Islamic Microfinance and Poverty Alleviation : An Empirical Ascertainment from Pakistan

Abstract

Islamic Microfinance (IMF) is an emerging mode for empowering the poor. The current study has been devised to observe the implications of IMF on the assets and poverty status of the households who borrowed from three pioneering organizations i.e. Akhuwat Foundation, Farz Foundation and NAYMAT based in Lahore, Punjab, Pakistan. Pre and post project approach was rendered to observe the impacts of microfinance on the targeted respondents. In this regard, purposive sampling was employed for data collection to avoid randomized error where self-administered structured questionnaires were used for data collection. Foster, Greer and Thorbecke measures of poverty assessment were used to achieve the objectives of the study. Results exhibited positive impacts of Islamic microfinance on the lives of the poor. This study is a contribution in the literature as there is no empirical study about the impact casted by the Islamic microfinance in Pakistan.

The Role of Micro, Small, and Medium Enterprises Toward Sustainable Development Goals Through Islamic Financial Institutions

“…The Islamic finance serves as a financial intermediary for MSMEs to build local structures that help MSMEs to grow progressively [42].…”

Islamic Micro Finance and Its Impact on Poverty Reduction of Two Village Models in Bogor, Indonesia

“…This is in accordance with the conditions in the field, that micro businesses are educated better able to manage and develop its business so that it will have positive impact on the profits they get. Mahmood et.al. (2015) find that the Islamic microfinance had a positive impact on the lives of the poor.…”

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“…They document that access to Islamic microfinance led to improve the living standards of poor and enhance their sustainable livelihood Indeed, Islamic microfinance institution is based on Maqassid Shariah which is insisting on the practice of moral and ethical aspects towards people, especially the vulnerable and the needy. Thus, it is going beyond just a profit-making institution but also a social and moral institution that can uplift and enhance the economic status of the vulnerable population (Mahmood et al, 2015). In fact, the principles of microfinance have been settled by Muhamed Yunus, who come out with the idea of microfinance in 1976 and got the Nobel prize in 2006, which are mainly about helping poor in making an investment with micro-credits and loans that will be paid later through regulated installments (Rahman, 2010).…”

“…Several studies have agreed on the crucial role played by microfinance in alleviating poverty in different contexts, mainly Bangladesh, Sub-Saharian African countries (Al-Shami, Majid, Rashid, and Hamid, 2013;El-Komi and Croson, 2013;Khaki and Sangmi, 2017;Lal, 2018;Murshid, 2018), enhancing financial inclusion (Alaro & Alalubosa, 2018;Hassan, 2015; Maouloud, M.V., Kassim, S., & Othman, 2019;Singh & Yadav, 2012), and empowering women (Hassan and Saleem, 2017;Murshid, 2018). Notwithstanding, that Islamic microfinance has proved its role in enhancing the well-being of less-affluent, the conventional microfinance has been criticized as not an effective tool to alleviate poverty due to the high rate of interest that is charged to the poor (Bourhime and Tkiouat, 2018;Mahmood, Fatima, Khan, and Qamar, 2015). In addition to that, a lot of Muslim people around the world have the reason of religiosity as a barrier from benefiting from conventional microfinance (Hassan, 2015;Mansori, Kim, and Safari, 2015;Wilson, 2007).…”