Poverty Alleviation via Microfinance using the Concept of Mudharabah
Poverty Alleviation via Microfinance using the Concept of Mudharabah

Summary/Abstract: Poverty has been a long outstanding crisis at global scale and poverty alleviation has become one of the primary national developmental agendas. Conventional microfinance programmes have received growing attentions due to its capability to improve standard of living and social inclusiveness. Arguably, however, these conventional microcredit programmes do not effectively alleviate poverty as the borrowers remain into an interest-base debt cycle which may worsen the financial burdens. Meanwhile, Islamic microfinance by way of Mudharabah financing is equity based financing structure which is perceived to have a fair borrower-lender agreement. It promotes an effective wealth redistributive mechanism to reach the poor, to encourage their participation in productive real economic sectors. This not only alleviates poverty, but also enhances standards of living. This research discusses the applications of conventional and Islamic microfinance models currently practiced globally and proposes an enhanced Mudharabah microfinance model to be adopted.

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