The key players’ perception on the role of Islamic microfinance in poverty alleviation

2015 ◽  
Vol 6 (2) ◽  
pp. 244-267 ◽  
Author(s):  
Kausar Abbas ◽  
Nasim Shirazi
Keyword(s):  
Low Income ◽  
Poverty Alleviation ◽  
Business Community ◽  
Islamic Banking ◽  
Top Management ◽  
Islamic Banks ◽  
Content Type ◽  
The Poor ◽  
Key Players ◽  
Islamic Microfinance

Purpose – This study aims to know the present structure and move of the Islamic banks of Pakistan as well as current issues and challenges for Islamic microfinance. However, this is based on perceptions of the Islamic bankers, regulators and micro-entrepreneurs and petty traders, as they are the key players in the credit market. Design/methodology/approach – The study gathered relevant information through conducting field survey. Two questionnaires were designed for the survey. One questionnaire was administered to survey 270 micro-entrepreneurs and petty traders in three major cities of Pakistan. Another survey deals with the perceptions of Islamic bankers. In total, 100 people from middle and top management were surveyed from five full-fledged Islamic banks of Pakistan. The SPSS software, version 16, was used for questionnaire reliability and descriptive analysis to analyse the data. Findings – In general, the study found the strong opinions of the respondents speak in favour of Islamic microfinance under a system of profit and loss sharing. Conversely, the majority of the clients also feel that Islamic banks do not encourage lower-income micro-entrepreneurs. In addition, the study found that Islamic microfinance is constrained by lack of knowledge, experience and professionalism of the supporting staff; however, Islamic bankers have shown great consensus that Islamic banks should offer Islamic microfinance products and instruments to respond to the needs of the poor for poverty alleviation. Research limitations/implications – The first limitation of the study is the meagre interest of micro-entrepreneurs and petty traders to participate in the survey. The second limitation of this work concerns the extremely busy schedule of top management and administrative impediment to approach and fix an appointment. Despite these limitations, the findings of this study provide insights to Islamic banks in diversifying their products by offering Islamic microfinance to the low-income entrepreneurs but with proper guidelines and policies. Practical implications – There is a need to educate the community towards the merits of Islamic banking system by developing a good information system using good visuals and professionally presented seminars, banners and arranging regular sessions with the business community. The growth and development of Islamic banking in the country largely depend on its customers’ enhanced knowledge and awareness about its products and services. Social implications – It is the responsibility of the community as well as of government to change the mindset of the poor that banks are meant to serve the interest of everybody, regardless of social, economic and political status. Originality/value – Theoretically, this study contributes to the existing body of knowledge in the area of Islamic microfinance by examining the perceptions of Islamic bankers and micro-entrepreneurs. This can help Islamic banks of Pakistan to design and formulate new administrative as well as operational procedures to serve the interest of the poor with commitment towards Islamic values.

Banking for the poor: the role of Islamic banking in microfinance initiatives

Humanomics ◽  
2008 ◽  
Vol 24 (1) ◽  
pp. 49-66 ◽  
Author(s):  
Asyraf Wajdi Dusuki
Keyword(s):  
Islamic Banking ◽  
Financial Risks ◽  
Islamic Banks ◽  
Content Type ◽  
Special Purpose Vehicle ◽  
The Poor ◽  
Proposed Model ◽  
Intermediary Role ◽  
Institutional Viability

PurposeThe main purpose of this paper is to review the microfinance scheme and discuss how Islamic banks can participate in such an endeavour without actually compromising the issue of institutional viability and sustainability.Design/methodology/approachThe paper is based on an extensive review of microfinance with the objective of building a case for Islamic banking to participate in a microfinance initiative.FindingsAs reviewed in this paper, microfinance requires innovative approaches beyond the traditional financial intermediary role. Among others, building human capacity through social intermediation and designing group‐based lending programmes are proven to be among the effective tools to reduce transaction costs and lower exposure to numerous financial risks in relation to providing credit to the rural poor. This paper also suggests the use of a special purpose vehicle (SPV) as one of the possible alternatives for Islamic banks channelling funds to the poor.Research limitations/implicationsIslamic banks may benefit from the spectrum of Shariah‐compliant sources of funds and offer a wide array of financing instruments catering for different needs and demands of their clients. Furthermore, the use of a bankruptcy‐remote entity like SPV can protect Islamic banks from any adverse effect of microfinance activities.Originality/valueThe analysis here is valuable in drawing the attention of Islamic banking practitioners to the fact that they can actually practise microfinance without undermining their institutional viability, competitiveness and sustainability. This is evident from the proposed model to incorporate SPV into their microfinance initiatives.

scholarly journals Microfinance: Viable Approaches for Islamic Banking Implementation

2015 ◽  
Vol 2 (3) ◽  
pp. 192
Author(s):  
Wan Noor Hazlina Wan Jusoh ◽  
Anita Md. Shariff
Keyword(s):  
Low Income ◽  
Income Group ◽  
Debt Financing ◽  
Islamic Banking ◽  
Islamic Banks ◽  
The Poor ◽  
Banking Institutions ◽  
Islamic Identity ◽  
Operational Frameworks ◽  
Religious Obligation

Islamic banks have very much engaged in debt financing businesses the same way and as much as their conventional counterparts do.  Debt financing businesses, as widely implemented, were specifically targeted for and tailored to the needs of middle and upper income group of people.  The low income people remain left out and forgotten in most banking businesses while microfinance instruments, which are meant to help the poor and needy, remain unpopular among the banking institutions. There is indeed increasing calls for Islamic banks to seriously consider this type of instrument as part of their religious obligation embedded under their Islamic identity. This paper demonstrated that microfinance instruments are viable for Islamic banks to consider despite the claims that the contracts are less secured and hence, too risky to embark in.   A number of microfinance instruments based on Islamic concepts namely Musyarakah, Murabahah, Mudharabah, Ijarah and Qard al-Hassan as well as operational frameworks such as SPV and wakalah, were being proposed and discussed to pave ways for its implementation by the Islamic banks.

scholarly journals INCOME INEQUALITY AND REGIONAL INDEX OF FINANCIAL INCLUSION FOR ISLAMIC BANK IN INDONESIA

2019 ◽  
Vol 11 (1) ◽  
Author(s):  
Prastowo Prastowo ◽  
Diyah Putriani
Keyword(s):  
Income Inequality ◽  
Low Income ◽  
Poverty Alleviation ◽  
Regional Level ◽  
Financial Inclusion ◽  
Islamic Banking ◽  
Islamic Banks ◽  
Limited Access ◽  
Income Household ◽  
Regional Index

This research is proposed to measure financial inclusion index in 2 dimensions (2D-FII) in Indonesia Islamic banks. This research contributes on the measurement 2D-FII in regional level in Indonesia. The result shows that value of FII in Islamic banking in Indonesia is still low. Previous works show one of the determinant on increasing inequality in any country is a limited access to financial sector, especially for low income household (Akimov, Wijeweera, and Dollery 2006; Kenourgios and Samitas 2007; Levine 2003; D. Park and Shin 2015).  In other words, low level of FII in Indonesia perhaps is caused by inequality of income. Therefore, this research recommends policymaker to have more concern on poverty alleviation program and open new Islamic banks branches in the regional level.

Enhancing the role of Baitul Maal in giving Qardhul Hassan financing to the poor at the bottom of the economic pyramid

2019 ◽  
Vol 10 (3) ◽  
pp. 382-391
Author(s):  
Permata Wulandari
Keyword(s):  
Qualitative Analysis ◽  
Poverty Alleviation ◽  
Design Methodology ◽  
Content Type ◽  
The Poor ◽  
The People ◽  
Microfinance Institution ◽  
Islamic Microfinance

Purpose Baitul Maal wa Tamwil (BMT) is an Islamic microfinance institution created by combining the functionality of Baitul Maal and Baitul Tamwil in Indonesia. While Baitul Maal plays the role of an institution that collects funds from zakah, cash waqf, infaq and sadakah, Baitul Tamwil then distributes these funds in the form of Qardhul Hassan financing to the poor at the bottom of the economic pyramid (BOP). This study aims to explain the poverty alleviation effort by BMT regarding its role in providing Qardhul Hassan financing to the people at the BOP and provide practical suggestions to maximize the outreach performance of the BMT. Design/methodology/approach In this methodology, the study adopts the qualitative analysis of reviewing the literature and interviewing the BMT staff in Jakarta, Makassar and Nusa Tenggara Barat areas to present the views of the practitioners related to the role of Baitul Maal in giving Qardhul Hassan financing to the people at the BOP using appreciative intelligence framework. Findings The study finds that BMT in Indonesia needs several stage-specific structures and roles to be effective. In particular, there is a need to separate the function of Baitul Maal from Baitul Tamwil to enhance its role when giving Qardhul Hassan financing to the people at the BOP. The role of Baitul Maal in alleviating the poverty figure is also drawn in this study. Originality/value The findings of this study add to the literature on Baitul Maal by enabling researchers and practitioners to appreciate the role of Baitul Maal, and these findings also contribute towards enriching the knowledge in Baitul Maal and financing requirements of the poor at the BOP. This paper also contributes to the field of Islamic accounting which is currently getting prominent.

Loyalty towards Islamic banking: service quality, emotional or religious driven?

2019 ◽  
Vol 11 (1) ◽  
pp. 66-80 ◽  
Author(s):  
Dwi Suhartanto ◽  
Christopher Gan ◽  
Ira Siti Sarah ◽  
Setiawan Setiawan
Keyword(s):  
Service Quality ◽  
Customer Loyalty ◽  
Structural Equation ◽  
Islamic Banking ◽  
Emotional Attachment ◽  
Islamic Banks ◽  
Content Type ◽  
Perceived Service Quality ◽  
Islamic Bank ◽  
Bank Managers

Purpose This paper aims to integrate and examine three loyalty routes (i.e. service quality, emotional attachment and religiosity) in developing customer loyalty towards Islamic banking. Design/methodology/approach Data were collected from 412 Islamic bank customers from Indonesia. Variance-based structural equation modelling was applied to evaluate the association between service quality, emotional attachment, religiosity and customer loyalty. Findings This study reveals that customer loyalty is more driven by emotional attachment and religiosity rather than by perceived service quality. Although not directly affecting customer loyalty, service quality strengthens customer satisfaction towards Islamic banks. Practical implications This study provides an opportunity for Islamic bank managers to increase their customer loyalty through the development of emotional attachment and religiosity. To improve customer loyalty, this study suggests that Islamic banks have to provide prompt, accurate and non-personal service. It is also important for Islamic bank managers to keep the bank operation compliant with the Sharia law. Originality/value This study is the first attempt to assess the three loyalty routes simultaneously in influencing customer loyalty.

Is Islamic bank profitability driven by same forces as conventional banks?

2016 ◽  
Vol 9 (1) ◽  
pp. 46-66 ◽  
Author(s):  
Hajer Zarrouk ◽  
Khoutem Ben Jedidia ◽  
Mouna Moualhi
Keyword(s):  
Dynamic Panel Data ◽  
Islamic Banking ◽  
Subprime Crisis ◽  
Islamic Banks ◽  
Mena Region ◽  
Bank Profitability ◽  
Content Type ◽  
Large Sample ◽  
Islamic Bank ◽  
Conventional Banks

Purpose The purpose of this paper is to ascertain whether Islamic bank profitability is driven by same forces as those driving conventional banking in the Middle East and North Africa (MENA) region. Distinguished by its principles in conformity with sharia, Islamic banking is different from conventional banking, which is likely to affect profitability. Design/methodology/approach The paper builds on a dynamic panel data model to identify the banks’ specific determinants and the macroeconomic factors influencing the profitability of a large sample of 51 Islamic banks operating in the MENA region from 1994 to 2012. The system-generalized method of moment estimators are applied. Findings The findings reveal that profitability is positively affected by banks’ cost-effectiveness, asset quality and level of capitalization. The results also indicate that non-financing activities allow Islamic banks to earn higher profits. Islamic banks perform better in environments where the gross domestic product and investment are high. There is evidence of several elements of similarities between determinants of the profitability for Islamic and conventional banks. The inflation rate, however, is negatively associated with Islamic bank profitability. Practical Implications The authors conclude that profitability determinants did not differ significantly between Islamic and conventional banks. Many factors are deemed the same in explaining the profitability of conventional as well as Islamic banks. The findings reported in the current paper might be of interest for policy makers. It is recommended to better implement non-financing activities to improve Islamic bank profitability. Originality/value Unlike the previous empirical research, this empirical investigation assesses the issue whether Islamic banks profitability is influenced by same factors as conventional model. It enriches the literature in this regard by considering the specificities of Islamic banking to identify the determinants of profitability. Moreover, this study considers a large sample (51 Islamic banks) through a different selection of countries/banks than previous studies. In addition, the period of study considers the subprime crisis insofar it ranges from 1994 to 2012. Hence, this broader study allows the authors to draw more consistent conclusions.

The consumers’ commitment and materialism on Islamic banking: the role of religiosity

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Junaidi Junaidi ◽  
Ready Wicaksono ◽  
Hamka Hamka
Keyword(s):  
Structural Equation ◽  
Survey Study ◽  
Equation Modeling ◽  
Islamic Banking ◽  
Islamic Banks ◽  
Content Type ◽  
Positive Effects ◽  
Islamic Bank ◽  
Muslim People ◽  
The Impact

Purpose This paper aims to investigate whether and how religiosity (e.g. extrinsic and intrinsic) influences the mediator variables (consumers’ commitment and materialism) in the Islamic bank consumers context. It also examines how the mediators should be influence consumers’ preferences. Design/methodology/approach In total, 658 Muslim people and Islamic bank consumers were recruited for a survey study and structural equation modeling was used to test the research hypotheses. Findings The empirical results indicate that religiosity (e.g. extrinsic and intrinsic) has significant and positive effects on consumers’ commitment and materialism, whereas intrinsic religiosity has no significant effect on consumers’ commitment which subsequently influences consumers’ preference. Furthermore, mediator variables (e.g. consumers’ commitment and consumers’ materialism) have partial mediators between religiosity and consumers’ preferences. Research limitations/implications The current study was limited to Indonesian Muslim people; there is a future need to study consumers’ attitudes and engagement in religious products and services (e.g. Islamic brands). It is can help practitioners, regulators and researchers to observe the dynamic behavior to elaborate on the impact of religion and Islamic products on consumers’ preference. Practical implications The bank managers and regulators should enhance the information of products and services Islamic banks and the difference principle between conventional banks. Moreover, enlighten the consumers about the principle operation of Islamic banks from the perspective of marketing and religiosity. Originality/value This study contributes to consumers’ behavior literature and, specifically, for the decision-making process through developing and testing a model of religious determinants toward Islamic bank products, as well as offers new insights into the determinants of religion and consumers’ decision process toward Islamic banking.

Drawing ethical mentation in Islamic banks; addressing operational lines heterogeneity with special reference to Al-Ghazali’s ethical philosophy

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Shinaj Valangattil Shamsudheen ◽  
Saiful Azhar Rosly ◽  
Syed Abdul Hamid Aljunid
Keyword(s):  
Decision Making ◽  
Special Reference ◽  
United Arab Emirates ◽  
Partial Least Square ◽  
Islamic Finance ◽  
Islamic Banking ◽  
Islamic Banks ◽  
Content Type ◽  
Ethical Philosophy ◽  
Divine Knowledge

Purpose This study aims to examine the decision-making behaviour of Islamic banking practitioners of the United Arab Emirates with special reference to the operational line heterogeneity by employing factors that are religious in nature such as intellect, satanic force and divine knowledge as encapsulated in al-Ghazali’s ethical philosophy. Design/methodology/approach A total of 337 samples were collected from the Islamic banking practitioners in the United Arab Emirates using a purposive sampling technique, and the empirical analysis was conducted with the measures of model fit and bootstrapping technique using Partial least square Structural equation modelling and multi-group analysis. Findings The empirical findings reveal that the dedicated use of intellect in making decisions related to ethical issues where desires and emotions tend to overwhelm reason and human choices. While divine knowledge is found ineffective guidance of the intellect, the element of satanic force is found significantly impacting decision-making. As the lack of religious consciousness is evident among respondents, higher exposure to operational risk is expected. These findings were found identical across the Islamic banking practitioners in different lines of operations. Research limitations/implications The span of the study is limited to a single country. Future studies are recommended to replicate the study to more markets where the share of Islamic finance is significant. Practical implications Findings of the study highly suggest respective authorities of Islamic financial institutions to intensify the capacity-building programs on the foundation of faith which includes Islamic thought and worldview, to enhance the corporate ethical decision-making. Moreover, equal importance should be given to all the banking practitioners regardless of line of business operations. Originality/value With undue emphasis is given to the juristic (fiqh) aspects of Shariah compliance in the Islamic banking and finance industry, less has been attempted to explore its ethical dimension (akhlaq) in the compliance parameters that leave a relatively large gap to address prevailing unethical practices in Islamic finance institutions. Findings from this study can be useful as a warning to the Islamic banking firms to enhance the sense of God-fearing and improve existing measures in the organisation in mitigating operational risks that may arise from people or system and consequently ensure the smooth governance of the Islamic banks.

Identifying the gaps between customer expectations and perceptions on service quality dimensions of Islamic banks in Malaysia

2015 ◽  
Vol 7 (4) ◽  
pp. 424-441 ◽  
Author(s):  
Rafikul Islam ◽  
Selim Ahmed ◽  
Dzuljastri Abdul Razak
Keyword(s):  
Service Quality ◽  
Age Groups ◽  
Educational Background ◽  
Islamic Banking ◽  
Islamic Banks ◽  
Content Type ◽  
Customer Expectations ◽  
Banking Service ◽  
Significant Difference

Purpose – This paper aims to identify the gaps and differences between customer expectations and perceptions on service quality of Islamic banks in Malaysia based on six dimensions of service quality, namely, reliability, responsiveness, assurance, empathy, tangibles and Islamic Shari’ah compliance. Design/methodology/approach – This study surveyed 179 customers who have first-hand experience with Islamic banking services in Malaysia. The research data were analysed using reliability analysis, independent samples t-test and one-way analysis of variance. Findings – The results indicated that customers’ perceptions failed to meet their expectations on the service quality of Islamic banks in Malaysia. The results also indicated that those customers (respondents) aged below 30 years have higher expectations on empathy from the Islamic banking service compared to other age groups. However, there is no significant difference between customer expectations and perceptions of Islamic banking service quality based on educational background and occupation. Research limitations/implications – This research focused solely on Islamic banks in Malaysia and thus the results might not be applicable for other conventional banks. Originality/value – The findings are expected to provide guidelines for enhancing the satisfaction level of clients of the Islamic banking system in Malaysia and other countries.

scholarly journals INTEREST FREE MICROFINANCE: A GATEWAY OF FINANCIAL INCLUSION FOR KERALA

2016 ◽  
Vol 4 (4SE) ◽  
pp. 51-58
Author(s):  
Fazal Muhammed
Keyword(s):  
Low Income ◽  
Financial Services ◽  
Household Income ◽  
Poverty Alleviation ◽  
Development Process ◽  
Financial System ◽  
Economic Security ◽  
Local Economies ◽  
Goods And Services ◽  
The Poor

Microfinance is a powerful poverty alleviation tool. It implies provision of financial services to poor and low-income people whose low economic standing excludes them from formal financial systems. Access to services such as, credit, venture capital, savings, insurance, remittance is provided on a micro-scale enabling participation of those with severely limited financial means. The provision of financial services to the poor helps to increase household income and economic security, build assets and reduce vulnerability; creates demand for other goods and services; and stimulates local economies. A large number of studies on poverty however, indicate that exclusion of the poor from the financial system is a major factor contributing to their inability to participate in the development process. In a typical developing economy the formal financial system serves no more than twenty to thirty percent of the population. The vast majority of those who are excluded are poor.

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