Islamic Microfinance

THE ESTABLISHMENT OF Islamic banking and financial corporate entities is a new development in the contemporary corporate world. This is noticeable not only Muslim countries but also in non-Muslim countries. These institutions provide Islamic services on the basis of a unique and just profit- and-loss sharing principle. However such a novel working system should naturally be accompanied by a number of methodological and operational problems.

In the last two decades, the practice of the majority of Islamic banks shows a widespread preference for murabaha (trade financing), and a lesser degree of murabah financing. And in contrast, musharakah (partnership) financing has generally been avoided on the mistaken presumption that it is an economically non-viable (high-risk) instrument. But the experience of the Sudanese Islamic Bank disproves this proposition. Rather, it testifies to the relevance of musharakah financing as a tool for rural development and development of the poorer sections of the population. in fact, musharakah financing can bring changes and commit the people to work hard (due to the incentive factor) for the betterment of their own lives.