Role of Islamic Microfinance in Rural Development: Bangladesh Perspective

Abstract

Bangladesh is regarded as the excellence center of microfinance introduced by Grameen Bank model of Noble Laureate Prof. Dr. Muhammad Yunus. There are two types of Microfinance in Bangladesh namely Interest-based Microfinance and Interest free Islamic Microfinance. Islamic Microfinance accelerates income-generating activities toward poverty alleviation and rural development through application of microcredit, micro-savings, micro-insurance and remittances etc. A large number of Microfinance Institutions (MFIs) have emerged in Bangladesh to provide collateral-free credit to the poor. However, a large portion of poor people, hardcore poor are yet out of microfinance’s network and they are more often inadequately served or completely by-passed by such programs. Against this backdrop, Islamic microfinance based on Zakat, Waqf, Qard-al -Hasanah, and other unique funding models can emerge as an effective financial inclusion tool in fighting all types of poverty and making sure the rural development in Bangladesh. Unique models of Islamic microfinance (IMF) can promote financial inclusion among poor people to reduce poverty and inequality for rural development in Bangladesh by using distributive and risk-sharing mechanisms which are absent in traditional microfinance models. Islamic Bank Bangladesh PLC (IBBPLC) has introduced two special schemes in the name of ‘Rural Development Scheme (RDS)’ in 1995 and launched ‘Urban Poor Development Scheme (UPDS)’ in 2012 to cater to the investment needs of the poor for the generation of employment and increasing the income and alleviating poverty and developing the socio economic status. The current study analyzes the contribution of Islamic microfinance to the rural economy and its development in Bangladesh. Few major findings of the study are summarized here: ▪ Most Government measures to reduce poverty in Bangladesh are not self- financed and designed based on available resources. The RDS of IBBPLC perhaps the lone exception that arises from local initiative without assistance from any local or global organization or the government. VIII ▪ The RDS offers investment in most cases under Bai-Muajjal and HPSM modes; in contrast, it should be adhered to the welfare-oriented modes by introducing Musharaka and Mudarabah as per Maqasid al-Shariah. ▪ Majority of the clients felt that the amount of the investment was insufficient to meet their needs. ▪ The RDS model’s microfinance can ultimately increase rural financing based on Islamic Shariah. Some significant recommendations have been made to make the Microfinance Program of IBBPLC effective; ▪ The profit rate of an Islamic microfinance may be reduced to single digit for the benefit of the rural people as it is social welfare oriented. ▪ The RDS operation would be preferable to have a separate autonomous institution. ▪ Make the application of the Mudaraba and Mushara mechanisms in accordance with Islamic concepts of Maqasid as Shariah and mutual risk sharing method. ▪ To enhance human development, client households should be given interest free education loans based on Quard-e-Hasana. All philanthropists should work to build a vibrant Islamic Microfinance market for establishing a caring society based on equity and justice. Finally, we have entered into the second decade of 2021st century. It appears huge potentials for Islamic Microfinance around the globe and especially in Bangladesh. In a competitive world, the fittest one will survive, the best one will shine and Allah help those, who help themselves maximizing their efforts.