Role of Islamic microfinance in the inclusive growth: A case study of Family Bank in the Kingdom of Bahrain

Abstract

Inclusive growth is a matter of serious concern for most of the under developed and developing nations as they are caught in a structural poverty trap due to unfavourable international environment. It is in this context of addressing poverty, the microfinance system finds its significance and offers the component for a paradigm shift in the development thinking. Nonetheless, the conventional microfinance which functions based on interest has not yet been completely successful in providing a sustainable survival to the economically backward sections due to high interest burden on the poor and the lack of proper guidance to utilize the borrowed money in a productive way. Theoretically, Islamic microfinance system which is totally free of interest appears to be able to overcome these shortcomings. In a profit and loss sharing system, it becomes the concern of both the borrower and the provider of finance to utilize the borrowed money in a productive manner. Hence, simultaneous to providing the loan, Islamic financial institutions provide the poor customers with proper guidance regarding the intelligent use of money. Family Bank in Bahrain is a recent experience in the field of Islamic microfinance. This paper analyses the role of Islamic microfinance in realizing the true form of inclusive growth by throwing light to the achievements of the Family bank in Bahrain in this regard.