An application of Islamic banking principles to microfinance : technical note

TLDR: In this article, the authors consider the disbursement of collateral-free loans in certain instances is an example of how Islamic banking and micro-finance share common aims, and suggest that these two systems may complement one another in both ideological and practical terms.

Abstract: Many elements of microfinance could be considered consistent with the broader goals of Islamic banking. Both systems advocate entrepreneurship and risk sharing and believe that the poor should take part in such activities. At a very basic level, the disbursement of collateral-free loans in certain instances is an example of how Islamic banking and microfinance share common aims. Thus Islamic banking and microcredit programs may complement one another in both ideological and practical terms. This close relationship would not only provide obvious benefits for poor entrepreneurs who would otherwise be left out of credit markets, but investing in microenterprises would also give investors in Islamic banks an opportunity to diversify and earn solid returns.