ABSTRACT
The Islamic finance institutions (IFIs) operate within a special incentive structure that prevents them from investing in microfinance initiatives beyond a certain limit, which is often criticized as being nominal or unsatisfactory. Critics of such limited engagement by the IFIs contend that the IFIs could play a more desirable and far-reaching role in microfinance. As argued herein, the IFIs could be incentivized to invest in microfinance while simultaneously adhering to their aims and goals that are consistent with the existing incentive structure.
