The viability of Islamic microfinance: financial sustainability and outreach capabilities in the Middle East and North Africa

[摘要] Microfinance has been gaining momentum and popularity over the past 40 years. As it has grown, it has been at the center of a critical debate: commended by some as a practical tool to fight poverty and criticized by others as over-praised and under-effective, the role of microfinance in serving the poor and alleviating poverty is ever in question. However, what has failed to enter the central debate is the lack of sharia-compliant services for the Muslim poor who may require them. Some Muslims exclude themselves from conventional financial tools because charging interest is prohibited in Islam. An increase in sharia-compliant financial services could not only broaden access to financial tools, but play an important role in the economic development of Muslim-majority countries. This paper analyzes the impact of sharia compliance on financial sustainability indicators (financial self-sufficiency ratio and return on assets ratio) and outreach indicators (percent of borrowers who are female and average balance per borrower/GNI per capita) of 54 firms in the MENA region by employing the OLS regression method. The goal of this research is to determine whether Islamic MFIs are a viable alternative for conventional MFIs, with the hope of contributing to the discussion on whether the expansion of Islamic microfinance will be beneficial for serving the Muslim poor. The results of this study corroborate previous studies and conclude that Islamic microfinance is a practical substitute for conventional microfinance with comparable outcomes in financial sustainability and outreach, at least in the MENA region. The results and complications throughout the study further conclude that, as the debate around microfinance in general and Islamic microfinance specifically continues, a wider variety of studies related to Islamic microfinance as an alternative and its role in poverty alleviation overall are necessary.

[发布机构] the University of Pittsburgh