An Islamic Non-Banking Financial Institution for Accelerated Poverty Eradication

Poverty eradication, acknowledged since WWII as a global responsibility, received increasing attention during 1980s and 1990s, culminating in UN’s adoption of the Millennium Development Goals in 2002. Although microcredit’s success in alleviating poverty has now been recognized worldwide, it has two main weaknesses - high interest rates and, for Muslim clients, shari‘a non-compliance. Of several approaches evolved through a search for Islamic alternatives, two are controversial - reinterpreting microcredit’s interest as shari‘a-compliant and using zakat/waqf to subsidize MFI’s overheads for reducing interest rates. A third approach, using murabaha or bay‘-muajjal, seems uncomfortably close to conventional interest-based products. This article suggests a fourth approach, drawing upon universal teachings of Prophet Mohammad (SAW), by combining zakat and musharaka investments on an NBFI platform - and using these for selected projects, ensuring a steady stream of dividends and employment