Sustainability of Islamic Microfinance Institutions through Community Development

  •  Rashidah Abdul Rahman    
  •  Ahnaf Al Smady    
  •  Soheil Kazemian    


Although conventional microfinance products have been very successful in Muslim majority countries like that of the notable Grameen Bank in Bangladesh, the traditional microfinance contract which involves the payment of interest is strictly prohibited with the principles set forth in the Shariah of Islam. Hence, the Islamic microfinance proponents have taken the initiatives to meet the increasing needs of the Muslim clients with the aim of alleviating poverty and to help the poor people in distress. While conventional microfinance institutions (MFIs) have expanded their operations in the last two decades, the dearth of Islamic MFIs is a glaring absence in the industry. Government and private donor funds alone are not sufficient to fill in the extremely large gap between the supply and demand of Islamic microfinance services. At the micro and institutional levels, government and private donor funds can play a major role to finance start-up costs, training and development of staff and exposure to best practices for new and growing Islamic MFIs. The gap can only be filled through a substantial increase in self-sustaining profitable microfinance institutions and by establishing the Islamic Microfinance Community (IMC). Thus, this paper critically examines the development of Islamic MFIs, particularly in Malaysia and maps out suggestions to overcome the barriers to being self-sustaining by establishing Islamic Microfinance Community (IMC). The implementation of the authentic model of Islamic Microfinance Community in Malaysia and other parts of the world can ensure the proactive development and efficient running of micro financing, so that self-sustaining and human-centered development, enhancing of social capital and spiritual well-being, aimed at helping the poor individuals and entrepreneurs who are excluded from economic and financial activities, can be achieved.

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