Definition of Islamic microfinance

Microfinance has become a critical tool in tackling poverty and aiding development through building the capacity for poor people to enjoy greater self-sufficiency and sustainability by granting them access to financial services.

These are the aims of Islamic moral economy as well - serving social interest along with individual interest. Islamic microfinance is a new area within Islamic finance, whereby Islamic banks provide financing to financially excluded individuals.

Islamic microfinance fits into the asset-based economic paradigm and equity objective of Islamic moral economy as well as fulfilling all other social expectations.  Thus, there is a compability and complementarity between the objectives and operational mechanism of microfinance and of Islamic finance.  However, other than a few exceptions, Islamic banks have shunned away from microfinance.  On the other hand, Indonesian and Bangladeshi cases can be considered as success stories in Islamic microfinance. [1]

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