Framework and Strategies for Development of Islamic Microfinance Services

This paper highlights the importance of microfinance as a poverty alleviation tool. It presents the Islamic approach to poverty alleviation through microfinance and discusses the role of donors in supporting Islamic microfinance.

The paper discusses models and principles of microfinance and points out the need to build inclusive financial systems that consider cultural and religious sensitivities of the Islamic world. It examines how to integrate Zakah, Awqaf, and Islamic financial contracts into financial sector development strategies.

The paper studies Islamic microfinance at micro, meso, and macro levels, identifies challenges and offers strategic solutions. Broad suggestions for various stakeholders include:

• Financially excluded should perceive formal financial services as safe and attractive, and consider charity only as temporary support;
• Cooperatives and NGOs need to act as catalysts of change and recognize sustainability as a core factor in development;
• Islamic banks should reach out to the poor through linkages with NGOs and networks with MFIs, governments and policymakers;
• Awqaf/Zakah funds need to institutionalize voluntary giving;
• Apex bodies should enhance mutual cooperation and network with policymakers;
• Government should create supportive policy environment and infrastructure.