Deadweight loss in the interest-based and the interest-free (Islamic)‎ microfinance programs :

Abstract EN

This paper illustrates the deadweight loss in the interest-based Microfinance program compared to the interest-free or Islamic Microfinance program in terms of ‘consumer’ surplus, producer’ surplus, loan price and the quantity demanded of the Microfinance loan.

This article analyzes the secondary data on twenty Microfinance institutions of the nine countries of the world, and world microfinance data.

Deadweight loss is demonstrated by using a numerical example and graphical presentation.

The findings expose that consumer’ surplus is at least three times higher, and producer’ surplus is also higher in the Islamic Microfinance than the interest-based Microfinance program.

In contrast the loan price is at least 142%-241% higher in interest-based Microfinance than the Islamic Microfinance.

Consequently, the quantity demanded of Microfinance loan is higher in the Islamic Microfinance than the interest-based Microfinance.

Finally this paper recommends for converting the interest-based Microfinance institution into the Islamic Microfinance institution to attain the wellbeing of microfinance member.