Poverty Reduction through Islamic Modes of Finance; the Way Forward

Abstract

The purpose of this paper is to share the conceptual overview of the role that Islamic modes of finance can play in the reduction of poverty. The underpinning principles of Islamic finance modes is the adherence of Islamic values and to promote economic and social justice in the society. This study is aimed at providing insights on the prevailing poverty reduction strategies and their respective impact on poverty eradicate alongside proposing an alternative Islamic model of poverty reduction. For this purpose, the present study overviews the existing literature and textual analysis of the subject to emphasize the significance of poverty as an issue around the globe along with the critical review of the strategies currently considered to eradicate poverty. Poverty has now been emerged as a global phenomenon, which is common across many nations and, perhaps, not surprisingly, a tough challenge to governments and community development-oriented organizations which have been striving to eradicate. The present paper is, therefore, an effort to propose a possible alternative approach for poverty reduction. Subsequently, some discussion has been made on the application of Islamic approaches of welfare and poverty reduction. Islam, as a religion, encourages healthy competition, private ownership, and allows demand and supply rule of working independently. Islamic approach to poverty reduction has multiple facets and it is aimed at reducing the gap between haves and have not’s through optimum circulation of wealth in the economy and by restricting capital to generate capital and allowing other factors of production along with the risk of loss to play their due role. Keeping in view the prevailing models of poverty reduction and critical evaluation of these models, the study has proposed Islamic modes of finance as a workable plan to reduce poverty and spread social justice in the society.