Islamic microfinancing

The incidence of financial exclusion and the consequential persistent dimension that poverty is assuming, especially in most Muslim-dominated countries, are worrying. While impact studies on microfinance are inconclusive, convergence of some sort exists to suggest the importance of religious consideration as an important factor for voluntary exclusion from participating in conventional microfinance in these countries. The focus of this chapter is on the imperative of Islamic microfinance as an alternative panacea to alleviate poverty via enhanced financial inclusion. Thus it offers an exposition of the concern from which Islamic microfinance evolved, and its present outlook in terms of outreach, sustainability and impact in the Muslim world. Some examples of Islamic microfinance institutions around the world are offered, indicating their success stories as well as challenges. Without being prejudicial to the efficacy of conventional microfinancing, the chapter argues that what the poor need is Islamic microfinancing. This is so given its implicit blend of both the mechanics and the spirit of the socio-economic distributive justice that underlies the true philosophy of microfinancing. However, it seems that, in their present exemplifications, marked differences between Islamic and conventional microfinance may not be apparent beyond how interest (riba) is conceptualized and operationalized. Consequently, this chapter clamours for maqasid shariah-driven Islamic microfinancing, given that shariah as divine guidance for humankind in its entirety has as its prime objective the enhancement of the well-being of man in its entire ramifications. Importantly, maqasid shariah aims essentially at protecting the faith (deen), life (nafs), intellect (aql), posterity (nasl) and wealth (mal) of man, which are referred to as al-daruriyyat al-khamsah (the five fundamentals or necessities).