Islamic Microfinance: Boldly Going Where No Credit Has Gone Before
While poverty is a global phenomenon, the Muslim world is disproportionately affected. According to Iran’s Mehr News Agency, 46 percent of the world’s poor live in countries where Islam is the dominant religion. Since Islamic microfinance responds to the needs and preferences of Muslims, it can play a vital role in reducing poverty in the Muslim world.
Many Muslims avoid traditional finance because Islam prohibits usury, also known as Riba. While usury generally refers to unreasonably high interest rates that unfairly benefit lenders, some argue that the term covers any interest charged on loans.
This aversion towards non-concessional loans is what Islamic financial products can circumvent. At this year’s International Conference on Best Practices in Rural and Agricultural Finance in Kigali, Rwanda, Muhammad Zubair Mughal, CEO of the Al-Huda Center of Islamic Banking and Economics (CIBE), highlighted the utility of Islamic microfinance in agriculture and manufacturing.
“Islamic finance has specialized financial solutions for each segment of rural poverty,” according to Mughal. Riba-free contracts, such as Bai Salam and Modarabas, can provide funding to farmers to purchase seed and equipment, Mughal said.
Non-Muslim majority countries can also benefit from Islamic microfinance. Uganda, where only 14 percent of the population is Muslim, may begin making small loans compliant with Islamic law in 2017, according to a Bloomberg article from July 25, 2016. The loans form part of an initiative by Uganda’s Microfinance Support Center to increase employment and income in the country’s rural regions.
To alleviate poverty, Muslims have also begun raising money in other innovative ways. August saw the launch of WaqfWorld, the world’s first Islamic crowdfunding platform. The organization will use new technology to improve the flow of waqfs, donations of money or property in Islamic law, to charities with the goal of promoting community and economic development.
“Financial inclusion” is the central theme of the 6th Global Islamic Microfinance Forum, which is taking place in Nairobi, Kenya from Nov. 8 to 9. The poverty-reducing potential of Islamic financial products cannot be understated, and one of its primary advantages is that it benefits those excluded from traditional aid on account of their religion.
– Philip Katz