Empowering Islamic Microfinance: Lesson from Group-based Lending Scheme and Ibn Khaldun's Concept of ‘Asabiyah'

This paper examines the potential of microfinance group-based lending schemes from an Islamic perspective.

The paper reviews the group-based lending model in the light of Ibn Khalduns social solidarity concept. It states that:

• Microfinance enables the poor, who have traditionally been excluded from mainstream banking services to benefit from various products and services;
• Microfinance can be examined from an Islamic perspective;
• Social capital is critical for the successful design of group-based lending programs;
• Microfinances concern about credit provision and access to finance for the poor is very relevant to Islamic banks;
• Islamic banks place great importance on social welfare responsibilities and religious commitments to achieve Islamic economic objectives;
• Islamic principles include social justice, equitable distribution of income and wealth and promoting economic development;
• Group-based lending is not alien to Islam and has been described in Ibn Khalduns concept of ‘Asabiyah or social solidarity.

Finally, Islamic banks could adopt group-based lending approaches to offer Islamic financial products and services without compromising on institutional viability and sustainability.