All inclusive microfinance : A study of the demand for Islamic microfinance in Malawi.

Abstract: Microfinance is the number one buzz word in the development sphere nowadays. The basic idea of microfinance is to make financial services available for those excluded from the conventional banking system. By charging market price interest rates on the loans granted the business is meant to become sustainable and independent of fluctuations in cash flow from donor funding. The microfinance sector in Malawi is relatively young and still in the development phase. Since the majority of the charity organizations running microfinance projects in Malawi are originating from the Western world, the services these institutions offer are inherently affected by Western (Christian) banking culture. This paper investigates if this set up results in the exclusion of Malawi’s Muslim population due to the fact that Islamic law prohibits Muslims from charging or paying interest on loans. The conclusions of this thesis are that the Muslim population uses the microfinance services to the same extent as their Christian brethren. However, a large proportion of the Muslim clientele feel that they are morally prohibited from using the microfinance services because of the interest rate charged. They only make use of the interest-based loans because they have no other option, and would thereby prefer services compatible with Islamic law. My recommendation is for the microfinance institutions to embrace this knowledge and further investigate the need of Islamic microfinance, and the possibility to implement it, before the consequences becomes more than a moral issue.