Shariah Compliant Institutes Modeling and Micro-finance

Microfinance, means providing poor and low-income groups with financial facilities and services to improve their financial condition. Providing financial services and banking credit facilities for lower income groups in less developed countries is very difficult and out of reach; this is because of high interest rates and collaterals asked by banks and credit institutes. Microfinance as a prevailing financing method was practiced since 1960 as a fundamental method for removing obstacles in interest based banking systems. This method to some extent has been able to satisfy credit needs of the poor. But it should be mentioned that a vast group of Muslims who preferred to finance their needs in accordance with Islamic, could not benefit from this kind of micro finance. Regarding this restriction of Muslim communities, by using an Islamic shariah compatible financial tool called “Islamic microfinance”, in this paper we try to introduce a suitable financing method to fulfill low income Muslim groups’ financial needs.