SESRIC publishes study on reducing poverty with waqf and Islamic microfinance

Source: SESRIC.

Integration of Waqf and Islamic Microfinance for Poverty Reduction: Case Studies of Malaysia, Indonesia and Bangladesh, edited by Professor Savas Alpay, Director General of the Statistical, Economic and Social Research and Training Centre for Islamic Countries (SESRIC), and Mohamed Aslam Haneef, Professor at the International Islamic University of Malaysia (IIUM), presents the outcome of a two-year research collaboration between SESRIC and the Centre for Islamic Economics at IIUM. 

The research project covered three Organisation of Islamic Cooperation (OIC) countries, Malaysia, Indonesia and Bangladesh, and aims to develop an integrated waqf-based Islamic microfinance model to optimise the use of combined resources of waqf and Islamic microfinance institutions in OIC countries. It is anticipated that such an optimisation will ultimately enhance the effectiveness of IMF and waqf institutions in addressing the socioeconomic needs of the society, particularly through effective poverty alleviation programmes.

The report consists of four main sections, starting with a brief overview of poverty in OIC countries, poverty alleviation programmes in Malaysia, Indonesia and Bangladesh and then discussing the potential of waqf as another viable source for financing microfinance institutions in these three countries. 

Section two presents the Integrated Waqf-based Islamic Microfinance (IWIM) model, which comprises six components, waqf, Islamic microfinance, human resources, takaful, project financing and poverty alleviation, plus relevant hypotheses. In order to test the hypotheses of the IWIM model in the three countries, the next section discusses research methodology while the last section focuses on the empirical findings and policy recommendations.

The conceptual IWIM model treats the waqf institution as the “funding agency” and the Islamic microfinance institution as the “implementing agency” that is offering microfinance services together with takaful services and financing human resource development programmes. A fifth component, project financing, to which is be provided by the Islamic microfinance institution, was added to the model. 

According to the report, there is strong indication that the IWIM model can be a viable alternative model for poverty alleviation. The report reaffirms that microfinance is an important institution in the fight against poverty and that Islamic microfinance provides additional value in the context of riba-free financing. Furthermore, the report says that the IWIM model can successfully help microfinance institutions to overcome two major challenges, the provision of financing at lower cost and the facilitation of human resource development programmes.

View the online version here.