Microfinance and Islamic Banking
Dr . Mohammed Nurual Islam
Division of Business Administration
International Islamic College or university Chittagong
Batch zero: FIN-5
Particular date of Submitting: 22/02/2013
1 . Advantages:
Micro financing is not a new concept. Tiny microcredit businesses have been with us since the the middle of 1700s. Even though most modern microfinance institutions function in developing countries, the interest rate of repayment default to get loans is surprisingly low - much more than 90% of loans happen to be repaid.
Like standard banking operations, microfinance organizations must charge their loan providers interests in loans. While these rates of interest are generally lower than those proposed by normal financial institutions, some opponents of this strategy condemn microfinance operations for making profits off of the poor.
The earth Bank estimates that there are much more than 500 million people who have indirectly benefited from microfinance-related functions.
2 . Meaning of Microfinance:
A form of banking service that is supplied to jobless or low-income individuals or groups who does otherwise have no other way of gaining finance. Ultimately, the purpose of microfinance should be to give low income people an opportunity to turn into self-sufficient by providing a means of saving money, funding money and insurance.
Microfinance, according to Otero (1999, p. 8) is " the supply of financial solutions to low income poor and very poor self-employed peopleвЂќ. These finance according to Ledger real wood (1999) generally include financial savings and credit but also can include other financial services including insurance and payment companies.
3. Good Microfinance:
Microfinance can be not a completely new concept of financing and its origins can be found in medieval Europe, specifically Ireland and Germany, instead of Bangladesh where famous beginning father of Grameen Bank, Professor Muhammad Yunus, having its own loaning policy began its businesses in the 1970s and who is at present a suggestions for microfinance. In The european union in the fifteenth century, the Catholic Cathedral founded socalled pawn shops in order to guard people from shady financial loan sharks and moneylenders whom gave out loans by usurious interest levels. These pawn shops later on spread through the entire continent (Helms, 2006, 2). As additional described by simply Seibel: " informal financial and self-help have been at the origin of microfinance in EuropeвЂќ (Seibel, 2005, 3). More formal credit and savings corporations for the indegent were already established in Ireland by the Irish Mortgage fund program as early as 1720, using expert monitoring to enforce the repayment in weekly repayments of at first interest cost-free loans by donated assets (Seibel, the year 2003, 2).
Robinson states that the 1980s displayed a level in the great microfinance in that MFIs such as Grameen Financial institution and BRI 2 started to show that they can could provide small loans and savings services profitably on a large scale. They received no ongoing subsidies, had been commercially funded and totally sustainable, and may attain large outreach to clients (Robinson, 2001). It absolutely was also at this time that the term " microcreditвЂќ came to popularity in creation (MIX3, 2005). The difference among microcredit and the subsidized non-urban credit coders of the 1955s and 1960s was that microcredit insisted upon repayment, on charging interest rates that covered the cost of credit rating delivery and by focusing on clientele who were influenced by the simple sector for credit (ibid. ). It had been now obvious for the first time that microcredit may provide considerable outreach of course profitably.
The importance of microfinance in the field of development was reinforced together with the launch with the Microcredit Peak in...