Integration of Waqf and Islamic Microfinance for Poverty Reduction: Case Studies of Malaysia, Indonesia and Bangladesh
Date : 09 February 2015

This publication, edited by Prof. Savas Alpay, former Director General of SESRIC, and Mohamed Aslam Haneef, Professor at IIUM, presents the output of two-year collaboration between SESRIC and the Centre for Islamic Economics of International Islamic University of Malaysia (IIUM) on a research project that covered three OIC countries namely, Malaysia, Indonesia and Bangladesh. The research project aimed at developing an integrated Waqf-based Islamic microfinance model to optimize the use of combined resources of Waqf and Islamic microfinance institutions in OIC countries with a view to enhancing the effectiveness of IMF and Waqf institutions in addressing the socio-economic needs of the society, particularly through effective poverty alleviation programs.

The report consists of four main sections. The first section provides a brief overview of poverty in OIC countries, poverty alleviation programs in Malaysia, Indonesia and Bangladesh as well as to examine the potential of Waqf as another viable source of financing microfinance institutions in these three selected OIC countries. Section two presents the Integrated Waqf-based Islamic Microfinance (IWIM) model, which comprises six components, namely Waqf, Islamic microfinance, human resources, Takaful, project financing and poverty alleviation, and relevant hypotheses. In order to test the hypotheses of the IWIM model in the three selected countries, section three discusses the research methodology and section four presents the empirical findings. The report ends with some policy recommendations.

The conceptual IWIM model presented by the report is as follows: the Waqf institution was considered as the “funding agency” while the Islamic microfinance institution as the “implementing agency” that was offering microfinance services together with Takaful services and financing human resource development programs. In order to provide variations in financing modes that were deemed more participative, a fifth component, i.e. project financing, to be provided by the Islamic microfinance institution, was added to the model. Additionally, towards fostering the upgrading of knowledge and skills of recipients, human resource development programs could be made a requirement for additional financing. All these features were subject to the varying contexts of the different countries under study.

According to the report, there is strong indication that the IWIM model can be a viable alternative model for poverty alleviation. The report reaffirms that microfinance is an important institution in the fight against poverty and that Islamic microfinance provides additional value in the context of riba-free financing. Furthermore, the report says that IWIM model can successfully adapt microfinance institutions to overcome two major challenges, i.e., providing financing at lower cost and facilitating human resource development programs.

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  • Integration of Waqf and Islamic Microfinance for Poverty Reduction: Case Studies of Malaysia, Indonesia and Bangladesh (English)