance which offers the just and ethics in economic activity, poverty alleviation through income distribution mechanism, and prevention of economic and

In recent months a new concept of micro financing has created intrigue. Micro financing has many definitions but the most popular reference these days is the practice of informal loans between individuals rather than institutions (peer to peer Micro loans). Micro financing first became popular in third world countries where entrepreneurs were able to start businesses for as little as twenty-five dollars. Many were able to quickly repay their loans and often times become grantors of other peoples loans. This created a formula for prosperity though admittedly on a small scale. As micro financing web sites began to pop up for use in more industrialized nations one question became obvious. The maximum request is capped at ten thousand dollars with most micro financing organizations. So what enterprises would actually benefit from the loan? There are not a large number of start up businesses that can be built in the modern world for a mere ten thousand dollars. Most franchise opportunities require well over a twenty-five thousand dollar initial investment. Even legitimate home based businesses are not cheap. Surprisingly entrepreneurs seem to be able to do a lot with limited funds. A little research on one of the more popular micro loan web sites www.kiva.org turned up a large number of people with success stories based on loan amounts far less than the maximum. No one had plans to start up a franchise but there were many people with clear and realistic goals. A large number of

The world of Islamic Finance is still young and it was begins only a few decades ago. Although it is new, the Islamic Finance is rapidly develop and continues to expand to serve a growing population of Muslim. Many have been able to accept the Islamic financial system and even admiration of Islamic finance is increasing due to the uniqueness found in the Islamic financial system. The definition of Islamic finance is the system in finance that operates it activities based on Islamic law (which is called Sharia) and is therefore Sharia compliant. All Islamic financial activities is free from interest (riba) and it is based on profit sharing activities.

Sometimes these microloans are given to those who are not successful for credit or larger bank financing. However the down part of this microloans are it is not sufficient for some business owners as their capital might be higher than planned. Microloans are more flexible in terms starting a business without paying a higher rent and higher liability. It is more suitable for businesses such as home based and basic business needs. The loan is designed in a way that the entrepreneurs will not feel burdened with a heavy debts on their shoulders and they are able to pay back the loans at the agreed time without additional issues. For example, if the entrepreneur is to open a small bakery shop based in their own shop house, with expected turn around less than RM10000 per month, then microloans would be

The people that these loans are intended for are usually very poor and they only have enough capital for minimalistic survival, and therefore they do not have the credit in order to get loans from banks which pretty much leads to a trap. This trap of poverty and being “unbankable” is a major topic that microfinance focuses. Jeffrey D. Sachs, referencing his ideas, would agree that this is the curse of people stuck in poverty and they can not find the means to escape this “Poverty Trap”. Microfinance is a way of attempting to make the poor able to be able to produce capital at a steady rate from the usage of loans. I believe that this idea of poverty relief in forms of small loans in order to help those in need was first initially constructed in order to change the world for the better and sprout development. At the same time this idea could be implemented in a way that is a purely capitalistic point of view, and therefore the idea of ending poverty could no longer be the number one goal. A microfinance bank that thinks like this might only want the business that is generated from the poor, and they might not care about the conditions they live in or what the loan goes to as long as they get a loan repayment. “Pioneered in Bangladesh, by the mid-1990s microfinance had become a

As of July this year, $880 million dollars have been lent through Kiva, a popular crowdfunding website for micro-finance loans, since its founding in 2005. That same year, the United Nations Economic and Social Council declared 2005 the “Year of Microcredit” to emphasize the importance of providing financial services to the world’s poorest in an attempt to lift them out of poverty. The idea is simple: instead of donating to charities that provide some services to people in poverty, micro-credit organizations could just lend poor people the money they need to start or expand their own enterprises and then they will both lift themselves out of poverty with the growth of their business and repay the loan with some interest. These micro-credit institutions thus have the goal of simultaneously achieving financial sustainability, a positive social impact, and significant scale to lower costs. Micro-finance expands on the idea of micro-credit to include other useful financial services such as savings, money transfers, business education or insurance, depending on the institution. While the intentions of these institutions were undoubtedly good when they were founded, not all have maintained practices that have an actual, measurable, impact on poverty reduction. Micro-finance has the capacity to be a successful means of poverty reduction, but we need to look further into the actual practices and assessments of these institutions to make the millions of dollars being put into them

Microcredit is a financial innovation that is considered to have originated with the Grameen Bank in Bangladesh, and Muhammad Yunus is its founder. This Bank offers collateral free loan to rural poor women. Women are afforded the opportunity of education and access to health care, reduced unemployment, so that their families and communities prosper. The future of the Microcredit is very bright now because it plays an important role for the development of poor families. This system is being introduced in both developing and developed countries of the world. The relationship between Muhammad Yunus’s Grameen bank and women’s lives is important because he helps poor women to be independent and economically support their family. Because of

The following proposal synthesizes from the history of the microfinance industry, particularly its successes and failures, a model for developing a sustainable microfinance initiative. Central to this synthesis is the analysis of the strengths and weaknesses, challenges and opportunities, and characteristics of three well-managed microfinance institutions (“MFIs”): Grameen Bank (“Grameen”), Compartamos, and Friendship Bridge (“Friendship”). These analyses highlight the strategic leverage points – business strategies, organizational structures, financial reporting transparency, performance measurements, and organizational objectives – that determine the success of microfinance

* The author is Research Adviser at the Islamic Research and Training Institute (IRTI) of the Islamic Development Bank (IDB). This paper is a revised and updated version of the keynote Forum lecture delivered by him at the inaugural session of the Eighth Harvard University Forum on Islamic Finance held on 19-20 April 2008 in the Harvard Law School. The views expressed in this paper are his own and do not

Micro finance has been a field which has attracted a lot of research work. A review of the major research works of economists and sociologists provide us with interesting insights on issues related to microfinance.

The aim of micro-finance according to Otero (1999) is not just about providing capital to the poor to combat poverty on an individual level, it also has a role at an institutional level. It seeks to create institutions that deliver financial services to the poor, who are continuously ignored by the formal banking sector. Littlefield and Rosenberg (2004) argue that the poor are generally excluded from the financial services sector of the economy so Micro – Finance Institutions (MFIs) have emerged to address this market failure. By addressing this gap in the market in a

Sejak awal kelahirannya bank syariah dilandasi dengan kehadiran dua gerakan renaissance Islam Modern: neorevivalis dan modernis, tujuan utama dari pendirian lembaga keuangan berlandaskan etika ini, tiada lain sebagai upaya kaum muslimin untuk mendasari segenap aspek kehidupan ekonominya berlandaskan Al-Qur’an dan As-Sunnah. Upaya awal penerapan sistem profit dan loss sharing tercatat di Pakistan dan Malaysia sekitar tahun 1940-an, yaitu adanya upaya mengelola dana jamaah haji secara non-konvensional. Rintisan institusional lainnya adalah Islamic Rural Bank di desa Mit Ghamr pada tahun 1963 di Kairo, Mesir.