ISLAMIC (MICRO)FINANCE

which had formal schedules, payout terms, and restrictions. 71 Clients often held multiple
microfinance accounts, a fact they often concealed from providers.
For clients, the economic benefits of their local Islamic microfinance program (low fees, suitable
payment structures, quick access to funds) were more important than the Sunnah principle of
riba-free financing because the economic benefits were, in and of themselves, seen as
expressions of Islamic compassion toward the poor (see chart below). Respect and compassion
shown to clients during their encounter with IMF staff was, for the clients, Islam manifest.
Respect and compassion for poor clients becomes particularly critical regarding late payments.
Microfinance is unsustainable without acceptance of periodically late payments—particularly for
weekly rather than monthly repayment schemes. Official acceptance of late payments would set
a negative precedent, but providers tacitly accept them in order to secure their typically high
repayment statistics.
Conventional MFIs have been scrutinized for subjecting clients to harassment, house-breaking,
asset seizures, or entrapment in expanding debt cycles when clients feel pressured to take on new
debts to pay down outstanding loans. The ethical orientation of IMFIs, by contrast, tends to
motivate a more compassionate approach to late repayments, working with clients to informally
readjust payment schedules. Accordingly, the microfinance ‘Portfolio at risk’ 30-day benchmark
indicator is less reliable than a 60-day or 90-day indicator, to accommodate institutions with
formal or informal leeway for late payments.
WHAT IS IMPORTANT TO YOU IN A MFI? WHY DID YOU CHOOSE ISLAMIC
MICROFINANCE OVER OTHER NON-ISLAMIC PROGRAMS? (From 50 in-depth interviewee
responses, Pakistan fieldwork, 2013)
• More affordable / better structure (n=30)
o The lack of extra installments / other organizations charge interest, or want you to place jewelry
or property papers with them. (n=17)
o Low formalities / loans are given faster than at other organizations / loans are larger than at
other organizations (n=10)
o Good monthly installment size and repayment period (n=2)
o They gave double the loan amount of others (n=1)
• Respect / compassion (n=8)
o IR doesn’t bother clients / Professional, good conduct / Their attitude allows you to maintain
your self-esteem
• My relative was a beneficiary and gave a good recommendation (n=5)
• The name is Islamic / I follow the Sunnah (n=4)
This also explains the appeal of IMFIs to non-Muslims: IMFIs in Pakistan count Christians as
clients, and Hindus and Buddhists in Bangladesh. For members of religious minorities with whom
I spoke, IMFIs’ emphasis on compassion, respect, and dignity toward the poor was more
71 Portfolios of the Poor (Collins et al 2009) helped establish the field of “poor economics” by explaining how financial
inflows and outflows are continuously subject to diversion, bundling, or forestalling, all in service to managing varied
needs with predictable liquidity shortfalls.
ISLAMIC MICROFINANCE: CONTEXT, CULTURE, PROMISES, CHALLENGES | www.gatesfoundation.org 19