ABSTRACT
Microfinance involves the provision of financial services for those too poor to have access to banks. 2 Although microfinance schemes have been operational since the 1960s, they mostly involve conventional finance whereas many low-income Muslims would prefer to have shari‘a-compliant finance. The aim of this chapter is to explore how microfinance could be provided on a shari‘a-compliant basis and what instruments and structures could be used. The literature in this area has been very limited, but there have been a number of recent notable contributions indicating the increasing interest in the topic. 3 Two key issues have already been addressed but not resolved. First, would Islamic microfinance best be provided by specialist shari‘a-compliant financial institutions or by existing Islamic and conventional banks? 4 Second, are credit unions organized through co-operatives the way forward, or are commercial institutions such as banks or investment companies preferable? 5
