Introduction to Islamic Microfinance

Mohammed Obaidullah, INTRODUCTION TO ISLAMIC MICROFINANCE, IBF Net Limited, 2008

75 Pages Posted: 15 Nov 2009

Date Written: August 1, 2008


This paper explains the building blocks of a microfinance program targeted at Islamic societies, which are characterized by high and rising levels of poverty and financial exclusion.

Conventional microfinance programs often neglect Muslim religious sensitivities. For poverty alleviation efforts to succeed in Muslim societies, there is need for an appropriate model rooted in Islamic beliefs and cultures.

The paper states that there are no fundamental contradictions in global microfinance best practices and the Islamic approach to poverty alleviation. It presents the Islamic approach as a composite and compassionate one that is rooted in charity, but permits wealth creation and for-profit enterprise. The paper focuses on mechanisms, models, tools and instruments of the Islamic approach such as: Shariah-compliant mechanisms of microcredit; Partnership modes of equity financing such as trustee-financing, joint venture and share-cropping; Not-for-profit insurance that takes the form of mutual guarantee by members in a cooperative venture.

Keywords: islamic microfinance, poverty alleviation, financial inclusion

Suggested Citation

Obaidullah, Mohammed, Introduction to Islamic Microfinance (August 1, 2008). Mohammed Obaidullah, INTRODUCTION TO ISLAMIC MICROFINANCE, IBF Net Limited, 2008, Available at SSRN:

Mohammed Obaidullah (Contact Author)

Islamic Development Bank ( email )

P. Box. 5925
Private Sector
Jeddah, 21432
Saudi Arabia

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