MURABAHAH AS ISLAMIC MICROFINANCE PRODUCT: A CASE STUDY OF MIB OF PAKISTAN

Abstract

Islamic micro-finance has been the topic of debate for many years as the best alternative to conventional microfinance programs for poverty alleviation. Islam has two approaches towards poverty alleviation: Mission-based approach (such as zakat and waqf) and market based approach (such as murabahah, mudharabah, musharakah). In this paper, a case study is conducted on the murabahah as used by MIB as Islamic micro-finance tool. The purpose of this paper was to explore how the MIB made it possible to use murabahah as effective Islamic micro-finance tool? Further, it was investigated that what risks were faced by the bank while doing murabahah, and how they were mitigated, especially the customer default risk. It was found that the risk is mitigated very effectively. MIB gives finance to a person whose age is between 20-60 years having experience of at least 2 years of business who provides clear future business plan to MIB. Further, one guarantor is also required from him in addition to future dated cheque.