Poverty alleviation through financing microenterprises with equity finance

2017 ◽  
Vol 8 (1) ◽  
pp. 87-99 ◽  
Author(s):  
Salman Ahmed Shaikh
Keyword(s):  
Adverse Selection ◽  
Poverty Alleviation ◽  
Islamic Finance ◽  
Equity Financing ◽  
Content Type ◽  
Debt Finance ◽  
Monitoring Costs ◽  
Enterprise Level ◽  
Islamic Microfinance ◽  
Equity Finance

Purpose This paper aims to achieve scale, efficiency and mitigate high monitoring costs, and explores the efficacy of micro equity finance at the enterprise level. The study compares the economic features of the proposed framework with interest-based debt finance. Design/methodology/approach This study uses a mathematical model to highlight the problem of agency costs including adverse selection and moral hazard. Findings Debt finance requires frequent repayments and indebtedness for financial inclusion. Conversely, the Islamic equity modes of financing in their current baseline structure suffer from high agency costs. By using enterprise level finance and distinct entry criterion for availing Islamic debt-based and micro equity finance, Islamic microfinance institutions (IMFIs) can reach the right targets and effectively mitigate the problem of adverse selection and high monitoring costs. The study suggests a framework in which equity financing could be used to fund microenterprises that will employ poor people with related skills. Research limitations/implications As the preferable modes of Islamic finance, i.e. Musharakah and Mudarabah, are not used by Islamic financial institutions (IFIs), empirical analysis of performance is not possible as they are rarely used. Practical implications The study suggests a workable model that can use Islamic equity-based modes of financing to improve microfinance outreach and achieve scale. The use of equity financing will help the Islamic finance industry to move toward its egalitarian vision, and the practical implementation of the model will help in reducing poverty in the Muslim majority countries. Social implications Muslim countries host half of global poverty, even though their share in global population is only one-fourth. Hence, there is need for solutions in achieving scale in poverty alleviation efforts. Originality/value Using a mathematical model, the paper presents agency problems in Islamic microfinance and proposes a solution through distinct entry criterion and enterprise level micro equity finance.

scholarly journals Muḍārabah and mushārakah as micro-equity finance: perception of Selangor’s disadvantaged women entrepreneurs

2020 ◽  
Vol 12 (2) ◽  
pp. 217-237
Author(s):  
Reazul Islam ◽  
Rubi Ahmad
Keyword(s):  
Women Entrepreneurs ◽  
Structural Equation ◽  
Islamic Law ◽  
Profit Sharing ◽  
Equity Financing ◽  
Content Type ◽  
Disadvantaged Women ◽  
Poor Women ◽  
Microfinance Institution ◽  
Equity Finance

Purpose This study aims to gain the perception of Selangor’s disadvantaged women on the Sharīʿah (Islamic law) rules on two micro-equity financing instruments, namely, muḍārabah (profit sharing) and mushārakah (profit-and-loss sharing) (M&M). Design/methodology/approach A survey was carried out in the rural area of Selangor district in Malaysia by administering a self-generated structured questionnaire. A total of 330 completed questionnaires were retrieved from the members of an Islamic microfinance institution (IsMFI), namely, Amanah Ikhtiar Malaysia (AIM). The data were analysed by using structural equation modelling. Findings The female borrowers of AIM perceive the Sharīʿah rules of M&M requiring high moral and ethical values and diligent repayment performance. They are aware of some other underlying provisions such as business liquidation, share transfer, information discloser and business termination. The overall findings of this study suggest that the perceived Sharīʿah rules are akin to those that are commonly used in general partnership businesses between Muslims. It also indicates that disadvantaged entrepreneurs would accept the rules that are easy to comprehend as well as favourable to their interests. It further suggests that respondents’ experiences of microfinance and business operation do not have a significant influence on their perception of M&M instruments. Research limitations/implications This study was limited to Selangor. So, the perception of Muslim women surveyed may not represent the views of all women in Malaysia. However, it can offer a primary understanding of the said issue. Practical implications The findings of this study can help IsMIFs take initiatives to offer M&M as micro-equity finance to poor women entrepreneurs. Originality/value So far, limited studies have been carried out on M&M-based microfinancing. This paper offers new insights presenting disadvantaged women entrepreneurs’ perception of these financing instruments.

A real asset management approach for Islamic investment in containerships

2020 ◽  
Vol 11 (1) ◽  
pp. 27-48
Author(s):  
Adam Abdullah ◽  
Rusni Hassan ◽  
Salina Kassim
Keyword(s):  
Asset Management ◽  
Profit Sharing ◽  
Content Type ◽  
International Shipping ◽  
Investment Appraisal ◽  
Debt Finance ◽  
Equity Finance ◽  
Management Institutions ◽  
The Impact ◽  
Islamic Investment

Purpose The purpose of this paper is to provide a real asset management investment appraisal of the performance of containerships as a primary segment within international shipping, to facilitate Islamic equity investment through a shipping fund. The objectives are to evaluate the risks and returns of shipping under the framework of Islamic equity finance, and to analyze the performance of investing in containerships over the long term, to appeal to retail and institutional clients of Malaysian asset management institutions. Design/methodology/approach Accordingly, the methodology adopts an investment analysis of a full population of historical data over a period of 20 years, to evaluate performance involving a maritime return on investment (MROI), internal rate of return (IRR), net yield and standard deviation measures of risk and return. Findings The findings reveal that while earnings are volatile in comparison to capital market expectations, unlevered, tax-free returns on containership investments outperform financial and other real assets. Research limitations/implications Shipping is a strong growth industry with about 84 per cent of global trade carried out by the international shipping industry. The problem is that many Islamic asset management institutions and investors have essentially no exposure to Islamic investment in international shipping. Practical implications However, shipping is a highly capital-intensive industry, and currently 75 per cent of ship lending has been conducted by European banks and financed on a conventional basis. Post-financial crisis, ship owners, ship lenders and shipyards have all been exposed to the impact of over-levered balance sheets and debt finance. There is a demand for alternative sources of finance. Social implications By communicating risk and reward more effectively, retail and institutional investors, as well as Islamic finance institutions, will realize that the social benefit of equity finance on the basis of profit sharing is more efficient at allocating investible resources than debt finance at interest, thereby increasing investment and economic growth. Originality/value The significance is that Islamic equity finance, rather than debt at the time-value of money, should enhance the development of international shipping.

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.

Islamic finance instruments for promoting long-run investment in the light of the well-being criterion (maslaha)

2019 ◽  
Vol 10 (2) ◽  
pp. 315-339 ◽  
Author(s):  
Masudul Alam Choudhury ◽  
Mohammad Shahadat Hossain ◽  
Mohammad Taqiuddin Mohammad
Keyword(s):  
Poverty Alleviation ◽  
Socioeconomic Development ◽  
Empirical Work ◽  
Well Being ◽  
Islamic Finance ◽  
Objective Criterion ◽  
Content Type ◽  
Long Run ◽  
Financing And Investment ◽  
Unity Of Knowledge

PurposeThe purpose of this study of this methodological abstraction is erected the nature of the well-being function as evaluative criterion. The well-being function (maslaha) evaluates the interrelationships between long-run investment (real sector), the corresponding financial instruments (financial sector) and the embedded socioeconomic variables and ethical values conveyed by extensive complementarities and participation in a systemic approach of unity of knowledge. Among the financing variables to be selected will be the transformation of debt-instruments into equity instruments. All financial instruments are to be transformed into a holistic participatory pooled portfolio.Design/methodology/approachThe paper establishes the point that, the idea of long-run is appropriately that of a juncture of Islamic change during which the objective of well-being (maslaha) is evaluated (estimation leading to simulation) with long-run investment and Islamic financing instruments on the basis of the Islamic methodological worldview. This methodological worldview is premised on the ontological foundation of the episteme of organic unity of knowledge and the resulting world-system. The Qur’an refers to this foundation of knowledge as Tawhid. Tawhid is used in this paper to mean the Primal Ontological Law of Unity of Knowledge.FindingsThe most critical long-run investment program focused on is poverty alleviation and its equity-based financing instruments that reduce debt progressively to attain sustainable grassroots development with the ability to own, and the social capability to distribute resources and enable the grassroots. The corresponding interaction, integration and evolutionary dynamics of learning that emanate from the interrelationship of poverty alleviation as the focus of long-run investments and their attenuating financing instruments, along with the implications of inter-causal socioeconomic variables and the embedded episteme of unity of knowledge in the well-being function (maslaha). This paper is thus an abstracto-empirical contribution to the literature of Islamic finance, long-run investment and socioeconomic development with global significance.Research limitations/implicationsThe choice of long-run investment for poverty alleviation and the corresponding Islamic financing instruments are summarized by the following Tawhidi epistemic schema (an extractive picture). Upon this epistemic methodological worldview, the entire structure of well-being and sustainability of socioeconomic development lies.Practical implicationsThe paper brings out many of the properties that ought to be the truly moral/ethical and thereby the conformable analytical nature of the model of financing and investment in a combination of short-, medium- and long-term mobilization of resources to attain levels of social well-being as the objective criterion. Empirical work is done to bring the objective criterion to an applied level and to critically examine the work in the same field being carried out by many other ones, including authors and institutions. The empirical work done here can be widely extended to the case of estimating of the maslaha function (well-being).Social implicationsThis paper carries an essentially moral and social perspective in its methodological orientation that is derived from the Islamic epistemological foundations of unity of knowledge (Tawhid) and applied to Islamic finance and investment theory with the well-being objective criterion.Originality/valueThis is an original paper that combines methodological abstraction with applied financing and investment perspectives. Such an abstracto-empirical approach has not been done in Islamic research writings.

Integration of waqf-Islamic microfinance model for poverty reduction

2015 ◽  
Vol 8 (2) ◽  
pp. 246-270 ◽  
Author(s):  
Mohamed Aslam Haneef ◽  
Ataul Huq Pramanik ◽  
Mustafa Omar Mohammed ◽  
Md. Fouad Bin Amin ◽  
Aliyu Dahiru Muhammad
Keyword(s):  
Human Resource Development ◽  
Human Resource ◽  
Poverty Alleviation ◽  
Structural Equation ◽  
Poverty Reduction ◽  
Resource Development ◽  
Project Financing ◽  
High Interest Rate ◽  
Content Type ◽  
Islamic Microfinance

Purpose – This paper aims to develop an integrated waqf-based Islamic microfinance (IsMF) for poverty reduction in Bangladesh. Microfinance institutions (MFIs) have been constrained by the high cost of funds, high interest rate charges and poor human resource quality of the recipients. Islamic MFIs have recently evolved with the hope of overcoming these financial, ethical and human capital deficiencies faced by the conventional financial institutions. Moreover, a good number of integrated models have been proposed to enhance the role played by Islamic MFIs. Most of these models, however, lack empirical justifications. Design/methodology/approach – The research uses survey techniques. A total of 381 respondents were included in the survey. The integrated waqf-based Islamic microfinance model (IWIMM) was earlier on developed using literature and intellectual discussions. There are six constructs presenting the IWIMM, namely, waqf resources, IsMF, takaful, project financing, human resource development and poverty alleviation. In the survey instrument, 45 items represent the six constructs, but only 26 items have been retained after factor analysis. Structural equation modelling has been adopted to examine the relationship among the constructs. Findings – The results show that there are significant relationships between IsMF and takaful, waqf resources and human resource development, takaful and human resource development, IsMF and human resource development and, waqf resources and project financing. The results also indicate that poverty alleviation is possible through the integration of these constructs. Research limitations/implications – Though the paper has studied conventional and Islamic MFIs in Bangladesh, one of the populated Organisation of Islamic Cooperation (OIC) member countries and also where poverty incidence is high, further studies need to be conducted in other OIC member countries to adopt the model in line with practical and regulatory environment of those countries. Similarly, the study is based on the perception of the respondents, which limits the generalization of the result. Practical implications – The paper proposed a model that has the potential of being applied for poverty alleviation programmes in most of the OIC member states. Originality/value – The present paper has developed an IWIMM for poverty reduction.

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.

scholarly journals Islamic Microfinance Model and the Hypothesis of Poverty Alleviation

2020 ◽  
Vol 3 (1) ◽  
pp. 12
Author(s):  
Said Edaich ◽  
Roman Śmietanski
Keyword(s):  
Poverty Alleviation ◽  
Islamic Finance ◽  
Public And Private ◽  
Muslim Countries ◽  
The Poor ◽  
Alternative Vision ◽  
Finance Model ◽  
The World ◽  
Islamic Microfinance ◽  
Official Data

Efforts to alleviate poverty in the world have the most perilous impact in human history. Contrary to the prevailing paradigms in public and private policies, the erosion of poverty remains very shocking. The Islamic finance model tried to present its alternative vision and to participate in international efforts to at least help the poor in Muslim countries. This paper is an essay among others that analyzes the effectiveness of this system based on official data.

Antecedents of SMEs’ satisfaction and loyalty towards Islamic microfinance

2019 ◽  
Vol 11 (6) ◽  
pp. 1327-1338
Author(s):  
Wahibur Rokhman ◽  
Muhamad Abduh
Keyword(s):  
Structural Equation ◽  
Positive Impact ◽  
Islamic Finance ◽  
Family Welfare ◽  
Microfinance Institutions ◽  
Loan Repayment ◽  
Content Type ◽  
Central Java ◽  
Loan Risk ◽  
Islamic Microfinance

Purpose The purpose of this paper is to examine factors influencing the level of satisfaction of Islamic microfinance customers and their loyalty toward their patronized institution in Central Java, Indonesia. Design/methodology/approach The target population is all customers of Islamic microfinance institutions in Central Java, Indonesia. A sample of 300 respondents is selected for this study using purposive sampling and only 246 data are used in the analysis. The data are then analyzed using structural equation model with cost of loan, risk of loan, loan repayment, family welfare and Shariah issues as exogenous variables and satisfaction and loyalty as endogenous variables tested in the model. Findings The findings have shown that there is a significant effect of cost of loan, risk of loan and loan repayment upon the customers’ satisfaction and from the customers’ satisfaction toward the customers’ loyalty. The Shariah issues and family welfare were statistically insignificant to predict the customers’ satisfaction, which imply a big homework of Islamic finance academics and practitioners in Indonesia to educate people about Islamic finance and to show the real positive impact of Islamic finance models toward poverty. Originality/value Central Java is the province with a large number of SME and microfinance institutions, both conventional and Islamic, in Indonesia. This study provides a good insight for researchers seeking updated information about microfinance in Indonesia.

Product development in Islamic finance and banking in secular economies

2020 ◽  
Vol 11 (9) ◽  
pp. 1665-1676 ◽  
Author(s):  
Yusuf Dinc
Keyword(s):  
Product Development ◽  
Development Process ◽  
Product Development Process ◽  
Islamic Finance ◽  
Content Type ◽  
Complex Process ◽  
Islamic Financial Institutions ◽  
Conceptual Research ◽  
Source Materials ◽  
Vital Element

Purpose As the global paradigm in economics shifts, Islamic economics is attracting more attention as an alternative sector. The most common and most active institutional structure of Islamic economics is in the form of Islamic finance and banking. Islamic finance and banking have been the centre of innovation in many economies in recent years. In this regard, product development is a vital element in driving the success of Islamic financial institutions (IFIs). The product development of IFIs is one of the key elements of their overall economic performance. This study aims to fill the gap in the literature concerning the product development process of IFIs in secular economies. Design/methodology/approach Verily, product development is a complex process; it is likely that introducing specific models will be useful for expanding the activities of IFIs. In this study, contemporary source materials are used to develop this conceptual research. Findings It suggests two separate methodologies for the product development process of IFIs in secular economies to overhaul two criticised product-based problems. To the best of the author’s knowledge, it is the first attempt to model the product development process for IFIs in a secular economic setup. Originality/value Recently, this study is the first attempt for modelling product development in IFIs under secular economies. Advances in the field of Shari’ah-compliant product development is important for researchers and professional.

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