Re-thinking Microfinance Practices: Lesson Learned for Sustainable Islamic Microfinance Institutions (original) (raw)
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The International Journal of Business & Management, 2021
The population of Nigeria was projected by the United Nation Population Fund (UNFPA), as 206.1 million people in 2020. These millions require financial services especially credit in order to engage actively in productive activities and improve their standard of living. Besides, Nigeria is blessed with abundant resources. But, the level of poverty, inequality and unemployment is alarming and getting worse every year. Recent Statistics from the National Bureau of statistics (NBS) show that, 40.1% of Nigerians are poor (NBS, 2020). The policy makers and academicians have recommended microfinance as a viable, efficient and effective tool for poverty reduction (Rokhman, 2013). The underlying assumption of Microfinance on poverty alleviation is that, access to finance also translates into enhanced income education, business progress, among others (Rokhman, 2013).Therefore, the primary aim of microfinance is to assist the poor people to be self-employed and become economically independent. Combining the Islamic social principle of caring for the less, Islamic Microfinance has been advanced by scholars as more efficient and effective in poverty alleviation (Jibril, 2012). Islamic microfinance has become a machinery through which poverty is been alleviated as observed is some Muslim countries such as Bangladesh, Pakistan, Indonesia, Turkey, Malaysia, Sudan, among others(Gumel, Saad&Kassim, 2014). In view of the fact that microfinance institutions and programs have been identified as the essential development strategies to alleviate poverty. In this vein,the impact of microfinance on poverty reduction has attracted the attention of some scholars(Kasali, Ahmad & Lim, 2016). Consequently, there are abundant studies on the impact of Islamic microfinance banks on poverty reduction However, majority of the previous studies were conducted in Asian countries (
Addressing poverty through microfinance: does it work
Pressacademia, 2018
Purpose-For the couple of decades microfinance has remained nucleus of developing nations to combat poverty. This paper aims to examine whether microfinance succeeded to reduce poverty? In this study poverty has been taken as analogous to 'extreme poverty'. Methodology-Influence of microfinance in poverty eradication is investigated by comparing clients in first loan cycle with the clients of higher loan cycles. The data was analyzed in two ways; firstly, simple and straight forward descriptive analysis with simple univariate technique and secondly, empirical analysis is made by using binary logit model. Findings-It is found that intermediation of microfinance did not only raise the income of borrowers but also lifted their spending over the loan cycles. The study also explores that over the successive loan cycles, possession of household durable item, spending on education, respond to the shocks and health status also improved. Clients in higher loan cycles managed to improve their social status. Conclusion-Almost every examined poverty indicator indicates positive impact of microfinance on poverty eradication. However, various colors of poverty in the society do not allow us to cultimate the effectiveness of microfinance in poverty eradication.
Islamic Microfinance-Financing the Poorest of the Poor
International Journal of Research in Commerce, IT and Management, 2013
Making poor bankable is the shortest definition of microfinance. Microfinance (MF) is a powerful poverty alleviation tool. It implies provision of financial services to poor and low-income people whose low economic standing excludes them from formal financial systems. Access to services such as, credit, venture capital, savings, insurance, remittance is provided on a micro-scale enabling participation of those with severely limited financial means. The provision of financial services to the poor helps to increase household income and economic security, build assets and reduce vulnerability; creates demand for other goods and services (especially nutrition, education, and health care); and stimulates local economies..The main aim of the paper is to assess the potentials of Islamic financing schemes for micro financing purposes. The paper argues that Islamic finance has an important role for furthering socioeconomic development of the poor and small (micro) entrepreneurs without charging interest (read: riba'). Furthermore, Islamic financing schemes have moral and ethical attributes that can effectively motivate micro entrepreneurs to thrive. The paper also argues that there is a nexus between Islamic banking and microfinance as many elements of microfinance could be considered consistent with the broader goals of Islamic banking. The paper, first, introduces the concepts of microfinance, and presents a case for Islamic microfinance to become one of the components of Islamic banking. The paper then discusses, the potentials of various Islamic financing schemes that can be advanced and adapted for microfinance purposes including techniques to mitigate the inherent risks.
Development of Islamic microfinance: a sustainable poverty reduction approach
Journal of Economic and Administrative Sciences, 2019
Purpose-Though microfinance has been working for many years as a tool to eradicate poverty from its root, most of the least developed and developing countries are yet to significantly alleviate it from the society. The purpose of this paper is to focus on Shariah-based microfinance products in the context of sustainable poverty alleviation approach and provide them financial benefits to enhance their livelihoods. Design/methodology/approach-Here, this qualitative study critically analyzes the basics of the sustainable Islamic microfinance to exterminate the level of poverty. Findings-Islamic microfinance is a more ethical practice than the traditional motives of profit maximization, and it encourages extending the time of repayment if the debtors are in hardship. In some case, it suggests to give charity if the creditor has capability. Research limitations/implications-Most importantly, research scholars and experts have already criticized the concept of conventional microfinance on the basis of various points, especially for its high rate of interest. Social implications-Islamic microfinance is provided with a view to fulfill two tools simultaneously, i.e., social and financial inclusion. In this case, credits and Zakah can be given to the extreme poor people for satisfying basic needs. In terms of social responsibility, Islam encourages the people to be soft in case of collecting the lending money. Originality/value-The study discoursed that sustainable Islamic Microfinance (IM) may be a promising future option to draw the attention of the religiously sensitive people toward the Shariah-based microfinance which can, in turn, mitigate the poverty level.
Microfinance and Poverty Alleviation
The Nobel Prize winning model of micro-lending to the poor has triggered the rapid growth of microfinance industry and it is largely projected as a key enabler for poverty alleviation and supports macro economic growth for the poor regions. This view is challenged by many academic scholars and the press, based on analysis and empirical evidence to support their arguments. Some even argue that microfinance is counterproductive and works against global poverty programs. Based on studying some of these reports, I present a summary view of the concept, growth and the evolution of the microfinance industry and submit that while microfinance initiatives do support the poor and provide a safety-net, these alone cannot provide the benefits in the long run and may even be counterproductive, unless they are implemented and managed as part of other state-driven poverty programmes.
Microfinance and Poverty Alleviation- a Multi-Dimensional Literature Review
TIJ's Research Journal of Social Science & Management - RJSSM, 2020
This paper aims to offer a review of literature on microfinance for poverty alleviation, focusing on the different dimensions of how microfinance plays a positive role in alleviating poverty. A narrative-contextual method was used to review the relevant literature. In total, 53 relevant articles on microfinance and the role it plays in alleviating poverty were reviewed and synthesized in different dimensions to provide a holistic picture of the positive relationship. Findings support Microfinance indeed plays a significant role in improving the living standards of its beneficiaries but there is room for improvement in microfinance program-design. Findings suggest that in addition to micro-loans, the poor population need access to non-financial support to complement them in the hope to uplift them out of poverty. There is a need for matching of demand and supply sides in terms of products and delivery mechanisms. Research implications – The findings can be used by microfinance practi...
The Journal of Social Sciences Research
Indonesia has a strong presence of microfinance sector with the number of Islamic Microfinance Institutions (IMFIs) estimated to be around 5,000 currently. Microfinance is an effective tool in alleviating poverty in Indonesia due to the limited access to financial services by the poor who accounted for approximately 96 million Indonesians (or 37% of the total population), living on less than USD 1.90 a day. In the absence of collateral and steady income, the poor are considered too risky to be given credit facilities by the formal financial services providers and living in remote areas has also limited their access to formal financial services. This study aims to examine the poverty alleviation efforts from the perspective of the IMFIs in view of their direct involvement in the process and having rich information about financial issues facing the borrowers. The managers also understand about financial inclusion agenda as well as financial guidelines and regulations issued by the rel...
Purpose – This study aims to know the present structure and move of the Islamic banks of Pakistan as well as current issues and challenges for Islamic microfinance. However, this is based on perceptions of the Islamic bankers, regulators and micro-entrepreneurs and petty traders, as they are the key players in the credit market. Design/methodology/approach – The study gathered relevant information through conducting field survey. Two questionnaires were designed for the survey. One questionnaire was administered to survey 270 micro-entrepreneurs and petty traders in three major cities of Pakistan. Another survey deals with the perceptions of Islamic bankers. In total, 100 people from middle and top management were surveyed from five full-fledged Islamic banks of Pakistan. The SPSS software, version 16, was used for questionnaire reliability and descriptive analysis to analyse the data. Findings – In general, the study found the strong opinions of the respondents speak in favour of Islamic microfinance under a system of profit and loss sharing. Conversely, the majority of the clients also feel that Islamic banks do not encourage lower-income micro-entrepreneurs. In addition, the study found that Islamic microfinance is constrained by lack of knowledge, experience and professionalism of the supporting staff; however, Islamic bankers have shown great consensus that Islamic banks should offer Islamic microfinance products and instruments to respond to the needs of the poor for poverty alleviation. Research limitations/implications – The first limitation of the study is the meagre interest of micro-entrepreneurs and petty traders to participate in the survey. The second limitation of this work concerns the extremely busy schedule of top management and administrative impediment to approach and fix an appointment. Despite these limitations, the findings of this study provide insights to Islamic banks in diversifying their products by offering Islamic microfinance to the low-income entrepreneurs but with proper guidelines and policies. Practical implications – There is a need to educate the community towards the merits of Islamic banking system by developing a good information system using good visuals and professionally presented seminars, banners and arranging regular sessions with the business community. The growth and development of Islamic banking in the country largely depend on its customers' enhanced knowledge and awareness about its products and services. Social implications – It is the responsibility of the community as well as of government to change the mindset of the poor that banks are meant to serve the interest of everybody, regardless of social, economic and political status.
Impact of Microfinance on Poverty Reduction: Critical Perspectives from Literature
Journal of Rural and Industrial Development, 2020
Microfinance has progressively become a panacea of the evils that inflict the contemporary economies especially the developing ones. There are studies on record that reflect that it helps in alleviating poverty by providing the poor funds through which they are in a position to commence their own business venture and hence it promotes the income-generating activities of the beneficiaries. This all results in promotion of earning of beneficiaries and helps in enhancing social capital in poor nations. The studies that emphasize the poverty alleviation are also gaining momentum in the literature and other scholarly works. As a result, more recently concerns have been raised about the real worth and impact of microfinance. In this direction, the present study is a stride that aims to ascertain the impact of microfinance on the much talked macroeconomic objective of poverty alleviation. For this purpose, the existing literature has been investigated both nationally and internationally. The extensive analysis of literature shows mixed results. Some reveal positive impact of microfinance on its beneficiaries while others clearly reject it. The studies that negate the positive role of microfinance emphasize that very poor are still outside the ambit of microfinance. Thus, based on critical perspectives from literature, it can be concluded that microfinance is one of the tools of poverty alleviation. However, it cannot alleviate the poverty from the grassroots level of society unless supplemented by other socioeconomic initiatives where the government, NGOs and microfinance institutions would play a vital role.