• Commercialisation of microfinance

Commercialisation of microfinance

Can Islamic finance work in tandem with microfinance in Muslim developing countries, and if so, what would be the implications? These and other questions are addressed in this paper.

The paper starts from the premise that there are very few examples of actual microfinance institutions operating in the field of Islamic finance and Islamic banks involved in microfinance, but that there are many synergies between the two that suggest the two sectors could work together effectively in terms of poverty reduction. There is also evidence that microfinance would be an effective tool in these developing contexts, and that there is potential for developing an Islamic version because:

• microfinance is a very flexible tool, whose models can be replicated but require to be tailored on the local socio-economic and cultural characteristics
• some surveys proved that there is a high demand for Islamic banking especially in low and middle income predominantly Muslim societies
• Islamic finance, microfinance and socially responsible finance share most of their principles, such as: prohibition of all forms of economic activity which are morally or socially injurious; and focus on the well being of the community as a whole, concentrating on the poor, destitute or deprived sections of the society

Issues covered in the paper include:

• the basic principles of Islam and Islamic finance
• the basic principles of microfinance
• future perspectives

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