Islamic Credit Union: An Inclusive Financial Institution to Meet the Needs of the Community

Abstract

Islam is a practical way of life for humanity with its own systems in every aspect of life whether cultural, social, political or economic. In the economic sphere, Muslim societies around the globe have inherited mostly interest-based feudal, capitalist or socialist economic systems. As there is no working model, Muslim economists and scholars have made considerable efforts to develop their own Shari'ah-compliant economic model and financial institutions. Since 1960's, the Islamic finance industry has grown exponentially to surpass the USD 2.1 tln mark end 2014. The Islamic banking and Sukuk sectors dominate the Islamic finance industry (approximately 80% and 15% respectively) while Islamic microfinance has less than 1% market share. Islamic financial institutions are often criticized for operating or mimicking the capitalist mode for offering nothing more than a modified conventional loan. It is also questioned whether Islamic financial institutions have indeed contributed to achieve the objectives of Islamic economics alongside a healthy and growth-oriented economy where the necessities of life and spiritual peace are available to society at large. The purpose of this paper is to propose an inclusive financial institution model (Islamic Credit Union), based on cooperative and Islamic financial principles, which is a community-based institution. Such a model has so far received only sporadic attention in the market. The paper also presents the status of Islamic Credit Unions worldwide and discusses the legal and operational framework and opportunities of the Islamic Credit Union model.

Longitudinal Study of Credit Union Research: From Credit‐Provision to Cooperative Principles, the Urban Economy and Gender Issues

“…Indeed, this paper contributes to summarize the main characteristics of financial cooperativism, without forgetting the nature of each society in which it is implemented. In other words, this bibliometric research has yielded the required results to compare the morphology of Western cooperativism versus other historical movements in other countries as is the case of Turkey [130,131], which dates back to 1863. e strong linkage of financial cooperatives with Islamic Banking and Finance has been underlined [19], therefore and again in practice, public authorities have to facilitate the creation of Islamic credit cooperatives such as Al Barakah Multi-purpose Co-operative given that it is somewhat ironic that Islamic banking is becoming more and more popular in non-Islamic countries, while in several Islamic countries like Mauritius there is still a long way to go [132], whilst initiatives such as "Halal tourism" are starting to be successfully implemented.…”

“…Credit unions found broad support from specific sectors of the Catholic Church from the perspective of Catholic social teaching [18]. Likewise, it has been perfectly assimilated by contemporary Islamic Banking and Finance by creating inclusive financial institutions in line with the principles of this religion [7,19].…”