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ABSTRACT
This paper reviews and discusses the impact of Islāmic microfinance and its conventional counterpart on their borrowers. Another primary focus of this study is to identify determinants that could influence the microfinance borrowers. The study also promotes Islāmic microfinance and suggests it as one of the best poverty alleviation tools, especially among the Muslim society by reviewing some measurements taken and suggestions by other researchers through systematic literature review. This paper is a literature survey of more than 50 articles related to microfinance which tries to analyze the areas that researchers investigated in microfinance. This survey comprises not only an empirical analysis and comparative analysis but also the recommendation and suggestion with some theoretical works. Microfinance is lauded asan effective tool for eradicating poverty. It has improved the livelihood, well-being and economic development of the poor people. However, studies show that most conventional microfinance programs neglected the extremely poor population. Therefore, various modes and structures of Islāmic microfinance can deal with different activities and levels of poverty, including the extremely poor. The findings of this study suggest that Islāmic microfinance is one of the best tools to reduce poverty, especially in Muslim society.
JEL Classifications: D14, D31, G21, I38
Keywords: Microfinance, Microcredit, Islamic microfinance, Impacts, Factors.
1.INTRODUCTION
Financial services development is important to the social and economic life of households including the poor. Through loans from financial services, the poor may generate income, stimulate local transactions and create supply and demand for goods and services at any rate in their domestic economy (Abdelkader and Salem, 2013). Unfortunately, many financial institutions might not let the poor people to participate and access their services because the poor are deemed as having inability to service their loans. There is little profitability obtained from poor people (Rokhman, 2014). Hence, a poor household will eventually face financial problems and be destined in the cycle of poverty.
The emergence of microfinance, since a few decades ago, aims to eradicate the root problem of economy, poverty (Tammili, Mohamed, and Terano, 2018; Rokhman, 2014; Abdelkader and Salem, 2013; Saad, 2012) by strengthening the economy from the lowest level of socio-economy, particularly in developing countries. The pioneer of this idea was Professor Muhammad Yunus with the success story of Grameen Bank in...