Proposed interest-free microfinance business models : to be tapped by conventional microfinance institutions in Muslim Minority African States

Abstract EN

Interest free finance is receiving attention worldwide for its stability, reducing fragility and volatility.

While interest-free finance has been documented in many regions of the world, little is written about its development in Africa.

Muslim population in Africa cannot be underestimated, and most of them fall within the estimated poverty line.

After investigating the status of interest free microfinance, we concluded that there seems to be a large un-met demand for interest-free microfinance products in Africa.

Interest-free microfinance need to be considered as an unconventional solutions to specific financial needs that are unmet by today’s conventional microfinance services industry.

The prospective of interest free microfinance in Africa is huge even without the need for a new Islamic microfinance policies and interest-free regulatory framework.

We also suggest suitable mechanisms to extend finance via interestfree formula in conventional MFIs in Africa.

1.

The Status of Interest-Free Microfinance in Africa.

Islamic (interest free) banking is a form of financial intermediation that prohibits giving and receiving pre-determined interest (or rate of return), as money has no intrinsic value, Instead financial providers have to share the risk and benefits on profit and loss sharing arrangements; nonetheless the system does not exclude sales-based and lease formulae.

Interest free finance is receiving attention in Europe, Singapore, Hong Kong and many other non-Muslim countries.

Moreover, the UK government has committed itself to making London the global hub of Islamic.

Moreover, the 2008-09 financial crisis set Islamic finance as an option to the global financial system because of its stability, reducing fragility and volatility.

Moreover, Islamic finance also emphasizes poverty alleviation and reducing income inequalities(1).

While interest-free finance has been documented in many regions of the world, little is written about its development in Africa.

Therefore, assessing the state of interest-free microfinance in Africa is difficult, because of data limitation.

Nevertheless, there seems to be a large un-met demand for Interestfree microfinance products in Africa given the large number of Muslims(2), weak financial inclusion, and the limited Islamic microfinance providers.

The proportion of Muslim population in Africa is estimated to be 53% out of total population (582 million, out of total population of 1097 million)(3).

Moreover