Islamic Microfinance Model Needs Changing

This article outlines steps for the development of Islamic microfinance. Islamic microfinance is still in its infancy with less than one percent of total global microfinance outreach, despite increasing demand for Islamic microfinance products. Challenges in reaching sustainable scale are mainly due to the not-for-profit culture of Islamic microfinance intermediaries.

The paper recommends that Islamic microfinance should shift from a charity-based, donor-dependent approach to a market-based, for-profits approach to become sustainable. Further, it should separate the role of donors’ funds from that of private capital and use grants only as temporary start-up support. Other recommendations include:

• Donors should focus their support on capacity building;
• Private sector should contribute to achieving providers’ goals by contributing high quality services at reasonable price;
  
• Market mechanism should be devised to kick start the whole process of Islamic microfinance and help bridge the gap between demand and possible investors.

The paper states that these measures will help to provide financial access to millions of Muslim poor and reach poverty alleviation targets of the United Nations’ Millennium Development Goals.
http://www.microfinancegateway.org/gm/document-1.9.51693/Islamic%20Microfinance.pdf