An Application of Islamic Banking Principles to Microfinance. A Study by the Region Bureau for Arab States

The author gives a brief summary on Islamic Banking’s objections to conventional banking and provides a detailed analysis of various contracts within the scope of Islamic Banking, as well as the different kinds of transactions. Microfinance is a powerful tool for reaching the poor by raising their living standards, creating jobs, and contributing to economic growth. More needs to be done to reach the 4.5 million entrepreneurial poor in the Middle East and North Africa. As of today, only Egypt’s National Bank is an active participant in the microfinance industry. Within the field of Islamic Banking, the three basis instruments of trustee financing, equity participation, and cost plus markup could have a successful microfinance program built into them. Borrower feedback implies that the profit-sharing mechanism is the most widespread methodology as well as the one most people are comfortable with. If a program like that would be created, it would have to account for the administrative co