Page 53 - CMA Journal (Mar-Apr 2025)

Focus Section

3) Reducing Systemic Risk Through Ethical entrepreneurs develop business plans, manage
Financing - Conventional financial models often finances, and adapt to market trends. This holistic
place the burden of risk entirely on the borrower, approach nurtures innovation and long-term
which can lead to defaults and financial exclusion. In sustainability. When small businesses grow, they not
contrast, Islamic microfinance encourages shared only improve household income but also contribute
responsibility between lender and borrower. This to the broader economy by paying taxes, supporting
risk-sharing mechanism, combined with supply chains, and creating employment.
asset-backed financing, helps reduce speculative
4) Creating Jobs and Reducing Poverty - A direct
behavior and fosters a more stable financial
consequence of thriving small businesses is
ecosystem. Ethical financing, by avoiding sectors and
increased employment. As businesses grow, the
activities deemed harmful to society, further ensures
demand for labor rises. Whether it's a tailoring unit
that investments contribute positively to community
hiring additional seamstresses or a dairy farmer
development.
employing local help, these enterprises generate
4) Empowering Women and Rural Communities - livelihoods and uplift entire communities. Studies
Islamic microfinance programs are increasingly have shown that Islamic microfinance beneficiaries
focusing on women, who, despite being often experience improved living standards, better
economically active, often face greater barriers to access to education and healthcare, and a greater
accessing finance due to socio-cultural norms and sense of financial security.
limited mobility. Institutions like Akhuwat have Case Studies: Success Stories in Pakistan
reported that over 40% of their beneficiaries are
women, who utilize funds to run home-based 1) Akhuwat Foundation - Akhuwat is perhaps the
businesses, handicrafts, or livestock ventures. most prominent example of successful Islamic
Similarly, in rural Pakistan, Islamic microfinance microfinance in Pakistan. Founded in 2001, it
enables farmers and small-scale traders to invest in operates on the Qard Al-Hasan model, offering
seeds, equipment, and inventory, ultimately interest-free loans to the poor. With over 5 million
enhancing productivity and household incomes. loans disbursed and a remarkable repayment rate
exceeding 98%, Akhuwat demonstrates the power of
Impact on Small Businesses
community-based finance. The organization has
1) Providing Accessible Capital - One of the most helped thousands of micro-entrepreneurs—tailors,
direct benefits of Islamic microfinance is its ability to shopkeepers, artisans—lift themselves out of
provide capital to those who lack the credit history, poverty through dignified self-employment. Its
collateral, or formal documentation required by model is unique in that it utilizes mosques as loan
conventional lenders. This inclusive approach disbursement centers, reinforcing the spiritual
empowers micro-entrepreneurs to launch or scale dimension of finance and trust.
their operations. By offering alternatives that are
2) Islamic Relief Pakistan - Another notable
interest-free or based on partnership models,
organization, Islamic Relief Pakistan combines
borrowers find themselves more comfortable taking
humanitarian aid with Islamic finance to support
on financial responsibility without the fear of
disaster-hit and economically marginalized
exploitation.
communities. Its microfinance programs provide
2) Fostering Business Expansion - With access to flexible financial solutions that align with local
tailored financing tools like Murabaha or customs and religious expectations. By focusing on
Musharakah, small businesses can purchase raw asset creation, business training, and social
materials, upgrade machinery, or hire additional empowerment, it ensures that recipients gain
staff. For instance, a textile vendor using Ijarah long-term economic independence.
financing might lease new equipment to increase
3) Islamic Microfinance Network (IMFN) - Established
production efficiency, while a grocer might use
to foster collaboration and knowledge sharing, IMFN
Murabaha to procure bulk inventory at discounted
brings together institutions, scholars, and
rates. These expansions often lead to increased
practitioners to strengthen the Islamic microfinance
revenue, enhanced competitiveness, and a greater
sector. It plays a crucial role in standardizing
ability to reinvest profits.
practices, facilitating research, and promoting
3) Encouraging Entrepreneurial Innovation - Islamic innovations in the field. Its advocacy efforts have
microfinance institutions often provide more than encouraged more institutions to adopt
just capital. Many also offer business training, Shariah-compliant models and develop tailored
mentorship, and support services that help products for diverse segments of society.
ICMA’s Chartered Management Accountant, Mar-Apr 2025 51