MAKING DEVELOPMENT ASSISTANCE SUSTAINABLE THROUGH ISLAMIC MICROFINANCE

Abstract

Microfinance schemes have been operational since the 1960s, however, they mostly involve conventional finance, whereas many low income Muslims would prefer to have shar¥cah compliant finance. The aim of this paper is to explore how microfinance can be provided on a shar¥cah compliant basis and what instruments and structures could be used. The implication of this paper is that shar¥cah compliant microfinance is best provided by non-banking institutions, which in the case of the wakOElah model, may have links to the waqf and zakOEh authorities.With muèOErabah profit sharing microfinance, there is scope for commercial undertakings, but arguably specialized finance companies rather than banks, even Islamic banks, may be more appropriate institutions to get involved.

JEL classification: G21, Z12

Key words: Islamic finance, Islamic Economics, Microfinance.