Agriculture and Subsidy

In: Business and Management

Submitted By raselrana111
Words 7977
Pages 32
Kyoto Bulletin of Islamic Area Studies, 1-2 (2007), pp. 38-53

Islamic Microfinance: A Missing Component in Islamic Banking Abdul Rahim ABDUL RAHMAN
1. Introduction Microfinance means “programme that extend small loans to very poor people for self employment projects that generate income in allowing them to take care of themselves and their families” (Microcredit Summit, 1997). The World Bank has recognized microfinance programme as an approach to address income inequalities and poverty. The microfinance scheme has been proven to be successful in many countries in addressing the problems of poverty. The World Bank has also declared 2005 as the year of microfinance with the aim to expand their poverty eradication campaign. 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 socio-economic 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 from microfinance purposes including techniques to mitigate the inherent risks. Finally, the paper concludes with the proposals to accommodate the Islamic microfinance within the present Islamic banking structure. 2. Principles of Microfinance Microfinance grew out of…...

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