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Riba free Islamic Microfinance

Published: 28/08/2011 07:31:00 PM GMT
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Microfinance in Islam is a hot topic these days as it has been for a couple of decades. This is in part due to the fact that governments in Islamic countries have starting focusing their attention, albeit half-heartedly, towards poverty alleviation and the well being of the lower segment of the society in their countries.



Poverty is common in societies around the world and man has been battling it as long as he inhabited this planet. The poor live in miserable conditions, unable to feed or cloth themselves or their families adequately and often go to bed hungry. The situation is especially precarious in Muslim countries where it is estimated that more than half of the world’s poor live. The worst part for the poor comes when many of them lose hope in a good life and their lives are gripped by hopelessness that knows no bounds.

However, Islam does not approve of poverty; Islam does not approve of a situation in which the winner takes all and all others are left to watch and starve. Islam encourages a system where everyone has his due share being awarded to him such that there is no enmity or hostility as a result of unfair distribution of resources. Many psychologists believe that animosity between Muslims is a major reason why many of the “well-off” Muslim nations are unwilling to help other poor nations from the Muslim World.

Qarz-e-Hasana is an example of Microfinance in Islam; an ideal example because Islam encourages Muslims to help each other financially but disapproves of interest based loans. This is because the loan taking party is probably never able to pay back the amount in full it is because they are bound to repay interest on the principal by virtue of their agreement with the loan giving party. Qarz-e-Hasana involves the lender giving out a loan to a needy Muslim to cover his expenditure. The agreement says that “If and only If the loan seeker is able to pay an amount exceeding the principal, at regular intervals as compensation for the good gesture of the lender, he can pay it at Will”. This amount however is not mandatory on the loan seeker and is only a means of returning a favor to a fellow Muslim. This solves the two sensitive issues that Islam is touchy about, i.e. not allowing interest to be taken forcefully and two, making an effort to reduce poverty in Islamic societies.

Compassion however is a major ingredient of this form of Islamic lending as without this solid virtue, such lending out is impossible. No Muslim would be willing to help a fellow Muslim by giving out his money on which he may or may not receive a surplus in absence of such a respectable quality. This is one reason why Muslims are encouraged again and again in many different verses of the Holy Quran to show pity and concern for the sufferings of fellow Muslims and to make an effort to alleviate it as much as possible.




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