Islamic Microfinance: an Interest free Microfinance Model for Poverty Alleviation

This theoretical paper deals with Islamic microfinance and its rationality in Indian context as a panacea of Muslim poverty. Conventional microfinance system is very effective to alleviate poverty of developing countries. But it could not touch all community of people because of ‘interest ’ component in debt and high degree of interest. Muslims dislike that microfinance which is based on ‘interest ’ as it is strictly prohibited in Islam. Therefore the motto of financial inclusion is out of reach through conventional microfinance. An alternative interest free microfinance model has been developed in some part of world to include all Muslim poor people within the banking system. India is yet to adopt Islamic microfinance though 20 % of total population is Muslim. The author strongly opines that India should adopt Islamic microfinance as a tool for poverty alleviation of Muslims as well as other communities