Islamic Microfinance Development: Challenges and Initiatives

Islamic Research & Training institute Policy Dialogue Paper No. 2

98 Pages Posted: 16 Nov 2009 Last revised: 18 Nov 2009

See all articles by Mohammed Obaidullah

Mohammed Obaidullah

Islamic Development Bank

Tariqullah Khan

Hamad Bin Khalifa University

Date Written: May 1, 2008

Abstract

This study argues that diverse approaches are needed to minimize financial exclusion in Islamic Development Bank (IDB) member countries. It recommends that MFIs must consider the cultural and religious sensitivities of Muslim societies while attempting to build inclusive financial systems. The paper: Analyzes poverty levels in IDB member countries; Examines the Islamic approach to poverty alleviation through microfinance; Emphasizes the need for a dual approach: charity programs for the destitute, disabled and unbankable, and a microfinance program of wealth creation; Reviews Islamic financial contracts for deposit mobilization, financing and risk management in a Shariah compliant framework.

Suggested strategic initiatives include: At the micro level - a move towards collective resolution of Shariah issues, product range enhancement and increased bank participation in microfinance through provision of credit guarantees and safety nets; At the meso level - provision of education and training, better coordination and networking, technical assistance through awqaf and zakah funds, provision of rating services specific to Islamic MFIs; At the macro level - development of an enabling regulatory and policy environment

Keywords: Islamic microfinance, poverty alleviation, financial inclusion, inclusive growth

Suggested Citation

Obaidullah, Mohammed and Khan, Tariqullah, Islamic Microfinance Development: Challenges and Initiatives (May 1, 2008). Islamic Research & Training institute Policy Dialogue Paper No. 2. Available at SSRN: https://ssrn.com/abstract=1506073 or http://dx.doi.org/10.2139/ssrn.1506073

Mohammed Obaidullah (Contact Author)

Islamic Development Bank ( email )

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

Tariqullah Khan

Hamad Bin Khalifa University ( email )

P.O. Box: 5825
Education City
Doha
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