Islamic Microfinance: A Model for Alleviating Poverty

This article was taken with slight changes from

Islamic microfinance is becoming an increasingly popular mechanism for alleviating poverty, especially in developing countries around the world. The Islamic finance industry as a whole is expected to reach over $2 billion dollars in 2012 and is a continually growing sector due to its ethical principles and prohibition of riba (interest).

The concept of Islamic microfinance adheres to the principles of Islam and is a form of socially responsible investing. Investors who use their wealth for Islamic microfinance projects only involve themselves in halal projects which benefit the community at large. Such projects include zakat, which is charity based, or trade and industry projects to develop a country’s economy.

The mechanism of lending in Islamic microfinance differs from conventional microfinance due to the prohibition of riba. Unlike conventional microfinance, Islamic microfinance offers an interest-free way to give small loans to people who are poor and in need. One key method of lending is through the Islamic financial instrument, qard’l-hasan, which is a loan that has been extended by the lender on a goodwill basis and the borrower is only required to pay the exact amount borrowed without additional charges or interest. The Quran clearly encourages Muslims to provide qard’l-hasan, or benevolent loans, to “those who need them” (which means):

“Who is he that will give Allah qard’l-hasan? For Allah will increase it manifold to his credit.” (57:11) “If you give Allah qard’l-hasan… He will grant you forgiveness.” [Al-Quran, at-Taghabun, verse 17]

At a time when poverty is still prevalent around the world, there is no better solution than opting for funding which can provide benefits to a poverty-stricken community and help to rebuild economies.

Islamic microfinance gives the investor a chance to get involved in worthwhile projects which could essentially play a significant role in targeting poverty and alleviating it in many countries around the world. Islamic microfinance primarily relies upon the provision of financial services to the poor or developing regions which are subject to certain conditions laid down by Islamic jurisprudence. It represents the merging of two growing sectors: microfinance and the Islamic finance industry.

It has the potential to not only be the solution for an increased demand to help the poor but also to combine the Islamic socially responsible principles of caring for the less fortunate with microfinance’s ability to provide financial access to the poor.

Unleashing this potential could be the key to providing financial stability to millions of less privileged people who currently reject microfinance products that do not comply with Islamic law.

Many regions around the world have already created tailor-made Islamic microfinance programs, either through Islamic banks or Islamic microfinance institutions to cater for dealing with poverty.

Utilizing Islamic financial instruments such as Murabahah and Musharaka to help in facilitating Islamic microfinance can not only spur the Islamic micro financial sector but can also increase the options of Islamic finance and make it more accessible to poverty-stricken countries.

While poverty in the Muslim world is widespread, Somalia is shouldering more than its fair share of the crisis. The famine which hit Somalia in July 2011 resulted in the worst food crisis that Africa has faced since 20 years. The United Nations had confirmed that famine does exist in two regions of southern Somalia, Southern Bakool and Lower Shabelle. Across the country, nearly half of the Somali population, which is currently 3.7 million people, is now experiencing a crisis of food, poverty, shelter, and malnutrition.

However, if the population of Somalia had more access to financial services then they would be able to develop their economy and get it back on track. Unfortunately, the options of financial services for alleviating poverty in East Africa are either inadequate or exclusive.

Islamic microfinance has been an unprecedented way to combat poverty which may also provide the affected people of Somalia with a form of economic relief and provide a financial solution to developing countries worldwide.

Action On Hunger: A Shared Obligation

With more than 1 billion undernourished people – many of them children – across the globe, hunger is a problem that affects all religions and nationalities. The roots of hunger are as diverse as the communities that it affects; conflict, natural disaster, water shortages, disease, climate change, and, of course, poverty is among the many other factors involved.

Solving a problem that affects people of all faiths requires the active support and participation of people from all those faiths. Individually, all major faiths call upon their adherents to exhibit compassion by helping the needy. Muslims, Christians, Jews, Hindus, and others have since time immemorial supported projects, activities, and organizations dedicated to helping feed the poor, sick, and hungry. Maximizing the impact of these efforts by increasing interfaith collaboration is an important next step to eradicating hunger; fortunately, this collaboration has already begun in the United States and abroad.

A Shared Compulsion to Act

Muslims, Christians, Jews, and others all find clear language in their holy books and traditions that compel them to fight hunger and poverty.

For Muslims, this fight is fundamental to the faith; it is the essence of zakat, the third pillar. The importance of charity is underscored throughout the Quran [e.g., Surah 2 (Al-Baqarah), verse 110]. This charity is not only directed toward fellow Muslims. The Quran [Al-Nisa’ (4): 36] calls believers to “do good – to parents, kinsfolk, orphans, those in need, neighbors who are near, neighbors who are strangers, the Companion by your side…” Charity should be directed broadly, not limited to fellow Muslims. Recall that “If Allah had so willed, He would have made you a single people, but (His plan is) to test you in what He hath given you: so strive as in a race in all virtues” [al-Maidah (5):48].

This broader sense of community and the individual’s responsibility toward those in need regardless of identity suggest that Muslims should extend their hands across faith lines to collaborate in the struggle against hunger. The Prophet Muhammad is commonly quoted as having said that “the person who sleeps full while his neighbor sleeps hungry is not a true believer.”

Similarly, the Bible calls all Christians to take action and provide for the poor and hungry without discrimination. “If a brother or sister lacks food and one of you says, ‘go in peace,’ and yet do not supply their bodily needs, what is the good of that? Faith if it has no works is dead” (James 2:15-17). Helping the hungry has great spiritual benefits for Christians: “If you offer your food to the hungry and satisfy the needs of the afflicted, then your light shall rise in the darkness and your gloom be like the noonday” (Isaiah 58:10). The Good Samaritan parable in the Gospel of Luke (10: 25-37) makes clear the importance of loving and helping one’s neighbor regardless of identity.

Recent Christian thought has emphasized the unambiguous value of helping the hungry. A powerful statement about the importance of fighting hunger came from Pope Benedict XVI in his 2009 encyclical Caritas in Veritate. Drawing inspiration from earlier writings by his predecessor Paul VI, Pope Benedict XVI stated that feeding the hungry “is an ethical imperative for the universal [Roman Catholic] Church.”

For Jews, the Torah places hunger and poverty at the center of the faith. Leviticus (19:9-10) calls on Jews to give to the poor the corners of their fields and to leave them any fallen fruit. This is in the context of a concern for others that is not limited to fellow Jews; it is in the spirit of “Love thy neighbor as thyself” (Lev.19:18).

Alleviating hunger is of great importance to those outside of the great monotheistic traditions, as well. The Mahabharata (XIII.59.11), one of Hinduism’s great Sanskrit epics, states that “[t]here is none other who does greater good than the one who removes the hunger of those in a difficult situation, helpless, weak and disturbed.” Gandhi and other leading thinkers and activists throughout the faith’s history have been inspired by Hinduism’s call to action against hunger.

If the concern for the poor and hungry is shared across religious boundaries, and there is agreement that this concern must not be limited to co-religionists, then there is a reason to work together to defeat the scourge of hunger. Interfaith action to fight hunger is, therefore, a way for members of each religion to practice their personal faiths, while strengthening their capacity to have a positive social impact through coordinated action across faith lines.

Interfaith Action against Hunger

Why is it important to increase the number of interfaith approaches to the hunger problem rather than to develop free-standing initiatives for each faith tradition?

The efficiency argument dictates that interfaith initiatives are more likely to succeed in reaching a greater percentage of people in need. In much of the world, adherents to different religious groups live side-by-side within their communities. An interfaith approach can help compassionate projects reach more of society’s neediest and thus maximize a project’s impact. The spirit of compassion that can be found in all major religions is best expressed by an approach that builds bridges and extends a helping hand to all who are in need.

Tackling hunger – or other pressing issues – in a joint manner can also have noticeable side benefits. In the United States, working together with non-Muslims can allow members of the country’s diverse and growing Muslim population to contribute positively to both the fight against hunger and the struggle against unfair negative stereotypes of Muslims. For example, in New York City, the Islamic Cultural Center on East 96th Street collaborates with the Jewish Theological Seminary and a Presbyterian church to operate a soup kitchen. The shared compulsion to feed the hungry and protect the vulnerable in one’s community drives a collaboration that has forged bonds of friendship and respect among volunteers of multiple religions.

Other examples, both small and large, can be found around the United States and the world. The Indiana-based Interfaith Hunger Initiative – a partnership between local Christian, Jewish, Muslim, Buddhist and Sikh congregations – is founded on the belief that “working together across faith lines on an important project will strengthen our community.” The initiative supports several local food pantries in Marion County, Indiana and a school lunch program in Kenya that feeds some 2700 vulnerable children, including many AIDS orphans. Other programs, from the New Jersey-based Middlesex County Coalition to Combat Poverty and Hunger to the Idaho Interfaith Roundtable Against Hunger, provide opportunities for local interfaith action.

In countries with a history of conflict characterized by friction between members of different religious groups, interfaith projects can help build trust and reduce tensions. In this way, programs that seek to relieve the most pressing hunger can alleviate conflict and thus address an important root cause of hunger.

An additional vehicle for interfaith action is advocacy designed to change policies and increase investments in programs to end hunger. A leading advocacy group is the Alliance to End Hunger, which includes influential Muslim, Christian, Jewish, and secular organizations in its campaign to raise the issue of hunger on the national agenda.

Around the world, Muslims, Christians, Jews, Hindus, and others are hard at work, working together to eliminate hunger. Individual Muslims and other can support these efforts in any number of ways, as interfaith action is valuable in a wide range of initiatives that target hunger, from local soup kitchens and food banks to programs that invest in international food security or engage in global advocacy.

Growing Interfaith Action on Hunger

With these and countless other examples of interfaith collaboration on hunger, there is little doubt that the idea has caught on, and that people of all faiths are acting upon their religious duty to care for the needy among us and broaden our conception of the global neighborhood. As the Prophet Muhammed said, “None of you has faith until you love for your brother what you love for yourself” (Sahih Al-Bukhari, Kitab al-Iman, Hadith no.13), and “None of you has faith until you love for your neighbor what you love for yourself” (Sahih Muslim , Kitab al-Iman, 67-1, Hadith no.45). When such love turns into acts of true compassion across faith lines, it can forge a better future for everyone.

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Kitab Al-Kasb (Part 14): The Ranks of Earning and Their Legal Rulings.

Earning is of several ranks. The first is the level of earning which is indispensable for everyone. This means that earning by which a person can lawfully strengthen his spine in individually incumbent on everyone, for the discharge of the obligatory duties cannot be attained except by it; and that by which the discharge of the obligatory duties is attained is in itself obligatory. If he thereafter does not strive to earn more than what is necessary, he is at liberty in respect thereof, because of the statement of the Prophet, “Whoever enters upon the morning in peace over his flock and healthy in his body, having food for his day, it is as though the entire world has fallen into his possession” [Narrated by al-Tirmidhi and Ibn Majah and al-Bukhari in al-Adab al-Mufrad]….

On every Wednesday, I will share a part of the translation of the book Kitab Al-Kasb (the book of Earning a Livelihood) written by Muhammad Ibn Al-Hasan Al-Shaybani.

Part 14: The Ranks of Earning and Their Legal Rulings.
Earning is of several ranks. The first is the level of earning which is indispensable for everyone. This means that earning by which a person can lawfully strengthen his spine in individually incumbent on everyone, for the discharge of the obligatory duties cannot be attained except by it; and that by which the discharge of the obligatory duties is attained is in itself obligatory. If he thereafter does not strive to earn more than what is necessary, he is at liberty in respect thereof, because of the statement of the Prophet, “Whoever enters upon the morning in peace over his flock and healthy in his body, having food for his day, it is as though the entire world has fallen into his possession” [Narrated by al-Tirmidhi and Ibn Majah and al-Bukhari in al-Adab al-Mufrad].

The Prophet said to ibn Hubaysh, advising him, “A morsel with which you assuage your hunger, and a piece of cloth with which you conceal your shame (private parts of the body), and if there is also for you a shelter which shelters you, then all that is good; and if there is for you a riding animal which you ride, then it is most excellent” [Narrated in Majma’ al-Zawa’id and by al-Tabarani in al-Awsat].

This is when he is not in debt, but if he is in debt, then it is mandatory on him to earn an amount that pays off his debt, because paying off debt is incumbent on him as a personal duty, for the Prophet says, “Debts are to be paid off” [Narrated by Abu Dawud, al-Tirmidhi and Ibn Majah], and by earning this is attained.

Likewise, if he has dependents like a wife and small children, then it is personally obligatory for him to earn an amount that is sufficient for up-keeping them, because providing for his wife is incumbent on him, for Allah Most High says, “Keep those women in the manner you live, according to your means” [Al-Quran, surah al-Talaq, verse 6], which also means, “provide for them according to your means,” and this is in the reading of Ibn Mas’ud may Allah be pleased with him.

Allah says, “And it is the responsibility of the father to provide them with food and clothing properly. No soul is burdened beyond its capacity” [Al-Quran, surah al-Baqarah, verse 233].  He says, “And let one whose provision is limited spend of what Allah has given him” [Al-Quran, surah al-Talaq, verse 7]. This duty is most surely fulfilled by earning. The Prophet says, “If is sinful enough for a person to neglect those whom he is responsible to support” [Narrated by Muslim, Abu Dawud and al-Hakim]. Hence safeguarding oneself from committing sins is an obligation.

The Prophet says, “Verily, your soul has a right over you, and your family has a right over you, so give to each right owner his right” [Narrated by al-Bukhari and al-Tirmidhi]. However the obligation to the latter is lower (in degree) than to the former (which you are first obliged to provide for yourself and then for your family or your dependents), for the Prophet says, “…then (feed) those whom you support” [Narrated in Sahih al-Bukhari and by Abu Dawud]. If he earns more than that which he stores for himself and for his dependents, then he is at liberty to do so, for it is narrated that the Prophet had food for his dependents stored up for a year, after he had earlier forbidden that [Narrated by al-Bukhari and Muslim], according to a narration that he said to Bilal, “Give away O Bilal, and do not fear any decrease from the Owner of the Throne” [Narrated by al-Tabarani]. The later (hadith) abrogates the earlier.

If he has impoverished elderly parents, he is obliged to earn enough to provide for them because providing for them is a binding duty on him even if he is destitute as long as he is able to earn. The Prophet said to a man who came to him and said, “I wish to fight in the path of Allah with you.” He said, “Do you have parents?” He said, “Yes.” The Prophet said, “Return to them and fight” [Narrated by al-Bukhari and Muslim], that is earn and provide for them.

Allah says,  “And keep company with them courteously in this world” [Al-Quran, surah Luqman, verse 15]. It is not keeping courteous company to leave them both to die starving when he is able to earn, however this is lesser than the previous case in obligatorily, because  of what has been narrated in a hadith that a man said to the Messenger of Allah, “I have one dinar with me.” The Prophet said, “Spend it on yourself.” He said, “I have another one.” The Prophet said, “Spend it on your dependents.” He said, “I have (yet) another one.” The Prophet said, “Spend it on your parents.” [A hadith similar meaning but different in wording is narrated by Abu Dauwd].

As for non-parents among the unmarriageable kin, it is not obligatory for a person to earn to provide for them, because providing for them is not a binding duty on him except in the case of one who is affluent, but it is recommended to earn and provide for them since in doing so there is connecting ties of kinship, and this is something recommended by the Law. The Prophet says, “There is no good in one who does not like (to have) wealth in order to thereby connect ties with his kinfolk, and to thereby honor his guest, and to thereby be beneficent to his friend” [Narrated by ibn Hibban].

The Prophet said to ‘Amr ibn al-‘As, “I desire for you a desire of wealth,” until he said (the words), “The most excellent wealth is for the virtuous man who renews relations with his kinfolk” [Narrated by al-Hakim and Ahmad]. The severing of kinship is prohibited because of the statement of the Prophet, “Three things are suspended by the Throne: blessings, trust and kinship. Blessings say, ‘I was shown ingratitude and not appreciated’; trust says, ‘I was betrayed and not nurtured’; and kinship says, ‘I was severed and not joined'”[Narrated by al-Suyuti in al-Jami’ al-Saghir traced it to al-Bayhaqi in Shu’ab al-Iman].

The Prophet says, “The joining of (bonds) of kinship prolongs (one’s) lifespan, while the severing of kinship takes away blessing from (one’s) lifetime” [Narrated by al-Quda’i in Musnad al-Shihab]. And the Prophet says in what he narrated from his Lord, “I am the Benelovent, and these are the wombs; I derived for them a name from my name, so whoever joins (ties of) kinship, I shall join him, but whoever cuts (ties of) kinship, I shall cut him (off)” [Al-Haythami says it is narrated by al-Bazzar].

There is something in the neglect to provide for kinfolk which leads to the severance of kinship, hence it is recommended to earn in order to provide for them.


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Kitab Al-Kasb (Part 13): Is Gratitude for Wealth Superior or Patience in the Face of Poverty?

This question is built on another question over which the scholars differ (among themselves), and it is whether gratitude for affluence is superior or patience in face of poverty? The scholars, diverge on this question into four positions….

On every Wednesday, I will share a part of the translation of the book Kitab Al-Kasb (the book of Earning a Livelihood) written by Muhammad Ibn Al-Hasan Al-Shaybani.

Part 13: Is Gratitude for Wealth Superior or Patience in the Face of Poverty?
This question is built on another question over which the scholars differ (among themselves), and it is whether gratitude for affluence is superior or patience in face of poverty? The scholars, diverge on this question into four positions.

First, among them are those who abstain from answering it due to conflicting traditions (or reports narrated from the Prophet or the Companions). They say that Abu Hanifah abstained (from taking a legal position) concerning the children of polytheists due to the conflicting traditions in regard to them; therefore he is to be followed, and we abstain from answering this question due also to conflicting traditions.

Second, among them are those who say, “both are alike,” and they refer as proof to the Prophet’s statement, “The eater who is grateful is like the hungry who is patient,” [Related by al-Tirmidhi and Ibn Majah], and because Allah praised, by His statement in His book, two servants, and He called each of the two, “a truly excellent servant for he was devoutly repentant,” one of whom was bestowed favors and he gave thanks, and he was Sulayman, on whom be peace; (thus) Allah says, “And We gave Dawud Sulayman, a truly excellent servant, for he was devoutly repentant” [Al-Quran, surah Sad, verse 30]. The other was put to the test and he showed patience, and he was Ayyub, (thus) Allah says, “We did indeed find him to be patient, a truly excellent servant, for he was devoutly repentant” [Al-Quran, surah Sad, verse 44]. And therefore we know that the two are alike.

Third, among them are those who say, “Gratitude for prosperity is superior due to the Prophet’s statement, “‘All praise be to Allah is the price for every favor'” [Muslim and Tirmidhi both narrated with similar import]. And the Prophet says, “If the whole world became a morsel and a servant ate it and said, ‘All praise be to Allah,’ that which he brought would be better than that which was brought to him” [Narrated by al-Haythami], that is, due to what this phrase contains of praise of Allah Most High.

It is clear from the first hadith that gratitude is by praising Allah, and that is better than patience, as this is proved by the statement of Allah, “Work, clan of Dawud, gratefully” [Al-Quran, surah Saba’, verse 13]. This (attitude of gratefulness) applies comprehensively to all acts of obedience. Without a doubt, what encompasses all acts of obedience and prevents (oneself) from the various types of iniquities, as well as restrains (oneself) from formally indulging in them (or openly indulging in them), such is the highest of ranks, and this station is not found in having patience in the face of poverty.

Fourth, the accepted legal position according to us (al-Shaybani) is that patience in the face of poverty is superior for the Prophet says, “Patience is half of faith” [Narrated by Abu Nu’aym in al-Hilyah, and al-Khatib in Tarikh Baghdad]. He, also says, “Patience in relation to faith is on the station of the head in relation to the body” [Al-Suyuti in al-Jami’ al-Saghir, Abu Ghuddah concludes that it is actually among the sayings of Ali].

Also there is in patience the meaning of tribulation, and patience in the face of tribulation is superior to gratitude for favors, and this applies too all kinds of tribulations. Indeed, patience in enduring the pain of illness is greater in reward than gratitude for bodily health.

Likewise, patience in enduring blindness is superior to thankfulness for eyesight, for the Prophet says in what he related from his Lord, ‘Whoever whose two noble things (his two eyes) I took away but he show patience enduring it, then there is no reward for him with me except the garden” [Narrated by al-Bukhari and al-Tirmidhi], or He said, “the Garden and the Vision.”

This reward is for his loss of eyesight, and this means that for the believer there is reward for affliction in itself, for the Prophet says, “The believer is recompensed in everything, even in enduring the thorn that pricked him in his foot” [Narrated by Muslim].

The proof of this is that Ma’iz (a companion), when he felt the impact of the sting of the stone, he ran away, and that was a kind of confusion from him (or unsettledness i.e., having second thoughts, about his confession of adultery). Yet, despite that, the Messenger of Allah, said in regard to him, “He has most surely repented with a repentance such that if his repentance were to be divided among all the people of the earth it would have sufficed for them” [Narrated by Muslim]. Thus we know that in affliction itself for a believer there is a reward, and in having patience enduring it there is also a reward.

As for affluence in itself there is no reward in it, but only reward for gratitude over it, and so that by which reward is attained in two respects is higher than that by which reward is attained in one respect only. Just as there is in gratitude for affluence praise of Allah Most High, so too in patience in enduring affliction, due to the statement of Allah, “Those who say, when calamity afflicts them, “We belong to God, and to God we return” [Al-Quran, surah Al-Baqarah, verse 156].

A story was told of a rich man and a poor man debating over this issue. The rich man said, “The rich man who is grateful is superior, for Allah borrows from the rich, as He, says, ‘Who will lend Allah a loan of good, which Allah will multiply for him greatly? And Allah both takes and grants, restricts and expands; and to Allah you will be returned” [Al-Quran, surah Al-Baqarah, verse 245]. The poor man said, “However, Allah borrows from the rich for the sake of the poor, and sometimes loans are taken from both the beloved and the non-beloved, but loans are never taken except for the sake of he beloved.”

He makes it clear that the rich is in need of the poor, whereas the poor is not in need of the rich, because it is incumbent on the rich to pay wealth’s due. If all the poor were to concord down to the last man to decline accepting anything from that (payment), they would not be forced to accept it, and they would be praised, according to the Law, for refusing to accept; whereas it would not be possible for the rich to free themselves from what is incumbent upon them, and Allah brings to the poor what suffices them in con-mensuration with what He has guaranteed for them.

From this it is clear that it is the rich who are in need of the poor, while the poor is not in need of them, in contradiction to what is thought by he who considers the apparent without scrutinizing the (inner) meaning. Therefore it becomes obvious by what have established that the poor who is patient is superior to the rich who is grateful, though in each there is good.


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