Md. Mozammil Haque
(I got a chance to complete my dissertation report on “Rural Development Scheme of IBBL: it Prospects, Problems with Suggestions for further Development” which is well established Islamic Model of Micro-Finance in Bangladesh. More over I visited the RDS sites with field officers to see the real picture of the performance of the scheme and clients under the Hathazari Branch where more than 5500 rural were being served through this scheme.
So, in this way I knew Micro-Finance as well as Islamic Micro-Finance and thus have tried to present an introductory of IMF below having this hope that you will like it, Insha Allah.)
Islamic Micro-Finance (IMF), Shariah, Shariah Compliance, Halal and Haram, Usuary, Mudaraba, Bai-Murabaha, Bai-Muajjal, Musharaka (Shirkatul Milk).
Islamic Micro-Finance (IMF) and Islamic Micro-credit both have the same meaning and synonyms to each other. And it based on Islamic Shariah (the body of Islamic scholars to decide and set the compliance so as to distinguish what business activities can be run or not in the viewpoint of Quran and Sunnah of Prophet) with the strict prohibition of charging or demanding the interest as interest has been declared haram (prohibited) in Islam during the time of prophet (pbuh). The prime objective of the Islamic Micro-credit System (IMS) is to alleviate rural poverty by bringing and involving them in Income Generating Activities (IGAs) where they are not only given the investment opportunities but also training, educational, welfare, ethical and moral development facilities. So, IMS keep all its clients under strong supervision.
So, rural poor are provided the investment opportunity under the Islamic Micro-Finance and provides them capital to invest in profitable sectors which is halal in Islam. And the financier shares the risk of profit and loss with the entrepreneurs on mutual agreement basis. One important benefit of risk sharing technique is that financier never think of the potential loss of the entrepreneur because financier himself might be partner of loss and so financier always suggest and supervise the entrepreneur. And this causes higher productivity.
So, Islamic Micro-Finance can be operated on several modes of investment like Mudaraba (Profit Loss Sharing), Bai-Murabaha (Purchase and Sell in credit), Bai-Muajjal (Purchase and Sell in deffer-ed basis), Shirkatul Milk (Partnership) etc. But with the strong prohibition of the involvement of interest. And a very lower profit rate is charged from the borrower.
While conventional Micro-Finance institution provides the loan to the borrower just on demand and they do not care about use or misuse of the amount and borrower gets loan in the form of cash while Islamic Micro-Finance ensures the products and commodities for what a borrower has come to seek the amount. More over compounding phenomenon of interest by the conventional banks creates another burden for the poor borrower.
Holy Quran explains about the interest (Usuary) in several places. Allah (SWT) said in the Holy Quran in Chapter no. Two, verse no. 275: “Whereas ALLAH has permitted trade and commerce, but forbidden usury (interest).” This verse emphasize that trade and commerce has been highly appreciated while charging interest has been strictly prohibited in Islam and the most simply it can be said that money can not be charges against the use of money because in such a transaction the financier never involve him/her self in any type of risk sharing. And even after suffering from the losses in business the entrepreneur has to repay the total capital with specified rate of interest which has been seen as a unjust and an act of inhumanity in Islam.
The term interest can be defined as “it is a prefixed rate which is to be paid to the financier after a certain period for using the capital.” Where creditor donot involve in any type of risk sharing and demand the interest at any cost even if the borrower gets totally bankrupt. The borrower has to pay that amount at any cost to the creditor and hence in the conventional financial system a borrower who fails to generate income becoming pushed into more poverty. But in case of generating high income using the entire amount of financer’s capital the borrower pays only the interest which is a small part of his/her high income. It is also unjust. It can be more clear taking an example. Suppose a financier finances $1,00,000 at the rate of 13% per year and the borrower utilized that amount and be able to generate $ 4,000 per month. Hence yearly income will become as $48,000. As the financier has not become involve any risk sharing so the borrower will pay $13,000 at the end of the year which is very much lower in-comparison to the yearly income. And if unfortunately borrower becomes bankrupt then he/she needs to pay the interest amount. So both of the act is treated as unjust if we just think of it on humanity basis.
So, Islamic Micro-Finance is not only the superior one upon the conventional but also a need of poor to uplift them in real sense to eliminate the poverty through generating income activities. It has benefit for all the sectors and all the nations but there is need of implementation and proper utilization of the system obeying the Islamic compliance and supervision and guidelines of the clients.