Examining Islamic microfinance as a mechanism of Takaful in high-risk countries: case study of Palestine

Abstract

PurposeThis paper aims to identify the intersection between Islamic microfinance (MF) (IsMF) and Takaful in high-risk economies and propose a model for the sustainable application of IsMF. The word Takaful, although used to refer to Islamic insurance, means solidarity and is used as such in this paper.Design/methodology/approachThe paper used a descriptive and analytical method to present findings derived from secondary data collected from the Palestinian Central Bureau of Statistics and primary data from semi-structured interviews.FindingsNeed in the Palestinian household is very high, and the performance of Palestinian MF institutions (MFI) was found to have deviated from the spirit of MF. A significant shortcoming by MFI lies in the Palestinian law that focuses on organizing MFI’s operations as financial institutions only. With a deviated purpose and generalized laws, the paper proposed a model of IMF. The model consists of three stages covering mission and market-based financing for the economically incapable and those better off. Finally, enacting laws to protect micro-enterprises and cooperation between institutions that operate at each stage is necessary.Originality/valueThis research contributes to the literature on MF and IsMF, especially in high-risk countries. Furthermore, this study proposes a model for IsMF best practices based on the spirit of MF where it is most needed.