Page 54 - CMA Journal (Mar-Apr 2025)

Focus Section

Challenges faced by Islamic
Micro-finance

While the potential of Islamic microfinance
is undeniable, it faces several structural and
operational hurdles that must be addressed:

1) Limited Public Awareness - Despite
growing interest, many potential
beneficiaries—particularly in remote or
underserved areas—remain unaware of
Islamic microfinance and its benefits.
This lack of awareness impedes
outreach and adoption. Additionally,
misconceptions about the nature of 1) Nationwide Awareness Campaigns - The govern-
Shariah-compliant products persist, requiring ment, religious leaders, and financial institutions
extensive community engagement and financial must collaborate to educate the public about Islamic
literacy programs. microfinance. Mass media, local workshops, and
mosque-based seminars can help demystify
2) Inadequate Regulatory Framework - Although
concepts, dispel myths, and build trust. Introducing
Pakistan has made progress in Islamic banking
financial literacy programs in schools and madrasahs
regulations, the microfinance sector still lacks a
could also prepare future generations for responsi-
comprehensive framework that addresses the
ble financial participation.
unique nature of Islamic finance. Ambiguities in tax
treatment, legal enforceability of contracts, and 2) Developing a Supportive Regulatory Environment
Shariah governance standards create uncertainties - Regulatory authorities, including the State Bank of
that deter institutional growth. A coherent Pakistan and the Securities and Exchange
regulatory approach is essential to provide clarity, Commission, should develop frameworks tailored to
reduce risks, and ensure consumer protection. Islamic microfinance. This includes guidelines on
product design, risk management, and Shariah
3) Operational and Resource Constraints - Many
compliance. Establishing dedicated Shariah
Islamic microfinance institutions are small, non-profit
supervisory boards and dispute resolution
entities that rely on donations or philanthropic
mechanisms can enhance institutional credibility.
support. This limits their ability to scale operations,
invest in technology, or hire qualified staff. Moreover, 3) Fostering Public-Private Partnerships -
developing Shariah-compliant products requires Collaborations between government bodies, NGOs,
deep expertise, both in Islamic jurisprudence and financial institutions, and development agencies can
financial engineering—a combination that is in short pool resources and expertise. Public-private
supply. partnerships (PPPs) can support the establishment
of Islamic microfinance banks, promote digitization,
4) Lack of Standardization - The diversity of inter-
and fund pilot projects. Donor agencies can provide
pretations within Islamic jurisprudence can result in
technical assistance and seed funding for
varying practices among institutions. This lack of
innovation.
standardization makes it difficult to compare
services, build trust among clients, and facilitate 4) Leveraging Technology - Digital platforms can play
cross-border collaboration. Efforts to create a transformative role in scaling Islamic microfinance.
standardized contracts and audit mechanisms are Mobile banking, digital wallets, and blockchain-
still in their infancy. based contracts can reduce
The Way Forward About the Author: The author is an Associate Member of ICMA
Pakistan and holds notable qualifications in Islamic banking and
To truly unlock the potential of Islamic microfinance in finance. Currently serving as Unit Head – RM, Corporate and FI at
empowering small businesses, Pakistan must adopt a the Export-Import Bank of Pakistan, the author plays a key role in
supporting Pakistan’s export-led growth. With previous managerial
multi-faceted strategy involving policy reform,
experience in leading commercial banks, the author brings
institutional capacity building, and community extensive expertise from the corporate banking sector.
engagement.

52 ICMA’s Chartered Management Accountant, Mar-Apr 2025