The Application of Ar-rahan-based micro-credit facility as an Alternative Instrument for poverty alleviation in Nigeria

Abstract

One of the major challenges facing developing nations like Nigeria is the continuous increase in the level of poverty, which widens the gap between the rich and the poor amidst increasing population and economic growth. In Nigeria, there are scores of microfinance outlets but their operational products are yet to stem the tides of people falling into the poverty bracket. UNICEF reported that about 70.8% of Nigerians live on less than a dollar per day amidst the country’s growing GDP. This rise in the level of poverty culminating from the uneven distribution of the national wealth continue to exacerbate economic instability and social insecurity in Nigeria. Government and other relevant bodies have continued to explore different kinds of solutions to minimize the multifarious challenges posed by the exponential rise in income disparity that has eating deep into the fabrics of the national economy. The micro financing structure has been proven to be helpful to stimulate greater financial inclusion of the low-income groups especially in developing economies. Focal among the many factors responsible for this challenge is the issue of interest charged by the banks to small and medium enterprises despite the rising rate of inflation. Meanwhile, the issue of transacting in riba is prohibited in Islam and some other religions because of its oppressive nature. This paper therefore proposes Ar-Rahn based credit facility aimed at ensuring that the unemployed, the poor and low income earners have access to non-interest based micro financing in Nigeria to aid their financial inclusion and achieve the broader objectives of microfinancing in Nigeria.