Sustainable Micro-Financing under Islamic Banking System – An Alternative to Traditional Micro Finance Institutions (MFIs)

Mohammad Raihan, Muhammad Khondaker, Monir MIR

    Research output: A Conference proceeding or a Chapter in BookConference contribution

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    Abstract

    Although micro credit for helping poor in the context of Bangladesh is not a new idea, yet question remains on the sustainability of such institutions which are mostly backed by donor funds or government funds with high risk of insolvency along with high transaction cost due to high cost of capital for example, at 26.5 per cent on loans and advances. In addition, combining all their resources, the existing micro finance institutions (MFIs) in Bangladesh are unable to serve the greater portion of the needy populations. Under such circumstances there are calls for alternative institutions to innovate new ways of micro-finance so that the finance could be reached to greater population leading to poverty alleviation. One of the recent innovative solutions that came out of such crises is the Islamic micro-finance activities and anecdotal evidence suggest that these Islamic micro- finance activities are able to reach the finance needy poor very quickly and able to expand their scope of operational areas quickly. Purpose: The main research objectives of the current study to explore the performance of the micro-finance activities of an Islamic bank (hereafter, the researched bank) as a potential alternative to traditional MFIs in maximising the customer outreach and reducing poverty. On the basis of the research objective the following research question will be explored: Is the Islamic banking micro-finance system is able to complement the existing traditional micro-finance institutions in Bangladesh through overcoming the limitations faced by the traditional micro-finance institutions? Findings: The researched organization has developed a three sector participatory banking model to address the needs of various stakeholders along with the very poor population. It has been observed that the organization is generating four set of funds for the social welfare activities under four areas with 32 purposes. The researched bank has adopted unique strategy to develop a sustainable banking model for the poor in Bangladesh.
    Original languageEnglish
    Title of host publicationProceedings of the 12th A-CSEAR Conference : social and environmental accounting : past, present, and future
    EditorsGordon Boyce
    Place of PublicationHamilton
    PublisherUniversity of Waikato
    Pages1-24
    Number of pages24
    Publication statusPublished - 2013
    EventCentre for Social and Environmental Accounting Research's Annual Australasian Conference, CSEAR2013 - Hamilton, Hamilton, New Zealand
    Duration: 1 Dec 20133 Dec 2013

    Conference

    ConferenceCentre for Social and Environmental Accounting Research's Annual Australasian Conference, CSEAR2013
    CountryNew Zealand
    CityHamilton
    Period1/12/133/12/13

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  • Cite this

    Raihan, M., Khondaker, M., & MIR, M. (2013). Sustainable Micro-Financing under Islamic Banking System – An Alternative to Traditional Micro Finance Institutions (MFIs). In G. Boyce (Ed.), Proceedings of the 12th A-CSEAR Conference : social and environmental accounting : past, present, and future (pp. 1-24). University of Waikato.