Pioneering Islamic microfinance in Uganda: a sustainable poverty alleviation approach

Abstract

Even though microfinance has been widely employed as a poverty alleviation tool, no significant results have been recorded in terms of changing the lives of the chronic poor and low- income groups most especially in the less developed and developing countries. Therefore, the objective of this chapter is to find out ways in which Islamic microfinance could be pioneered in Uganda, and propose a model to do so, by adopting a sustainable poverty alleviation approach to uplift the lives of the poor through offering extended financial services to them as deemed necessary. The chapter employs a qualitative approach using critical analysis and examination of the relevant literature on the fundamental principles of Islamic finance needed in establishing a sustainable Islamic microfinance framework to eradicate poverty among the poor. The findings of this chapter suggest that the practice of conventional microfinance involves high indebtedness and continued pressure on borrowers to meet their loan obligations irrespective of the status of their business. Thus, making the poor and needy reluctant to access conventional micro finance creating a financially excluded society. It was found that the Islamic microfinance and its principles as derived from Shariah is found to be a more ethical and sustainable system due to its risk sharing nature and as such, it was found that pioneering Islamic microfinance could be a more appropriate alternative financing model for the poor that could be pioneered in Uganda for socio-economic development and financial inclusion, especially to the rural poor and micro-entrepreneurs who have been yearning for financing. This chapter proposes a unique Islamic microfinance model for Uganda using a sustainable poverty alleviation approach.