Islamic Microfinance
Although shariabank was originally re-introduced to fight poverty, this objective fell down on the industry’s agenda. An important area for the islamic finance industry, therefore, is the adaptation of financial products to join in the development of microfinance to bring the initial objective of poverty alleviation back into the industry’s focus. A case study in one country is quite educational in this context:
The German development agency, GTZ, aimed to offer access to financial services to the poorest in a region in one country with a diverse ethnic population, who were formerly in conflict. This can help to increase the acceptance of the micro financial services for Muslims, as well as to provide the different ethnic groups with a way to cooperate through a different methodology of microfinance.
The region where it is started is tiny, with 12,000 inhabitants and the initial reach out was to nearly 600 clients. Nevertheless, there has been some very interesting data from this institution’s experience – the repayment rate is 99%, and the profit-sharing products like musharaka were the most profitable for this new microfinance institution. This experience is in contrast to expectations that many Islamic banks have regarding the moral hazard problem of profit-sharing products.
The Shariah-compliance of the product was not resolved by the international scholars because the local acceptance of the products was the most important factor for the microfinance institution. To achieve credibility the local Kadi (the Judge) acts as notary of each financing contract.
First: Islamic financial institutions having untapped potentials expanding to the poorest by creating Islamic Microfinance institutions and
Second: Wealth investors and institution can build on this experience and hire set up consultants to create more of those entities worldwide to serve the objective of Shariah and also to achieve returns which are not correlated with standard international risk/return profiles; with a higher country risk but reasonable overall risks which uncorrelates to other investments of the stronger interconnected, globalised world.
Source : wiki.islamicfinance.de
