Abstract:
The main purpose of this paper is to examine the relevance of Islamic microfinance in the light of ongoing erosion of confidence in the viability of current financial system, full of speculatory finance in the prevailing global financial market. For example, the sub-prime crisis of 2007-2008 in the US with its effects all over the world was mainly due to the inadequate market discipline which in turn enhanced more and more lending, high leverage and finally led to bank failures and economic slowdown. The critics of this financial meltdown basically relate it to the interest-based financing mechanism. The paper tries to find the possibility of Islamic (Interest-free) Microfinance as a remedy for this financial instability in this context. The paper mainly focuses the Indian scenario where a large section of Muslim population does not have access to Microcredit due to both religious and political factors. Therefore, at this juncture an attempt is made to find the prospect of microfinance from an Islamic perspective which is imperative for adopting an economic system concerned with fulfilling human needs and creating opportunities for the poor. Besides, the concerned paper suggests a "Potential Value Based Hybrid Model for Islamic Microfinance," by outlining the features as well as the shortcomings of conventional Microfinance
Machine summary:
Keywords: Micro-enterprise, Islamic microfinance, India, Andhra Pradesh Microfinance Institutions Act, 2010, Value-based Hybrid Model INTRODUCTION One of the biggest challenges of this century is poverty, where billions of human beings live in abject poverty.
Taking into account the current crisis of conventional microfinance in India, the paper also argues that Islamic Microfinance can play an important role in eradication of poverty, equitable distribution of income (Siddique, 2001), socio-economic development of the poor and small (micro) entrepreneurs without charging interest (riba).
In Bangladesh which is considered the heart land of Microfinance, the Grameen Bank received criticism on charging unexpectedly high rates of interest from the micro borrowers and the real incidences of default that were found include lack of post-disbursement supervision leading to moral hazard, lack of training on basic business skills and knowledge, lack of health awareness resulting in the need to spend on medical expenses, burdensome immediate repayment schedule, lack of motivation to improve standard of living, multiple borrowings from different Microfinance Institutions (Kassim, Rahman, 2008).
It is time for the Islamic finance industry to adopt innovative and sound practices and prove that its models could work efficiently; that micro entrepreneurs with an appropriate business idea can be helped and hence find a way out of poverty.
Its different models are proposed to be used in microfinance activities to help the poor people for the betterment of their personal life, to provide them the seed capital in order to initiate the small business in order to make them self-sufficient and result in the overall growth of the economy (Saeed, Rehman, Qasim).