Exploratory study of Islamic micro finance in Islamic Development Bank

Abstract

The study analyses activities of different arms of IDB Group working on Islamic microfinance to offer financial services to the poor and low-income people whose economic standing and other reasons have excluded them from accessing formal financial systems. The Islamic Development Bank (IDB) is actively involved in promoting Islamic microfinance. This study examines the role which the Islamic Development Bank plays through its various financing programmes related to microfinance.

Islamic microfinance is a gradually emerging field and becoming an indispensable element in financial inclusion effort, with the objective of poverty alleviation and helping the vulnerable population. As part of its efforts in poverty alleviation, the Islamic Development Bank (IDB) is mainly financing government-supported microfinance projects as well as other development projects with microfinance component.

The projects are managed by several departments and entities of the IDB Group, namely: Agriculture and Rural Development (AGR) Department, Islamic Financial Services Industry (IFS) Department, Human Development Department (HDE), Trust Fund Department, Islamic Solidarity Fund Development (ISFD), and Islamic Research and Training Institute (IRTI).

Islamic MFIs, assisted by IDB, operate through several Islamic modes of financing such as qardh hassan, murabaha, salam, ijarah, mudarabah, and musharakah. Aside from its own capital and financing from IDB, some of the MFIs also obtain funds from religious institutions such as waqf, zakat, and other.