Alleviating Poverty Through Islamic Microfinance: Factors and Measures of Financial Performance and Roles of Islamic Values and Financial Policies

Adhitya Ginanjar,Salina Kassim

doi:10.1007/978-3-030-39939-9_12

Abstract

Indonesian Islamic Microfinance Institutions (IMFIs) are estimated to be 5000—an effective poverty alleviation tool for approximately 22.8 million Indonesians or 8.77% of the 260 million population (National Statistic Board, 2018), living on less than USD 1.90/day. Without collateral and steady income, the poor are considered risky by formal financial service providers. Living in remote areas also limits their access to formal financial services. This study examines poverty alleviation from the perspective of the IMFIs in view of their direct involvement, access to information on borrowers’ financial issues, understanding of financial inclusion agenda, guidelines and regulations. Thirty-four Baitulmaal Wa Tamwil (BMT) (registered under the Sharia Cooperative Centre (INKOPSYAH)) managers from Jakarta, Bogor, Depok, Tangerang and Bekasi (JABODETABEK) were taken through a questionnaire survey and in-depth interviews. The findings are expected to contribute to better BMT decision-making and elaborate dimensions/strategies for improving financial inclusion of the poor, thus cementing BMT role in poverty alleviation.

Highlights

One of aims of the Sustainable Development Goals (SDGs) initiated by the United Nations (UN) in efforts to end the poverty is by improving financial inclusion (FI)
The goal of increasing FI has resulted in rigorous efforts to achieve it, among others enhancing the role of Islamic Microfinance Institution (IMFI), leveraging on its unique aspects such as the noble Islamic values and relating it to financial policies that could benefit the poor people
Several studies have shown that providing accessibility to credit for the microenterprises do provide effective solutions to poverty, but it works well for clients, who are close to the poverty line since it will provide them with the chance to be economically independent and break the poverty trap

Summary

Introduction

One of aims of the Sustainable Development Goals (SDGs) initiated by the United Nations (UN) in efforts to end the poverty is by improving financial inclusion (FI). The World Bank through Global Findex has declared FI as a global agenda, especially in the developing countries This agenda of universal financial access has highlighted the role of all types of financial institutions, the MFIs in expanding their services, especially in rural area (Beck et al, 2015; World Bank, 2014), according to Obaidullah and Shirazi (2014), microfinance could be the best way to alleviate extreme poverty effectively and offer positive welfare impact. Another purpose of microfinance is to ensure improvement in the long-term income. Several studies have shown that providing accessibility to credit for the microenterprises do provide effective solutions to poverty, but it works well for clients, who are close to the poverty line since it will provide them with the chance to be economically independent and break the poverty trap

Objectives

Methods

Conclusion