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Micro Finance, Credit and Religion

Micro Finance, Credit and Religion

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  • 1. qwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvb Islamic Credit andnmqwertyuiopasdfghjklzxcvbnmqwer Micro Financetyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzx Wali Memoncvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmrtyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiop
  • 2. Islamic Credit and Micro Finance 2010 Islamic Credit and Microfinance[An] important function of Islamic finance that is seldom noted … is the ability 2of Islamic finance to provide the vehicle for financial and economicempowerment … to convert dead capital into income generating assets tofinancially and economically empower the poor … (Mirakhor 2002) September 24, 2010 Wali Memon | wali.memon@gmail.com
  • 3. Islamic Credit and Micro Finance 2010OVERVIEW Acquisition of land and the access to, improvement and enjoyment of property are often predicated on the ability of individuals to secure easy and affordable credit and a range of financial and banking services. The 3 significant and increasing demand from within Islamic communities that financial services be compliant with Islamic law (Sharia) has led to diversification and innovation of banking activities from both Islamic and Western commercial banking institutions. This paper explores the Islamic context which stimulates such alternative credit systems, the key distinguishing features of the Islamic banking models, the development of Islamic microfinance models and the practical challenges to these innovations. As part of an overall project concerning Islamic law, security of tenure and poverty alleviation, this paper sets out to explore the extent to which Islamic finance, banking principles and credit, particularly housing microfinance, may contribute specifically to transforming the lives of the poor. September 24, 2010 Scope of this Position Paper: This position paper contextualises the development of Islamic Financial Systems in Section 1. It examines some of the distinguishing features of Islamic finance, particularly the prohibition against riba (usury) in Section 2. Section 3 analyses the application of Wali Memon | wali.memon@gmail.com
  • 4. Islamic Credit and Micro Finance 2010Islamic principles to microfinance while Section 4 discusses some Islamicfinancial objectives and products, and the need for regulation. Section 5assesses the experiences of Muslim countries with microfinance,particularly Yemen and Bangladesh, and the opportunities for women.Section 6 offers five strategies for empowerment through Islamic 4Microfinance* Authenticate Islamic finance products* Regulate Islamic microfinance* Diversify Islamic microfinance products* Ensure Stability of Microfinance Financial Institutions (MFIs)* Mainstream Islamic Microfinance September 24, 2010 Wali Memon | wali.memon@gmail.com
  • 5. Islamic Credit and Micro Finance 20108.1 CONTEXTUALISING ISLAMIC FINANCEIslamic financial systems are located within the larger context of Islamic religious,ethical and economic systems.8.1.2 Modern revival of Islamic finance 5Rapid growth in Islamic banking has led to most countries in the Muslim world, andmany beyond, now having Islamic banks or financial institutions. In some countries,such as Iran and Sudan, Islamic banks are the only ones allowed to operate owing totheir conformity with Islamic law (Sharia). In other countries, such as Bahrain,Indonesia, Jordan, Egypt, Malaysia and Bangladesh, Islamic banking competes withconventional banking and finance. Islamic finance has seen annual growth rates ofover 15% and the Islamic capital invested in global financial institutions is currentlyestimated at US$1.3 trillion. A key growth area is in the provision of Islamicmortgages, both within the Arab world and in Europe and North America.8.1.3 Islamic economic foundations September 24, 2010The growth in Islamic finance is rooted in a desire for socio-political and economicsystems based on Islamic principles. Economic activities are not considered to be aseparate part of human behaviour within the Islamic framework and materialpursuits occupy a sphere linked to spiritual values and religious beliefs. Commercial Wali Memon | wali.memon@gmail.com
  • 6. Islamic Credit and Micro Finance 2010activities conducted in order to provide for the individual, family and loved ones areboth permitted (halal) and in many circumstances commendable. There are sayingswithin the Muslim tradition in support of trade and which encourage, respect andpraise it as a means for providing human sustenance, although not as an end initself. 68.1.4 Ethical dimensions of Islamic economic systemsWhile the Quran celebrates good trading practices, it is also conscious of those whoare unable to trade and praises charitable acts towards the poor and the destitute.The payment by Muslims of a levy or tax on certain kinds of wealth (zakat), to bedistributed for charitable purposes, is one of the five pillars of Islam. It serves topurify both wealth and the person who makes the charitable payment.Islamic law (Sharia) lays down the boundaries of permissible economic behaviourand gains should not be achieved at the expense of spiritual or moral values.8.1.5 Benefits of Islamic banking September 24, 2010Islamic banks have several interrelated benefits. They are able to mobilise fundsand savings amongst those excluded from commercial banks because they are easierto access and conform to Islamic values. Islamic banks can provide a service forthose who wish to assert their identity, are intimidated, or distrust large Wali Memon | wali.memon@gmail.com
  • 7. Islamic Credit and Micro Finance 2010conventional banks, and/or prefer a system in which mutual co-operation betweenbank and customer is implicit. The close bank-customer relationship also offersresponsible and profitable financial services.8.1.6 Islamic economic principles - do they promote or stifle growth? 7The role of religion in modern economics is controversial. Some commentatorsargue that Islamic principles are responsible for the backwardness of some Muslimcountries, others that Islam promotes growth. There is no reason why Islamicbeliefs should hold back development and there is space within the Islamicframework for inductive reasoning in the development of Islamic economics.8.2 DISTINGUISHING FEATURES OF ISLAMIC FINANCE8.2.1 Principles of Islamic financial systemsIslamic financial systems have distinctive principles including: avoidance of interest;risk sharing; treating of money as potential capital; prohibition on speculation; September 24, 2010sanctity of contracts; avoidance of prohibited activities such as gambling; theencouragement of entrepreneurs; and the promotion of economic/socialdevelopment through charity. Wali Memon | wali.memon@gmail.com
  • 8. Islamic Credit and Micro Finance 20108.2.2 Prohibition on speculation or risk (gharar)The prohibition on risk or speculation requires risk sharing by a lender (a bank)with the borrower, the bank should be a partner in the borrowers risk. Arelationship of creditor and debtor, as in the western model of commercial banking, 8in which interest is the price of credit and the pressure/risk is all on the borrower isnot permitted.8.2.3 Prohibition on usury (riba) and hoardingThe Quran prohibits usury (riba) in several different contexts and this prohibitionarises out of an Islamic concept of money as nothing more than a means ofexchange. Money has no value in itself and cannot be allowed to give rise to moremoney, it cannot accrue any return (i.e. interest). The prohibition against usury is acorollary of the prohibition against hoarding, or an excess accumulation of personalriches. Trade and financial gain are lawful, but excessive profiteering is immoral.Neither goods nor money should be hoarded.8.2.4 Prohibition on usury (riba) and interest September 24, 2010The condemnation of usury as money lending for interest (riba) is well establishedwithin the Islamic framework. The dominant view, arising out of classicalinterpretations, is that the spirit of the prohibition on interest covers all forms of Wali Memon | wali.memon@gmail.com
  • 9. Islamic Credit and Micro Finance 2010interest and interest-like practices. There are a minority of Islamic thinkers whoargue that there is a difference between usury, which is prohibited, and interestwhen it is for commercial lending, which is permitted.8.2.5 Profits as distinct from usury (riba) 9Labour and effort, including that of merchants and entrepreneurs, IS the creator ofvalue and profits from trade are not unlawful. Profits are distinct from usury (riba).Profits do include a return on financial investment, but the rate of return is neitherfixed nor predetermined and carries with it a risk.8.3 APPLICATION OF ISLAMIC BANKING TO MICROFINANCEMicrofinance in Muslim countries offers a choice of conventional, informal andIslamic financial products, but Islamic microfinance is better suited to somecontexts.8.3.1 Interface of Islamic Banking Principles and Microfinance September 24, 2010Islamic microfinance has emerged from the same principles of Islamic financing thathave been applied to trading, business, investing and mortgages within Muslimcommunities. Wali Memon | wali.memon@gmail.com
  • 10. Islamic Credit and Micro Finance 20108.3.2 Islam and microfinanceIslamic principles of equal opportunity, advocacy of entrepreneurship, risk sharing,disbursement of collateral free loans, and participation of the poor are supportive ofmicrofinance principles. Islamic finance has an important role to play in widening 10provision of funds to enable the purchase of, or building of, homes, and in enablingtheir owners to use the property for further income generation.8.3.3 Social and development roles of Islamic banksIslamic banking has multiple objectives. It facilitates commerce, investment andlegitimate socio-economic activity, but consciously works towards the alleviation ofpoverty and the more equitable distribution of economic opportunities. Islamicbanks often offer interest-free benevolent loans to the needy, on which the bank hasno expectation of making a profit. Competition is accompanied, therefore, by adeeper responsibility for social welfare through financing and some Islamic bankshave used innovative schemes to meet the needs of the poorest Sections of society.There is potential for Islamic banks to play an important role in widening the September 24, 2010provision of funds to enable the purchase of, or building of, homes or the use ofproperty for income generation. Wali Memon | wali.memon@gmail.com
  • 11. Islamic Credit and Micro Finance 20108.3.4 Informal Banking and Debt transfer (hawala)There are several informal financing systems, some which are beneficial. A systemof transfer of debt from one debtors charge to another (hawala) operates in anumber of Muslim countries. The lack of documentation circumvents official control 11and this debt transfer (hawala) system has been banned in most countries. Thesystem is not, therefore, useful for extending housing, land and property rights.8.3.5 Is Islamic microfinance truly Islamic?In some social contexts MFIs make only cosmetic changes to their operations andproducts, such as changing the term interest to service charge, in order to acquireIslamic credentials. In other cases, where beliefs regarding the prohibition ofinterest (riba) are strongly held, MFIs may have to make greater and morefundamental adaptations to their systems and operations. September 24, 2010 Wali Memon | wali.memon@gmail.com
  • 12. Islamic Credit and Micro Finance 20108.4 ISLAMIC FINANCIAL OBJECTIVES AND PRODUCTSAn Islamic financial system/institution will try to ensure that its business activitiesavoid prohibited activities and that its financial products permit the financing ofindividuals or commercial enterprises through the profit and loss sharing principle. 128.4.1 Financial productsIslamic banks have developed a variety of financial products but only a few arecommonly used in practice. These transactions include: mark up/cost plus sale(murabaha); joint venture (musharaka); trust financing or limited partnership(mudaraba); and lease (ijara). Other products have developed to permit forms ofcooperative Islamic insurance (takaful and micro-takaful), which also use thesolidarity trust model (mudaraba).8.4.2 Islamic MortgagesMainstream lending institutions across the Muslim world, in Europe and NorthAmerica have developed Islamic law (Shari’a) compliant financial products to September 24, 2010enable the purchase of residential properties. The most commonly usedinstruments are the mark up/cost plus sale (murabaha) and mortgages involvingthe payment of rent, as opposed to interest (ijara). A further cooperativediminishing partnership model – which is particularly well established in Canada - Wali Memon | wali.memon@gmail.com
  • 13. Islamic Credit and Micro Finance 2010may hold out greater possibilities for addressing the needs of Muslims in lessprivileged social sectors, not least because of its strong correlation to themicrofinance institution.8.4.3 Conventional Banking through the ‘back door’? 13The Islamic credentials of Islamic banks and their financial products have beendoubted in both newspapers and scholarly articles. It has been suggested that to theman on the street the Islamic bank may look very similar to its conventionalcounterpart. In particular the predominant murabaha contract, which is thefinancing of the purchasing of goods by banks and their subsequent sale to clients atmark-up prices, does appear to mirror conventional consumer credit.8.4.4 Need for regulationThe relative infancy of Islamic financial institutions, in comparison to longerestablished conventional interest (riba) based banking, has led to some regulatory September 24, 2010problems and some spectacular bankruptcies for Islamic investment institutions.There may be a lack of sufficient expertise amongst staff and/or a lack of training insome banks. No uniform regulatory and legal framework for an Islamic financialsystem has been developed, with Islamic banks having their own boards of Wali Memon | wali.memon@gmail.com
  • 14. Islamic Credit and Micro Finance 2010guidance. The Asian Development Board, with the Islamic Financial Board set up inKuala Lumpur, recently took the initiative to provide a regulatory structure. Anappropriate regulatory framework for Islamic banks and microfinance institutionsis critical for the robust financing of the housing, land and property industry,especially as housing usually forms a major part of the national asset of any country. 148.5 ISLAMIC MICROFINANCE IN PRACTICE8.5.1 Expansion of microfinance in the Arab worldAlthough microfinance is a relatively new phenomenon in some parts of the Muslimworld, its outreach in the Arab world has grown considerably to more than 700,000borrowers at the end of 2003.8.5.2 Islamic microfinance in the Arab worldMicrofinance services, including some compliant with Islamic law (Sharia), in theArab region tend to be limited to credit for enterprise, rather than the building or September 24, 2010purchase of homes or home improvement. The most commonly used Islamictransaction is one in which the MFI purchases goods at the request of the borrowerand then sells the goods to the borrower for a fee to cover administrative costs,with repayments in instalments (murabaha). Wali Memon | wali.memon@gmail.com
  • 15. Islamic Credit and Micro Finance 20108.5.3 Experiences in YemenA large proportion of microfinance initiatives in Yemen is based on Islamic financialprinciples. There are administrative challenges to these initiatives and additional 15costs, but their strength is in reaching out to those otherwise excluded and in termsof acquiring broader local approval from their clients and the communities in whichthey live.8.5.4 Experiences in BangladeshThe Grameen Bank is largely a success story, particularly in terms of reaching out toMuslim women in Bangladesh. Membership of the bank leads to an expansion ofassets for many women, including home improvements, the provision of servicesand the purchase of land for building houses or agriculture. Though it is notorganised consciously on Islamic financial principles, the beneficiaries who areMuslim have not had qualms about the authenticity of its products. September 24, 20108.5.5 Resistance to the Grameen BankThe Grameen Bank has been subject to criticism and resistance, both at a local levelfrom groups like moneylenders who stand to lose from cheap collateral free loans Wali Memon | wali.memon@gmail.com
  • 16. Islamic Credit and Micro Finance 2010and at a national level from forces which denounce the Bank as a manifestation of anun-Islamic, foreign and secular culture.8.5.6 Microfinance and Islamic valuesThere is great potential to apply Islamic financial principles and banking practices in 16a concerted manner to the provision of microfinance, particularly housingmicrofinance which remains less widespread than the provision of entrepreneurialcredit. The complementary aspects of microfinance and Islamic banking principleshold out considerable possibilities for social and economic transformation. Thestrong correlation between Islamic principles and the values underpinningmicrofinance, particularly the emphasis upon partnership and mutual guarantee,may provide the basis for innovation even in the seemingly inauspiciouscircumstances of informal settlements.8.5.7 Muslim women and microfinance September 24, 2010One of the potential benefits of microfinance is the empowerment of Muslimwomen. The ability of MFIs to deliver financial services to rural women is ofparticular relevance in gender segregated societies. The Arab region has seen asignificant improvement in terms of outreach from MFIs to women borrowers whoform as a group more than half of such institutions clients. Working with Muslim Wali Memon | wali.memon@gmail.com
  • 17. Islamic Credit and Micro Finance 2010women is a sensitive issue, sometimes raising accusations of meddling with socialcodes.8.6 STRATEGIES FOR EMPOWERMENT THROUGH ISLAMIC MICROFINANCE8.6.1 Authenticate Islamic finance products 17Many customers of Islamic banks may have a history of banking in the conventionalcommercial banking sector. However, there is also evidence that an institutionrooted in Islamic values and financial principles will draw in customers new tobanking. These customers may have excluded themselves due to their religiousbeliefs, but the behaviour of the bank itself may also be a factor. The increasingdemand for Islamic banking and financial products, the entry of a variety of financialinstitutions into the market and the sheer range of Islamic products, raises thequestion of whether these justify the label Islamic.That demand, rather than inherent Islamic expertise, triggered the explosion in September 24, 2010Islamic finance is well documented. For example, a Western bank, Lloyds TSB,opened its Islamic banking services in the UK on the basis that there is a demandfrom over two-thirds of the 2 million Muslims in the UK who want Islamic banking(BBC 2005). Global financial institutions that have established Islamic banking withShari’a compatible services include Citibank, BNP Paribas, UBS and ABN Amro. Wali Memon | wali.memon@gmail.com
  • 18. Islamic Credit and Micro Finance 2010Equally, there are an increasing number of national and local providers in the field.In many countries Islamic and conventional microfinance coexist and the differenceis not always obvious.Fadel (2004) notes that this proliferation has led to Islamic Law in the area ofbanking and finance being in a flux with Islamic products needing to be sufficiently 18distinctive from conventional banking and finance to justify the label ‘Islamicfinance (Fadel 2004). Islamic banks are a co-operative venture between financialexperts and shari’a experts (or committees) who comment on the Islamic validity ofthe product. However, there is room for interpretive differences of opinion amongjurists and different Shari‘a committees may and do react differently to similarcontractual provisions.There are no easy answers, but sharing of best practice and harmonisation ofgeneral Islamic products, allowing for inherent diversity, would enhance thecredibility of the Islamic finance industry. The demand for the development ofIslamic microfinance products may not be as obvious or as strong as the demand forIslamic financial instruments in the commercial banking sector. However, it is alsoimportant in this regard that the vulnerable, particularly those on very low-incomes,are provided with the opportunities and fora to learn about Islamic products, September 24, 2010particularly Islamic microfinance products, and ultimately to participate in theirdevelopment. Microfinance schemes, particularly those funding the purchase ofhouses, their improvement or services, have an important role to play in extendingand enhancing property and land rights, while alleviating poverty. In many Islamic Wali Memon | wali.memon@gmail.com
  • 19. Islamic Credit and Micro Finance 2010countries, or in those countries with significant Muslim populations, Islamicmicrofinance which is both Islamic law (Shari’a) compliant and shaped by localcommunities has the potential for enjoying consumer confidence and acceptancewithin those communities, which may not be so readily available to conventionalschemes. 198.6.2 Regulate Islamic microfinanceThe modern Islamic microfinance institutions are still a recent phenomenon andhave not yet fully evolved. They have experienced also haphazard growth. Whilediverse models and practices are inherent in the choice and flexibility Islamicmicrofinance offers, these services need to be regulated in order to providetransparency, instil consumer confidence and prevent fraud on beneficiaries due tothe unfamiliarity with the products. State regulation, though necessary, has been adhoc and sometimes an obstacle to the evolution of effective microfinancemechanisms. Housing microfinance programmes in particular, although lessdeveloped than entrepreneurial credit, tend to involve larger loans and traditionallyrequire guarantees and/or collateral. Effective regulation of housing microfinance September 24, 2010schemes which are Islamic law (Shari’a) compliant is, therefore, of particularimportance.A recent International Monetary Fund working paper (2004) points to the specialrisks surrounding Islamic banking. The first is that the profit and loss sharing modes Wali Memon | wali.memon@gmail.com
  • 20. Islamic Credit and Micro Finance 2010of financing make the Islamic banks vulnerable to the risks that are normally borneby equity investors rather than holders of debt. The second relates to the specialnature of investment deposits where capital value and rate of return are notguaranteed. Some suggest a modified CAMEL (capital adequacy, asset quality,management, earnings and liquidity) system of supervision for Islamic banking. 20There is a special risk for those banks involved in the profit-sharing forms oflending. In the case of microfinance, states should be encouraged to support themembership of Microfinance Financial Institution (MFIs) in the Islamic FinancialServices Board (IFSB) and provide fora for sharing of best practice and success. Anappropriate regulatory framework is required for a vigorous housing financesystem, especially given the importance of housing as a key national asset in mostcountries.8.6.3 Diversify Islamic microfinance productsThough Islamic microfinance schemes are relatively limited at present, theirpotential is significant. Islamic Microfinance products are suitable to enable housingmicrofinance that is within Islamic law and to enhance security of tenure, September 24, 2010particularly for the poor. However, several studies of microfinance in the Muslimworld show that there is an emphasis on loans to the entrepreneurial poor, ratherthan the variety of financial services that the poor need. In addition to credit,microfinance needs to offer savings, insurance, and money transfer services. Wali Memon | wali.memon@gmail.com
  • 21. Islamic Credit and Micro Finance 2010A study by a Harvard research group points to groups within the general financeindustry’s target population that are not currently being served by housingmicrofinance programs. In particular, the poorest of the urban poor, includingsquatters on remote or unutilized land and those living in rental arrangements inovercrowded inner-city slum tenements fall outside the net. The study argues that 21the development of appropriate financial instruments to meet the shelter needs ofthis latter population group is without doubt the greatest challenge facing thehousing microfinance industry today. Appropriate financial instruments have beendeveloped by the Islamic banking sector, which avoid usury (riba) and can enableindividuals to purchase houses, just as they can provide funds to start up or expandbusinesses and loan money to those in particular need.Similarly, there are types of Islamic insurance, based on cooperation, which canenable the poor to avoid the asset sales, including the sale of various rights of accessto land, which are a common response to natural and personal disasters. There aredangers of high expectations and the limits of microfinance in the overallmacroeconomic poverty alleviation strategies must be recognized. However, while September 24, 2010priorities may differ according to contexts, microfinance programmes must expandthe range of products for their target groups which are sustainable and viable in thelong term. Islamic jurisprudence (fiqh), with its emphasis upon partnership and aconcern for community welfare, together with the expansion in Islamic banking andmicrofinance, has the ability to respond creatively to the needs of the urban poor. Wali Memon | wali.memon@gmail.com
  • 22. Islamic Credit and Micro Finance 20108.6.4 Ensure Stability of Microfinance Financial Institutions (MFIs)Though banks and financial institutions offer capital, general management and 22expertise, it is the MFIs that deliver financial services to the poor, particularly therural poor in remote areas. The success of any microfinance project is dependent onthe building of permanent local financial institutions that can attract domesticdeposits, recycle them into loans, and provide other financial services. The failuresof microfinance in general have occurred when MFIs have not been regulated orsupported by either their funding bodies or government.The MFIs cannot exist in a hostile economic environment, just as they need tocultivate their credibility in a given socio-cultural and religious community. The roleof the government is not to be a lender itself but to work through MFIs. Their mostimportant responsibility is to support macroeconomic stability and the promotionof an enabling policy environment for the development of a vibrant financial sector. September 24, 2010Similarly, donor funds should complement private capital, not compete with it andthe success of MFIs lies in their ability to sustain themselves in the long run throughtheir own capital. Wali Memon | wali.memon@gmail.com
  • 23. Islamic Credit and Micro Finance 2010The capacity building of MFIs depends on building strong and transparentmanagement structures. Merely espousing Islamic principles does not absolve themfrom creating a culture of accountability. As several reports have indicated,microfinance works best when it measures —and discloses —its performance.Reporting not only helps stakeholders to judge costs and benefits, but it also 23improves performance. Microfinance institutions (MFIs) need to produce accurateand comparable data on financial performance (for example on cost recovery) aswell as social performance. An example of good practice comes from some smallerfinancial institutions. These are participative, not necessarily in terms of beingowned and managed by the poor but in employing the poor, and have understoodthe experience, expectations and practices of the poor. Islamic MFIs which seek toenhance the position of the poor, including the realisation of their rights to secureshelter, must develop, like conventional microfinance institutions, a culture offinancial and social accountability, which embraces innovative approaches toparticipation by their members.8.6.5 Mainstream Islamic Microfinance September 24, 2010To improve the access of target groups to microfinance, it should shift from beingconsidered as a marginal program and be integrated within the general banking andfinancial services industry. Microfinance will reach its full potential, both generallyand with respect to extending housing and property rights, only if it is integrated Wali Memon | wali.memon@gmail.com
  • 24. Islamic Credit and Micro Finance 2010into a country’s mainstream financial system. This is necessary to promote greaterawareness of products, standardize regulation and transparency and strengthenoutreach mechanisms. Rather than being ignored or bypassed on the basis of itsperceived complexity or the sensitivity owing to its religious orientation, Islamicfinance should be recognized for what it ultimately is – a financial product that 24needs to meet several standards. This is particularly important where microfinanceis part of the informal economy or debt transfer (hawala) and based on trust andcommunity practices.Improving access to Islamic microfinance is not only an implicit social goal but alsoan imperative for the survival of most microfinance projects. In order to pay foritself it must reach out to very large numbers of poor people in order to be self-sustaining. Strategies to enhance the opportunities for the poor to participate in, andbecome educated about Islamic microfinance and products are an essentialcomponent of outreach. In the case of Islamic microfinance where interest isreplaced by profit and loss methods and there may be uncertainty as to returns,reasonable service charges from a wider constituency are necessary to cover costs September 24, 2010particularly where government subsidies and donor funds cannot be guaranteed inthe long run. Wali Memon | wali.memon@gmail.com
  • 25. Islamic Credit and Micro Finance 2010SELECTED REFERENCESAbdul-Rauf, Muhammad (1979) The Islamic Doctrine of Economics andContemporary Economic Thought: Highlight of a Conference on a Theological Inquiryinto Capitalism and Socialism. (Washington : American Enterprise Institute for 25Public Policy Research)Ahmad, S. A. (1958) Economics of Islam (A Comparative Study), (Lahore: Sh.Muhammed Ashraf)Ahmad, Imad-ad-Dean (1993) Islam, Liberty, and the Free Market, in Mona M.Abul-Fadl, ed., Association of Muslim Social Scientists Proceedings Twenty-first AnnualConference (Herndon, VA: International Inst. of Islamic Thought), pp. 275-303Alam, Mohammed N, (2003) A Comparative Study between Islamic and ConventionalBanking Systems. A study based on an Institutional-network theoretical framework.(www.alternative-financing. org.uk, March) September 24, 2010Alirani, Kais (2003) Islamic Microfinance - Yemen Experience (First AnnualConference of SANABEL, Microfinance Network of Arab Countries) Wali Memon | wali.memon@gmail.com
  • 26. Islamic Credit and Micro Finance 2010Anwar, Muhammed (2003) Islamicity of Banking and Modes of Islamic Banking,Arab Law Quarterly 62-80Asian Development Bank, (2004) Technical assistance for the development ofinternational Prudential standards for Islamic financial services, (July) 26Barkan, Omer L. and Ayverdi, Ekrem H. (1970) Istanbul Vakiflari Tahrir Defteri(Istanbul: Fetih Cemiyeti)Behdad, Sohrab (1992) Property Rights and Islamic Economic Approaches in Jomo,K. S, Islamic Economic Alternatives (London: Macmillan) pp. 77-103Brandsma, Judith and Rafika Chaouali (1998) Making Microfinance work in theMiddle East and North Africa, (Human Development Group, World Bank)Brandsma, Judith and Burjorjee, Deena (2004) Microfinance in the Arab StatesBuilding inclusive financial sectors (New York: UNCDP) September 24, 2010Brandsma, Judith and Hart, Laurence (2004) Making microfinance work better in theMiddle East and North Africa, (Washington DC: World Bank) Wali Memon | wali.memon@gmail.com
  • 27. Islamic Credit and Micro Finance 2010Chapra, M. Umar (1970) ‘The Economic System of Islam: A Discussion of its Goalsand Nature’, 14 The Islamic Quarterly 3-23.Chapra, M. Umar. (1992) Islam and the Economic Challenge Leicester, UK: IslamicFoundation 27Chapra, M. Umar (2003) The Nature of Riba in Islam 7(1) Hamdard IslamicusCHF International (2005) Practical Guide for Housing Microfinance in Morocco (CHFInternational)Cizacka, Murat (2004) Ottoman Cash Waqfs Revisited: The Case of Bursa 1555-1823(Manchester: Foundation for Science, Technology and Civilisation)Choudhury, M. A. and Malik. U. A. (1992) The Foundations of Islamic PoliticalEconomy (London: Macmillan) September 24, 2010Consultative Group to Assist the Poor (2001) ‘Microfinance, Grants and Non-Financial Responses to Poverty Reduction: Where does Microfinance Fit?’ FocusNote No. 20, May 2001. Wali Memon | wali.memon@gmail.com
  • 28. Islamic Credit and Micro Finance 2010Daily Star (2005) Grameen Bank Under Bomb Attack (Dhaka, Bangladesh, February17)El-Gamal, Mahmoud A (2001) An Economic Explication of the Prohibition of Riba inClassical Islamic Jurisprudence, Occaisional Paper, Houston: Rice University 28El-Hawary, Dahlia, Grais, Wafik and Iqbal, Zamir (2004) Regulating Islamic FinancialInstitutions: The Nature of the Regulated World Bank Policy Research Working Paper3227 (Washington, DC: World Bank)Fadel, Mohammed H., (2004) Islamic Finance, (Joint AALS, American Society ofComparative Law and Law & Society)Ferro, Nicoletta (2005) Value Through Diversity: Microfinance and Islamic Financeand Global Banking (Milano, The Fondazione Eni Enrioco Mattei)Gerber, Haim, (1988) Economy and Society in an Ottoman City Bursa 1600-1700(Jerusalem: The Hebrew University) September 24, 2010Grace, L and Al ZamZami, A, (2002) Islamic Banking Principles Applied toMicrofinance Case Study: Hodeidah Microfinance Program, Yemen (UNCDF)Gran, Peter (1998) Islamic Roots of Capitalism (Syracuse University Press) Wali Memon | wali.memon@gmail.com
  • 29. Islamic Credit and Micro Finance 2010Guiso, Luigi, Sapienza, Paola and Zingales, Luigi (2002) People’s Opium? Religionand Economic Activities, NBER Working Paper 9237, (Cambridge, MA: NationalBureau of Economic Research) 29Harvard Research Group (2000) Housing Microfinance Initiatives, Synthesis andRegional Summary: Asia, Latin America and Sub-Saharan Africa with Selected CaseStudies, (The Center for Urban Development Studies, Harvard University GraduateSchool of Design)Hashemi, Syed M. and Schuler, Sidney Ruth (2002) Sustainable Banking with thePoor: A Case Study of Grameen (Dhaka, PRPA - Grameen Trust)ICWC, UNCDF and Ford Foundation (2001) Innovating from Experience- GenderInitiatives in Microfinance: Roundtable Proceedings, New YorkIqbal, Zamir (1997) Islamic Financial Systems (Washington, DC: World Bank) September 24, 2010Johnson, Noel D. and Eliana Balla (2005) The Islamic Origins of InstitutionalStagnation: France and the Ottoman Empire During the Early-Modern Period,(http://www.econ.ucla.edu/workshops/papers/History/Balla_Johnson_2005Feb221.pdf) Wali Memon | wali.memon@gmail.com
  • 30. Islamic Credit and Micro Finance 2010Kahf, Monzer (1998), ‘Financing the Development of Awqaf Property’, SeminarPaper, IRTI, Kuala Lumpur, Malaysia, March 2-4, 1998.Kamal, Naser, Jamal, Ahmad and Al-Khatib, Khalid (1999) Islamic Banking: A study 30of customer satisfaction and preferences in Jordan 17(3) International Journal ofBank Marketing 135-150Khan, Muhammad Akram (1994), An Introduction to Islamic Economics, (Islamabad:International Institute of Islamic Thought and Institute of Policy Studies, Pakistan).Khan, Mohsin S. and Mirakhor, Abbas (2003) Islamic Banking: Experience in TheIslamic Republic of Iran and in Pakistan (Joman Al-Khaleej Centre for Islamic FinanceConsultancy)Kuran, Timur (2002) The Islamic Commercial Crisis: Institutional Roots of EconomicUnderdevelopment in the Middle East (Los Angeles: USC Center for Law, Economics, September 24, 2010and Organization Research Paper No. C01-12)Loqman, Muhammad, (1999) A Brief Note on the Islamic Financial System 25(5)Managerial Finance 52-59 Wali Memon | wali.memon@gmail.com
  • 31. Islamic Credit and Micro Finance 2010Mallat, Chibli (1988) The Debate on Riba and Interest in Twentieth CenturyJurisprudence in C. Mallat (ed.) Islamic Law and Finance (London: Graham &Trotman)Mandaville, Jon E. (1979) Usurious Piety: The Cash Waqf Controversy in the 31Ottoman Empire, 10(3) International Journal of Middle East Studies 289-308Metawa, Saad A. and Almossawi, Mohammed (1998) Banking Behaviour of IslamicBank Customers: perspectives and implications 16(7) International Journal of BankMarketing 299-313Mirakhor, Abbas (2002) Hopes for the Future of Islamic Finance (Lecture at theInstitute of Islamic Banking, London)Molla R.I., Moten R.A., Gusau, S.A and Gwandu A.A., (1988), Frontiers and MechanicsOf Islamic Economics, (University of Sokoto, Nigeria) September 24, 2010Momen, Mohammed Abdul (1996) Land Reform and Landlessness in Bangladesh(University of East London, unpublished thesis) Wali Memon | wali.memon@gmail.com
  • 32. Islamic Credit and Micro Finance 2010Osman, Badawi B. (1999) The Experience of the Sudanese Islamic Bank inPartnership (Musharakah) Financing as a Tool for Rural Development Among SmallFarmers in Sudan, 14 Arab Law Quarterly 221-230RahmanBin Kamsani, Fazlur (2005) Islamic Real Estate Finance and Middle East 32Opportunities (Singapore: Presentation at REDAS Seminar ‘Construction andProperty Prospects’ power point presentation)Ray, Nicholas Dylan (1995) Arab Islamic Banking and the Renewal of Islamic Law(London: Graham & Trotman)Rodinson, Maxime (1978) Islam and Capitalism (Austin: University of Texas Press)trans. Brian PearceSundararajan, Vasudevan and Errico, Luca (2002) Islamic Financial Institutions andProducts in Global Financial System: Key Issues in Risk Management and ChallengesAhead (IMF Working Papers 02/192, International Monetary Fund) September 24, 2010Timberg, Thomas A. (2003) Risk Management: Islamic Financial Policies–IslamicBanking and Its Potential Impact. Case Study funded in part by US Agency forInternational Development (Virginia, USA: Nathan Associates, Inc.) Wali Memon | wali.memon@gmail.com
  • 33. Islamic Credit and Micro Finance 2010Usmani, Mohammad Taqi (2000), The Text of the Historic Judgement on Riba (23December 1999) Given by the Supreme Court of Pakistan (Islamabad: Islamic BookTrust).Visser, Wayne A. M. and Macintosh, Alastair (1998) A short review of the historical 33critique of usury 8(2) Accounting, Business and Financial History 175-189Wilson, Rodney, (1987) Islamic banking: the Jordanian experience, 3(2) Arab LawQuarterly 207-229 September 24, 2010 Wali Memon | wali.memon@gmail.com