(MENAFN – Kuwait News Agency (KUNA)) Islamic Microfinance is a viable means to curb poverty, a specialized report by Kuwait Finance House (KFH) said Wednesday Addressing poverty continues to be one of the greatest challenges faced by governments around the world today. In Islam, a person is considered poor if he/she does not have sufficient material wealth in hand to meet his/her basic needs, i.e. to protect one’s religion, physical self and family, seek knowledge or education, and accumulate some wealth.
Islamic microfinance is indeed unique, as it is a mixture of economic, social and religious principles: economic, social and religious, the report noted, pointing out that there are two types of resources that can be mobilized for Islamic microfinance purposes, external resources such as Zakat and charity and internal resources like deposits and equity.
The first Islamic version of the microfinance model was developed in Egypt in 1963. As overall Islamic finance has become more developed, parties have revisited microfinance as a new asset class, which can raise the levels of societies while providing itself to be a profitable business model for Islamic financial institutions, the report said.
Institutions such as the Islamic Development Bank (IDB) and the World Bank have also allocated resources to study the viability of Islamic microfinance. IDB has recently taken further steps to fund certain Islamic Microfinance Institutions (IMFIs). In 2009, the Islamic Microfinance Network (IMFN) was established to develop and promote the Islamic microfinance industry, it added.
In recent years, driven by the demand for Islamic microfinance, some MFIs have started to offer Islamic microfinance products to low-income Muslim clients. In Afghanistan, for example, strong demand for Shariah-compliant microfinance has caused the Foundation for International Community Assistance to switch its conventional products to non-interest bearing Murabahah Islamic financing.
However, Islamic microfinance is still in its nascent stage and currently forms part of an informal economy. A 2007 global survey on Islamic microfinance undertaken by Consultative Group to Assist the Poor (CGAP) shows that Islamic microfinance has a total estimated global outreach of only 380, 000 customers and accounts for only around 0.005% of total microfinance outreach. Currently, there are more than 200 IMFIs around the world.
The slow growth in Islamic microfinance is mainly due to the fact that such facility was usually provided by specialized institutions such as NGOs, and not by Islamic banks, despite the many elements of microfinance which can be considered consistent with the broader objectives of Islamic banking, the report concluded.