ABSTRACT
Microfinance for the poor has few similarities with banking. The well-known Grameen model according to its founder is exactly the opposite of the conventional banking methodology. 3 This model is characterized by the absence of any collateral, of any legal instrument between the lender and the borrower, and any provision to enforce a contract by external intervention, such as a court of law, or any transfer of liability to family members in case of the death of a borrower. While models of microfinance vary in terms of exact features, they are invariably characterized by an overwhelming concern for the welfare of their members and clients. Profit seeking is seen as a means to ensure sustainability and not an end in itself. While shari‘a distinguishes between commercial and benevolent transactions and provides an elaborate framework for both kind of transactions that would ensure their freedom from riba, gharar and other prohibitions, some activities of microfinance institutions (MFIs) may not even involve contractual arrangements and stipulations and would call for a benevolence-driven framework rather than a prohibition-driven framework.
