Role of Islamic microfinance in women’s empowerment: evidence from Rural Development Scheme of Islami Bank Bangladesh Limited

Md Saiful Islam

doi:10.1108/ijif-11-2019-0174

Abstract

Purpose The purpose of this study is to investigate the impact of Islamic microfinance services (IMFS) on women’s empowerment in rural Bangladesh. Design/methodology/approach The study is based on a multi-stage sampling technique. The primary data are collected through a face-to-face survey of 389 women respondents who have received IMFS from the Islami Bank Bangladesh Limited. Cronbach’s alpha test is conducted to test the reliability and internal consistency of collected data. Paired-sample tests, logit regression and proportion hypothesis tests are conducted to measure the impact of IMFS on women’s empowerment. Descriptive and inferential statistics are used to interpret the data. Findings The study reveals that IMFS have led to structural transformation in the occupation dynamics of the respondents’ families from agriculture to retail businesses. IMFS have had a significant positive impact on household income, savings and expenditure; have improved standard of living and human capital formation; and have enhanced all three dimensions of empowerment, namely, economic empowerment (ECEM), socio-cultural empowerment (SCEM) and familial empowerment (FLEM). Of them, ECEM and SCEM have positively contributed toward overall women’s empowerment, while FLEM has a negative but insignificant impact on overall empowerment. The respondents’ perception also supports the finding that IMFS have benefited rural women and empowered them. Originality/value The study is based on primary data. It leads to an inquiry as to whether women are dominant in familial affairs. If so, it may reduce the state of happiness and overall women’s empowerment. There is a clear gap in the existing literature about this inquiry.

Highlights

Islamic microfinance is the supply of financial services consistent with Islamic finance principles to low-income people
This study focuses on the financial inclusion of disadvantaged women through Islamic microfinance services (IMFS) and assesses their impact on women’s empowerment through employment creation, income generation, savings mobilization and participation in the decision-making process, etc
This further implies that IMFS may be a significant source of financing for rural women of the country and provides financial inclusion of rural communities, which would not otherwise have any access to formal finance

Summary

Introduction

Islamic microfinance is the supply of financial services consistent with Islamic finance principles to low-income people. Islam sets out some principles, which govern business transactions in general and financial transactions in particular. An important principle is that money is not an income-generating asset, and the notion of cost of capital – that is, interest – is completely prohibited in Islam. God-fearing Muslims refrain from accepting interest-based microfinance. Islamic microfinance programs cannot imitate conventional microfinance programs, which are based on interest. Interest is prohibited in Islam, trade is allowed, “Allah has permitted trade and prohibited interest” (Quran, 2:275)

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