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The link between Islamic banking and microfinancing

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  • Nasrin Shahinpoor

Abstract

Purpose - The purpose of this paper is to show the link between Islamic banking and microfinancing. Design/methodology/approach - The approach used in this paper is first to describe the basic principles of Islamic banking and microfinancing and then to show the link between the two financial practices. In general, it is believed that the two practices are not compatible since microfinance allows interest payments on loans and Islamic banking prohibits interest payment based on Islamic law,sharia. Both practices, however, promote equality and fairness for all members of the society and encourage entrepreneurship by giving collateral‐free loans to the poor. The two practices, therefore, are ideologically linked. This paper shows that they are also practically linked. Findings - Islamic religious leaders usually dismiss microfinancing because microfinancing requires high‐interest rate which is against Islamic law. This paper finds that it is possible to combine the two practices and to convince Islamic religious leaders that Islamic banking could be applied to microfinancing. Originality/value - Since microfinancing has been proven to help many poor people in different countries, the findings of this paper could be beneficial to the poor in some Islamic countries that do not practice microfinancing based on religious beliefs.

Suggested Citation

  • Nasrin Shahinpoor, 2009. "The link between Islamic banking and microfinancing," International Journal of Social Economics, Emerald Group Publishing Limited, vol. 36(10), pages 996-1007, August.
    • Handle: RePEc:eme:ijsepp:v:36:y:2009:i:10:p:996-1007
    DOI: 10.1108/03068290910984777
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    1. repec:abd:kauiea:v:26:y:2013:i:2:p:151-179 is not listed on IDEAS
    2. Umar A. Oseni & M. Kabir Hassan & Dorsaf Matri, 2013. "An Islamic Finance Model for The Small and Medium-Sized Enterprises in France نموذج تمويل إسلامي للمؤسسات الصغيرة والمتوسطة في فرنسا," Journal of King Abdulaziz University: Islamic Economics, King Abdulaziz University, Islamic Economics Institute., vol. 26(2), pages 151-179, July.
    3. Maira Abrar & Sohail Abbas & Shazia Kousar & Muhammad Mushtaq, 2023. "Investigation on the Effects of Customer Knowledge, Political Support, and Innovation on the Growth of Islamic Banking System: a Case Study of Pakistan," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 14(2), pages 946-965, June.
    4. Latifah Dian Iriani & Imamudin Yuliadi, 2015. "The effect of macroeconomic variables on non performance financing of Islamic Banks in Indonesia," Economic Journal of Emerging Markets, Universitas Islam Indonesia, vol. 7(2), pages 120-134, April.
    5. Arvind Ashta & Surender Mor, 2022. "Is Microcredit a Reverse Innovation?," FIIB Business Review, , vol. 11(2), pages 225-234, June.
    6. Ahmad, Syedah & Lensink, Robert & Mueller, Annika, 2020. "The double bottom line of microfinance: A global comparison between conventional and Islamic microfinance," World Development, Elsevier, vol. 136(C).
    7. Siti Hajar Binti Mohd Abd Khar & Muhammad Pisol bin Mohd Mat Isa & Maran Marimuthu & Amin Jan, 2019. "The Perception of Micro-Entrepreneurs towards the Adoption of an Islamic Equity-Based Financing: Evidence from Malaysia," Business Management and Strategy, Macrothink Institute, vol. 10(2), pages 97-107, December.
    8. Fianto, Bayu Arie & Gan, Christopher & Hu, Baiding & Roudaki, Jamal, 2018. "Equity financing and debt-based financing: Evidence from Islamic microfinance institutions in Indonesia," Pacific-Basin Finance Journal, Elsevier, vol. 52(C), pages 163-172.

    More about this item

    Keywords

    Islam; Banking; Finance; Poverty; Loans;
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