Examining The Outreach Of Islamic Charity Based Microfinance Programmes: Empirical Evidence From Indonesia

One of the advantages of using Islamic social funds is the increased ability of microfinance institutions to provide financial services to the poor. This study aims to (1) investigate the characteristics of the clients of Islamic Charity Based Microfinance (ICBM) programmes; (2) test whether the clients of ICBM programmes are more vulnerable than a non-client group; and (3) discuss the rationale for excluding the poor from zakat-based microfinance programmes. The study examined the microfinance programmes of various zakat institutions, namely Baitul Maal Muamalat (BMMI), BAZNAS and Baitul Maal Beringharjo (BMB). A total of 236 respondents made up of the clients and non-clients of three case study institutions participated in this study. The data were analysed using a binomial logit model to evaluate the factors affecting client participation in ICBM programmes in Indonesia. The findings show that the ICBM clients and non-clients have a similar demographic profile and that the majority of ICBM clients, while living above the national poverty line, live perilously close to its edge. Using logistic regression, the study found that the higher the client’s income level, the greater their probability of being selected for the programme. This finding contradicts the existing Islamic microfinance literature which claims that ICBM institutions in general could demonstrate the capacity to extend their services more widely to the poorest if Islamic charity was the main source of microfinance funding. The study highlights some of the potential barriers to including the poor in microfinance, including an institutional selection policy and self-exclusion factors.