Islamic Microfinance Model, 10 core components

Islamic Microfinance Model

10 core components of Islamic Microfinance Model

By: Farhat Abbas Shah

The practitioners, professionals and scholars of Islamic Microfinance are facing a challenge to draw a standard Islamic Microfinance Model’s out line, which could encircle the needs and issues of the  social and commercial both modes of poverty alleviation. A sustainable faith-based  microfinance model is the real requirement of the industry, which has been expected from conventional models also and obviously not fulfilled according to the necessity. 

In case of a faith based model the situation is very interesting because it is not totally depended on product development experts, who have demonstrated their expertise by developing poverty alleviation products in the recent past. Although it apparently seems a matter of conflict between conventional microfinance minded professionals and faith-based  philosophy of poverty alleviation, but there is a commonality between three major religions of the world Islam, Christianity and Judaism, which can provide a great agreement upon faith-based  microfinance. The three above-said  religions condemn the interest in any case. If, for a moment, we understand and agree to the case, we easily will move a step forward. We kick a bundle of confusions when we try to get the same  gains with the similar approach through a different and totally contrary source.  

The point vital to comprehend is a difference between the principles of God and the strategies of a man. Even for a non believer, it is important to understand the universal will of prophets and the effort for social justice of a financial expert.  

Not any religion forbids to earn a reasonable profit but obviously  with an objective of benefit for all. Where the buyer and a seller both could get equal benefits. Regarding the benefits, it is so difficult for individuals but institutions provide this kind of justice at some extent conditioned with the availability of a true leadership.  

The second core component of the faith-based Microfinance is the partnership on profit and loss sharing. Without believing in the principle of profit and loss sharing and without abiding by the law, it is impossible  to attain high profits for each partner.  

Third and the forth are the honesty and transparency principles. Any business cannot  be a successful business for a long term without honoring these values.  

The fifth principle is to avoid  the   acts. Shariah forbids from (Haram). Because if someone mixes Halal and Haram, it damages the real spirit of the code and ultimately spoils the whole system. To avoid the uncertainty, doubt and ambiguity and keeping the business clean and clear, is also the part of the model as the sixth component. Because it saves you from a lot of issues and conflicts. Keeping a will sacrifice or volunteerism as the seventh principle also plays a very productive role as a social responsibility. The eighth component is the cushion for the vulnerable in any cast is also important. It means there is not any space for the policy of zero percent tolerance, particularly in case of poor community and  when you are claiming to help and support. Ninth, to please the God or the work for goodness and betterment of the mankind, humanity, peace and justice, is the nucleus of any faith-based  business, so that it cannot  be neglected in this case.  The emphasis on women and children’s betterment could be mention as tenth component jointly with  the culture of equality from the staff to the  clients and from the clients to the community and society is the a basic principle of the Islamic code. Although where as the policies are concerned, there are a lot of aspects common in conventional and faith-based  models, but unfortunately, it never found in practice. No doubt there is a long term profitability with a sustained way, though, a strong belief system is inevitable to make this model successful. Otherwise right after 25 years there can be another  economic blast to push the global economy in a more complicated crisis.  

The structural format also needs a different  architecture for faith based or a socially responsible microfinance. Without including Zakah, Sadaqat, Khairat (social funding), Qarz e Hasna ( With its true application and not as a few organizations are doing with document charges, time bound and forced donations etc.), it is hard to find the original silhouette and finally the partnership with the poor on profit and loss basis it is difficult to get the real original and long term profitability from the Model. It will certainly bridge the development and microfinance in  very productive ties. Just imagine if billions of poor may able to just sustain their livelihoods and become a productive part of the global economic mainstream, how big the impact they could create.

Unfortunately, most of the sector players are trying to only provide a resolve, which could be felt as faith-based  Microfinance Model. They are also trying use Shariah scholars to get solutions but not the true structure. It is most critical that the practitioners seek more liberty to cross the boundaries or to get a sincere guidance from original people only for taking advantages by setting and inducting their own policies even with the consent of stretchable  Shariah scholars. Ultimately, it will hit the system and will create hidden issues, which can make the plane crash. While the faith-based  systems have the power of a long-lasting  sustainability. Faith never stops getting rewards and profits. It bounds to make justice for investor, worker and consumer all of them. Profit and loss sharing mode has a miraculous potential of high profits. Farz Foundation is passing through a novel experience of counting high profits in the field of livestock micro financing on a profit and loss sharing basis. However, socially responsible microfinance demands a right direction towards the goal through a pure professional and socially responsible approach. Faith based mean faith based. The amalgamation will destroy the all kinds of investments.                             

What I am seeing in near future, two kinds of faith-based  microfinance models as pure Islamic model, like Farz Foundation and a mix model with a blend of conventional and Islamic model. Where the experts will try to present a resolve of Shariah Issues. While the Farz Foundation’s model will cater not only the pure Islamic market but will achieve the genuine benefits of the model and set a milestone of success to provide the economic benefits for all above creed or color and irrespective of focusing on any religion.