Abstract
Although the global microfinance sector has expanded rapidly over recent years, financial exclusion remains high, particularly in many Muslim-majority countries. In this context, Islamic microfinance has emerged as a potential remedy for the religious constraints that restrict some Muslims from engaging in interest-based microfinance. However, the development of Islamic microfinance has been challenging, with many institutions struggling to develop practical and financially sustainable operating models. Akhuwat Islamic Microfinance from Pakistan is a notable exception and its simple, yet innovative, approach is widely welcomed. This paper analyses Akhuwat’s experience within a framework of essential questions that were identified by the panellists of a thematic session at the fifth European Research Conference on Microfinance.
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Notes
- 1.
The fifth European Research Conference on Microfinance took place in Portsmouth, UK, from 12 to 14 June 2017. The conference was hosted by the University of Portsmouth, who co-organised the event with the European Microfinance Platform (Luxembourg) and the Research Centre for Microfinance (Belgium), known by its acronym CERMi.
- 2.
It should be noted that despite this comparative worse performance, the figures show a clear improvement regarding the data from the previous waves of the survey in 2014 and 2010. Data from the Global Findex Survey on Financial Inclusion is available at https://globalfindex.worldbank.org/
- 3.
The University of Portsmouth is one of the partners participating in the Lendwithcare evaluation project. For more information about Lendwithcare, please see https://www.lendwithcare.org
- 4.
Zakat is an obligatory almsgiving for all Muslims who meet the necessary criteria of wealth. While zakat funds can be used to cover the operational costs of organisations that assist the poor, they cannot be used to fund loans. Sadaqah is a voluntary charitable donation and can be used for both loan capital and to cover operational costs. Waqf is an endowment (usually a building or plot of land) or a trust set up for charitable purposes. It involves tying up a property or fund in perpetuity so that it cannot be sold, donated or inherited by anyone. An IMFI can, for example, use the rent from letting a property to finance its operations.
- 5.
According to personal communication with Project Manager, Akhuwat, 22 June 2018. Altogether, Akhuwat employs approximately 7500 staff.
- 6.
The information is available online in the quarterly editions of MicroWatch (No. 33 and 45), a publication of the Pakistan Microfinance Network (http://www.pmn.org.pk/publications/category/MicroWatch).
- 7.
Personal communication with Project Manager, Akhuwat, 24 May 2018.
- 8.
Khan, Kustin, and Khan (2017) also observe that interest-free loans are not exclusively Islamic either. For example, gemach or ‘acts of kindness’ is a Jewish interest-free loan fund with easy repayment terms and similar to qard hasan.
- 9.
There are several verses in the Qur’an that encourage Muslims to provide qard hasan loans to ‘those who need them’. For example, ‘Establish regular prayer and give regular charity and give Allah qard al hasan’ (Surah 73, Verse 20). Indeed, qard hasan loans are considered as if they were made to Allah, rather than the borrowers, to encourage lenders to part with their wealth.
- 10.
The final report of the project is available at http://www.careevaluations.org/wp-content/uploads/Impact-Assessment-Report-Pakistan-Joana-Afonso.pdf
- 11.
The Poverty Probability Index (PPI) is a poverty assessment tool initially developed by Mark Schreiner for the Grameen Foundation, and currently managed by the Innovation for Poverty Action (IPA). PPI is based on a country-specific questionnaire with 10 multiple-choice questions on household characteristics and assets ownership. More information available at https://www.povertyindex.org/
- 12.
The analysis was based on the application of quantile regression methods to assess the impact of different factors, including the access to the microcredit loan, in the variation of the PPI scores. The access to the microcredit loan was statistically significant (at 1% significance level) for the group of respondents in quartile 3, meaning those who have experienced stronger improvements in the PPI scores.
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Silva Afonso, J., Khan, A.A. (2019). Islamic Microfinance: Exploring the Experience of Akhuwat in Promoting Qard Hasan in Pakistan. In: O'Connor, M., Silva Afonso, J. (eds) Emerging Challenges and Innovations in Microfinance and Financial Inclusion . Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-030-05261-4_4
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