Islamic Microfinance for Poverty Alleviation: A Systematic Literature Review (original) (raw)
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A Review Paper on Islamic Microfinance Features Opportunities and Challenges [2019]
Islamic microfinance has been widely recognized as an effective development tool for poverty reduction and wellbeing development, especially among those who are deprived of accessing to conventional credit services. The interested things about Islamic microfinance is the fairness of this scheme in which win to win strategy which is the main principle in Islam Sariah. On other word, this model argues that poor people have the right to enjoy with credit that is off interest and the bank share both profit and loss with the borrowers. This offers new insight in how to steadily combat poverty. However, despite its advantages there are challenges that constrain its development. In addition, many studies have conducted to explore how microfinance combat poverty in many countries. Yet, the Islamic microfinance has not received adequate attention. Therefore, this study is a review paper discusses the concept of Islamic microfinance and how it differs from others. It also shows the challenges that surround Islamic microfinance development either in sustainability or outreach Keyword: A review, Paper, Islamic, Microfinance, Features, Opportunities, Challenges.
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.
Islamic microfinance is being an ever more important instrument in fighting rural poverty in many countries. It has been trying to improve the welfare of the poor people through increasing their level of income, expenditure on consumption and improving the overall living standard. This study is, therefore, aims to survey the impact of Islamic microfinance on borrowers. By using systematic literature review, this study provided a descriptive analysis of the gathered articles. Then a comprehensive analysis on the impact of Islamic microfinance executed. This study also provided a summary of the existing prominence of work by systemized way. Further, this study focused on the areas of lacking for further study and explained the importance of the study.
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.
Islamic Microfinance and Its Impacts on Borrowers: A Systematic Review From 1995-2015
Mediterranean Journal of Social Sciences, 2016
Islamic microfinance is being an ever more important instrument in fighting rural poverty in many countries. It has been trying to improve the welfare of the poor people through increasing their level of income, expenditure on consumption and improving the overall living standard. This study is, therefore, aims to survey the impact of Islamic microfinance on borrowers. By using systematic literature review, this study provided a descriptive analysis of the gathered articles. Then a comprehensive analysis on the impact of Islamic microfinance executed. This study also provided a summary of the existing prominence of work by systemized way. Further, this study focused on the areas of lacking for further study and explained the importance of the study.
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...
Role of Islamic Microfinance in Poverty Alleviation in Pakistan: An Empirical Approach
International Journal of Academic Research in Accounting, Finance and Management Sciences, 2014
After 2008 world economic crises, banks and other financial institutes move towards Islamic financing not only in Muslims countries but also in non-Muslim countries of the world. In view of this, some micro financial institutions also introduce Islamic micro financing products in Pakistan. The present study was conducted to analyze the role of Islamic microfinance to alleviate poverty in Pakistan its impacts, people satisfaction level and assess the future of it in Pakistan. An Empirical approach has been adopted due to lack of knowledge to clients about products, technical terms, lack of time, and we come to know the changing improvement in the eyes of those people who directly involve in this system. Questionnaire was used as a tool for data collection. The qualitative data was quantified and chi-square test was applied to test the association of attributes by 5% level of significance. Our analysis concluded that Islamic microfinance playing an important role to improve the living standard, per capita income, awareness level (Educational level), ethical values, profitability, sustainability, infrastructure position, employment level in the society, helpful to control the inflation and unequal distribution of wealth. People are more interested due to religious prospective and prohibition of riba in Islam as well as in Christianity but there should be proper regularity authority to control over it in order to get fruitful results through an implementable model.
An Overviewof Islamic Microfinance
Some estimates indicate that there are about three billion people living in abject poverty making the problem of poverty a global challenge. With 600 million poor Muslims, this problem represents a major challenge before Muslim Ummah as well. Microfinance is seen as a "new paradigm" for bringing about development and eradicating poverty. Microfinance, which is the provision of small amounts of credit to the poor who is usually outside the formal banking system, is attracting growing attention from the World Bank and regional development banks. Conventional microfinance institutions (MFIs) already existed for a couple of decades and played a great role in helping the poor achieve higher income which, later on, may lead to the higher standards of living. Islamic microfinance institutions (IMFIs), which constitute a part of the Islamic financial system, are yet to be fully developed. This paper is addressing the issue of Islamic MFIs, their theoretical framework and implementation. It is believed that Islamic MFIs could play a greater role in poverty alleviation throughout the Muslim world. Various financing modes, such as mudarabah, musharakah, ijarah, and murabahah -among others, could be used by IMFIs to meet different needs faced by the poor.
Heliyon, 2021
This study reviews the literature related to Islamic microfinance institutions (IMFI) published in reputable international journals. The manuscripts that have been collected consist of 71 papers that are classified into several study topics. The most researched topic is Poverty alleviation with as many as 25 papers (35%). Next are the papers with the topic of Waqf-based microfinance as many as 12 papers (17%). This follows with 11 papers on the topic of Marketing & Fintech (15%), and 10 papers on the topic of Sustainability & Outreach (14%). Meanwhile, the paper with the theme Maqashid Shariah ranks fifth with a total of 7 papers (10%). Finally, there are 6 papers with the theme of Risk management & Governance (8%). At the end of each topic, the essence of research is presented for future research, which will be useful for academics and practitioners.
Re-thinking Microfinance Practices: Lesson Learned for Sustainable Islamic Microfinance Institutions
The last decade witnessed the popularity and appreciation of microfinance practices, against poverty alleviation, all across developing and underdeveloped countries. However, there is still deficiency of rigorous studies, to affirm the claims of microfinance products and services against the alleviation of absolute poverty. Over three decades have been passed yet even the champion of microfinance could not prove the effectiveness of microfinance services across their different operational regions consistently. This paper aims to investigate what are the fundamental flaws resulting in unsuccessful or ineffective microfinance operations against poverty. There are numerous psychological, experimental and empirical studies suggesting that poor are often involved in excessive borrowing behaviors. Thus the demand of the poor for credit and recovery rates as a proxy of successful operations are misleading indicators resulting from the psychological behaviors and 'social and peer pressure' respectively. The literature further suggests that irrespective of the financing methodology (whether conventional or Islamic) there is less chance of success for microfinance due to many technical reasons. Moreover, microfinance often result in destroying social capital and solidarity, pushing the poor to pay the full cost of credit supply and promoting the financers' interest while less attention is paid to transfer the benefits of microfinance institutions to financially excluded class. Findings of the study caution stakeholders to rethink about poverty alleviation models which should be feasible and sustainable to alleviate poverty effectively on a wider socioeconomic scale.