ISSUES FACING ISLAMIC MICROFINANCE AND THEIR POSSIBLE SOLUTIONS: EMPIRICAL EVIDENCE FROM AMANAH IKHTIAR MALAYSIA

Abstract

Microfinance has become a widely accepted tool for poverty
alleviation and being included in the national development agenda in
many countries throughout the globe. It has served as an effective
method to improve financial inclusion by increasing the access to
finance to specific groups of the society who are often being
marginalized by the mainstream finance, especially women
micro-entrepreneurs and the poor. Despite this, microfinance
continues to face various issues and challenges that hinder its
effective functioning, resulting in many microfinance institutions
(MFIs) to operate at sub-optimal level, thus fail to achieve their
objectives. This study attempts to discern the issues and challenges
facing the Islamic MFIs by focusing on the experience of Amanah
Ikhtiar Malaysia (AIM), one of the world’s largest Islamic MFIs, and
subsequently propose possible solutions to address those issues. In
methodology, the study conducts a survey questionnaire regarding
potential issues and challenges of Islamic microfinance on 402
women micro-entrepreneurs who are currently clients of several AIM
centres in Hulu Selangor. In efforts to get enriching insights, we
further relate those issues with the demographic profile of the clients.
Findings of this study provide new insights into the issues and
challenges facing the women micro-entrepreneurs based on their
direct experiences, and consequently relevant suggestions can be
provided in addressing these issues facing the clients of the Islamic
microfinance industry.