The document discusses the role of Islamic microfinance in poverty alleviation. It begins by establishing assumptions about poverty alleviation being a worthy goal and Islamic microfinance helping to reduce poverty. It then poses questions about why the large Islamic finance industry has not seen more social investment, whether Islamic finance innovation should include poverty alleviation, and if Islamic institutions have an obligation to invest in economic development. The document outlines how Islamic microfinance aims to make people self-reliant through practices like entrepreneurship and profit sharing. It acknowledges challenges to Islamic microfinance like high costs, funding, and asymmetric information. Finally, it provides an example of the Chicago Islamic Microfinance Project which aims to offer Sharia-compliant financing to revitalize neighborhoods

1. The Role of Islamic
Microfinance in
Poverty Alleviation
Karen Hunt-Ahmed
DePaul University
Fourth UC Berkeley Islamic Finance Forum
April 9, 2011

2. Assumptions
• Poverty alleviation is a worthy goal.
• Islamic microfinance can help alleviate poverty.

3. You may ask…
• With the Islamic finance industry pushing $1 trillion,
why have we not seen larger scale social
investment?
• Should Islamic finance “innovation” include
innovative ways to alleviate poverty?
• Because an institution is “Islamic” does this mean it
has a particular obligation to invest in economic or
community development?
• How does the the concept of Islamic microfinance
operate to serve the goal of poverty alleviation?

4. Why now?
With the Islamic finance industry pushing $1 trillion, why
have we not seen larger scale social investment?
• Islamic Finance industry development and awareness
• Microfinance industry development and awareness
• Financial crisis
• Attention to business ethics
• Attention to human capital
• Is available in developing world
• Needs support from developed economies

5. Innovation?
Should Islamic finance “innovation” include innovative
ways to alleviate poverty?
• Entrepreneurship
• Distribution of wealth
• Social development goals
• Financial structures
• Repayment incentives
• Why not?

6. Special obligation?
Because an institution is “Islamic” does this mean it has a
particular obligation to invest in economic or community
development?
• Social and human development goals of IF, but…
• Corporate social responsibility (Friedman)
• Does “Islamic” refer only to financial structures?
• Not everyone agrees

7. Poverty alleviation?
How does the the concept of Islamic microfinance
operate to serve the goal of poverty alleviation?
“I think that there is a common goal in Islam and
microfinance which can be summarized in making people
self reliant, enterprising and self respecting. A solution to
achieve the target of poverty eradication is by practicing
microfinance in an Islamic way.” (DP/BIBF student)

8. Islamic Finance and Microfinance:
Similarities
• Combine principle of social justice with financial services:
worldwide trend
• Sensible risk management
• Link real economic activity to financing structure.
• Emphasize human development as well as profit
maximization.
• Outcome benefits society.

9. Challenges to IslMF
• Community education
• High transaction costs
• Funding sources
• Legal structures
• Asymmetric information
• One suggestion…

10. Chicago Islamic Microfinance Project,
NFP
Karen Hunt-Ahmed Cynthia Shawamreh

11. CIMFP Mission
• Revitalize economically depressed neighborhoods
in Chicago
• Offer Shariah-compliant equity and debt based
microfinance
• Promote community health, education and well
being of women and children
• Demonstrate the capacity of alternative financing
models to have a positive social and economic
impact
• Promote higher education of Islamic finance and
Microfinance

12. Vision: meet challenges
• Administered by professors and students at a
Chicago- based university to maximize transaction
cost efficiencies
• Provide students with direct practical training
experience in the Islamic finance industry.
• Revolving investment financing fund (the “Fund”)
• Individual community members
• Community groups
• Foundations
• Corporate donations
• Pro bono legal support (SNR Denton; Mayer Brown)
• Supportive services to encourage successful
business development and build community and
reduce information asymmetry

13. Islamic Vision
• "Islamic" part of it is related to:
• financing structures, but also to
• the idea of building community through
empowering people who don't have access to
conventional banking.
• Customers don't have to be Muslim.
• It is also (we hope) good public relations to have
an "Islamic" organization involved in economic
development.

14. Where?
• Currently most Islamic microfinance is located in the
developing world.
• We believe that the model should be developed in
the developed world.

15. Why?
• Transaction costs are very high in the US; stricter
regulation will discipline the industry to lower
transaction costs; these efficiencies can be
transferred to the developing world.
• Donor fatigue: Funding sources available in the
developed world through locals concerned with
community and economic development.
• Integration and acceptance into US society

16. In sum…
“If they take money from charity, they use the money to
live. Therefore, they will keep on asking for more charities.
When small loans are given to them they try to find ways to
generate income out of it to solve the actual root of the
problem which is income generation.”
(DePaul/BIBF student Jan. 2011)

17. Thank you!
khuntahm@depaul.edu