Microfinance: A New Reach for Islamic Banks in Turkey

Abstract

Microfinance has been recognized by the World Bank as an approach to address poverty and income inequalities, where the social and economic problems of developing communities raised a global challenge to carry the mission of poverty alleviation.  Recent researches argues that many elements of microfinance are considered to coincide with the Islamic banking broader goals, and thus, Islamic banks can be a more effective and efficient provider of financial services to the poor. The paper investigate the Islamic finance nexus with microfinance program and initiates a consideration which triggers and motivates further research and debates exploring more potential for Zakah and Waqf integration in microfinancing schemes. An application of a not for profit based microfinance model is more convenient and more befitting the ultimate and conclusive goal of microfinance according to the paper, several arguments standing in support of this believe will be discussed. Statistics shows that in 2014, 15% of the Turkish population was below poverty threshold, leaving the participation banks in Turkey with a responsibility to comply with the social objective of Islamic Finance and positively contribute as an efficient and dynamic provider of microfinance services and serve the mission of poverty alleviation. A Joint venture between the participation banks in Turkey is proposed with a strategic partnership with reputable charity institutions, in which a collaboration to establish a separate not for profit based institution to provide microfinance services.

Key Words: Microfinance, Islamic Finance, participation banks, Zakah, Waqf.