Future and Challenges of Islamic Microfinance in Alleviating Poverty and Improving the Performance of Microenterprises: Evidence of Amanah Ikhtiar Malaysia (AIM), Malaysia

Weni Hawariyuni, Kamisan Gadar


Microfinance is known as one of the crucial tools in eradicating poverty and improving the performance of micro entrepreneur. Microfinance was established as the reluctance of formal financial institutions, specifically commercial banks in delivering the microcredit for the poor people. Nowadays, we have varieties of microfinance institutions including Grameen Bank in Bangladesh which was founded by Prof Muhammad Yunus, BancoSol program in Bolivia, and Bank Rakyat Indonesia Micro banking (BRI Unit) in Indonesia. These three microfinance institutions recorded its success in eradicating poverty and enhancing microenterprise performance. There is great demand from Muslim countries to found Islamic microfinance as microfinance demonstrates its achievement in eradicating poverty and enhancing the performance of microenterprise. The aim of Islamic microfinance is providing financial services based on shariah compliance. In this regard, some scholars have been developed some Islamic microfinance model by executing some Islamic financing instruments such as mudarabah, musyarakah, and murabahah. Meanwhile, source of funds of Islamic microfinance is originated commonly from charity of funds in terms of Qard Hasan (benevolent loan). While these instruments are available to be implemented in realising the ideals of Islamic microfinance, several studies have shown that Islamic microfinance faced several issues and challenges. A global survey indicated that the outreach of Islamic microfinance is very limited (Karim, Tarazi, and Reille, 2008). In this regard, Islamic microfinance has only served 300,000 clients through 126 Islamic microfinance institutions in 14 countries. Ascarya (2014) also added that Islamic microfinance is still left behind than its counterpart in terms of as financial sustainability, unique characteristics, impact, and external shocks sustainability. Amanah Ikhtiar Malaysia (AIM) is the largest Islamic microfinance in Malaysia. However, there are still improvements needed for AIM to enable them to compete with the competitors in terms of the product delivered, services, financial sustainability, and others. Thus, this study concentrates on future and challenges of AIM by looking at its strength and weaknesses in reaching its achievements to eradicate poverty and enhance the performance of microenterprises.

Aus. J. Isla. Finan. & Busi. Vol 1(1), October 2015, P 31-61

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