Bill & Melinda Gates Foundation

The promise of Islamic finance – user experiences, product innovation, and the potential for poverty alleviation

October 10, 2015

The inherent social justice potential of Islamic economics is a rich and underutilized resource for poverty alleviation. Currently, Islamic microfinance is poised to grow the market of Islamic banking and finance (IBF) by steering poor populations into formal financial activity. Expanding the reach and profile of Islamic microfinance through partnerships and funding strategies can help meet the financial needs of the poor—and help the global IBF industry better embody motivations for Islamic economic activity in the teachings of the Qur’an and Sunnah. In this context, Islamic microfinance holds tremendous potential to tap into often-scattered Islamic donor streams – zakat, sadaqat, and waqf – and channel them toward strategic, impact-oriented goals.


The value of worldwide Islamic financial assets is growing quickly; since the 1970s, assets have leapt from half a million dollars to more than two trillion USD. This number is expected to increase to 3.4 trillion USD by 2018.


The IBF industry has long been dominated by advanced economies in the Persian Gulf, but now the fastest-growing markets are more spread across the world. The slow-but-steady growth of Islamic microfinance has recently become dynamic – fueled by increased attention from governments, central banks, donors, and IBF institutions.


As noted in the report: Islamic (Micro)Finance: Culture, Context, Promise, Challenges, to better understand Islamic microfinance and the role it can play, we should examine cultural contexts as well as account for indicators and metrics. The anthropological perspective of the report investigates how financial tools come to life in the hands of clients and allows for more nuanced, complex understandings of user experiences through a methodology of “participant-observation,” repeat minimally-structured interviews, and relationship-building. This addresses methodological challenges in microfinance research: banks, acting as gatekeepers, can (un)intentionally circumscribe access for researchers. The need for the poor to ensure continued access to banks can affect their responses to market research and customer surveys.


The Islamic (Micro)Finance report also offers historical and theological background, overviews of Islamic financial products, summaries of key countries and institutions, and in-depth examinations of Islamic (micro)finance landscapes in Bangladesh, Indonesia, and Pakistan. Ethnographic attention is given to the unique challenges faced by female clients and female-headed households, implications of client relationships with field officers, and the absence of tools for clients to address personal accounting and calculation challenges. The report also offers starting points for digital interventions to meet the needs of the poor while addressing longstanding inefficiencies in Islamic (micro) finance.


The capacity for innovation in this still-nascent industry, where supply has not met demand, should encourage impatient optimism of industry observers, providers, and clients alike. 


blog comments powered by Disqus