Islamic Microfinance

Topics: Islamic banking, Sharia, Grameen Bank Pages: 10 (3096 words) Published: March 4, 2011
The Number of Islamic Microfinance Institutions in Malaysia Should Be Increased.

Table of Content


1.0 Abstract 2

2. Introduction 3

3. Argument 1 : Offer Syariah Compliant Finance 5

4. Argument 2: Increase the Performance of Islamic Banking and Finance 7 5. C. Argument: Risky and Costly to Implement Islamic Microfinance 9 6. Argument 3: Provide Financial Assistant for Low and Middle Income Groups. 11 7.0 Conclusion 13

Reference 14

1. Abstract

Recent years, Islamic microfinance has become more popular among Malaysian. It has been offered by Islamic Financial Institutions and also Non-governmental organizations. However, the number of Islamic microfinance institutions in Malaysia still in a small number. Due to the demand of Malaysian for Islamic microfinance that cannot be fulfilled recently, the number of Islamic microfinance should be increased. The purpose of this academic research was to identify and discuss the reason for needs of increasing number of Islamic microfinance institution in Malaysia. Somehow, some institutions refuse the establishment of Islamic microfinance institutions. This and other results of the research will be discussed.

2. Introduction

As a developing country, most of the businesses in Malaysia are small and medium enterprises. Based on the data by Census of Establishments and Enterprises 2005 issued by the Malaysian Department of Statistics, there are over 430000 micro enterprises in Malaysia. From the increasing number of SMEs, the number of banking and finance institution also keeps increasing to cater the needs of Malaysian. This is why government put a serious effort in improving the performance of SMEs by introducing microfinance a long time ago. As at June 2009, there are around RM2 billion financing outstanding for microfinance. Microfinance offer micro saving, micro credit, micro leasing and many more with a finance range from RM500 to RM50000. There is simple procedure and less documentation to make it easy to obtain and fast approval. The duration for the financing mode also flexible which is from a month to 10 years. Somehow, most of the banking and finance institution offer conventional microfinance. So, it is a beginning for Islamic microfinance as a substitute for microfinance. Islamic microfinance can be in many forms such as Ijarah (leasing), murabahah (cost plus mark-up), musyarakah (partnership), wadiah (saving), takaful (insurance) and so on.

Recently Islamic banking and finance has grown rapidly and become popular in Arab countries such as Saudi Arabia, Kuwait, Qatar and UAE. Besides, it becomes popular even in Muslim minorities country such as United Kingdom, United States and Australia. In Malaysia context, if we compared to previous year, Malaysia has improve a lot in Islamic banking and finance sector. Malaysia already recognized as regional and global hub for Islamic Banking and finance and there is already a Malaysian scholar in Syariah Supervisory Board. It also sees the improvement in Islamic microfinance where the products of Islamic Microfinance also have been offered by some Islamic financial institution and NGOs. So, we can say that Islamic microfinance institutions consist of Islamic financial institution and NGOs. However, the numbers of them are still small. Until now, from nine banks that offer microfinance four of them offered conventional based, two offered Islamic based and three banks offered both conventional and Islamic. For NGOs “Amanah Ikhtiar Malaysia” and TEKUN already offered Islamic microfinance.

So, for further step I strongly agree that Malaysia should increase the number of Islamic Microfinance institutions in order to offer Syariah Compliant finance, increase the performance of Islamic banking and finance and provide financial assistant for low and middle income groups.

3. Argument 1: Offer Syariah...
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