Islamic microfinance, still a nascent industry, has the potential to help alleviate poverty in an ethical way and empower Muslim and non-Muslim micro-entrepreneurs. Said Qaceme looks at how setting up a microfinance investment vehicle may help realise this potential.
Although microfinance is now widely recognised as a powerful tool to alleviate poverty among the working poor, very few microfinance initiatives adhere to Islamic financing principles and many poor people in Muslim countries remain financially excluded. Indeed, it is estimated that only 1.28 million micro-entrepreneurs rely on Shariah compliant microfinance products, mainly in Bangladesh and Indonesia. However, according to the World Bank’s Consultative Group to Assist the Poor (CGAP): “With an estimated 650 million Muslims living on less than US$2 a day, finding sustainable Islamic models could be the key to providing financial access to millions of Muslim poor who strive to avoid financial products that do not comply with Shariah.” While CGAP’s report was written in 2008 and considering the current instability and difficult economic reality in the Arab world, many more Muslimsmay nowadays be in need of financial inclusion.