Islamic Microfinance Challenges the Capitalist Microfinance Model: The Core Paradigm Shift
Akhuwat Islamic Microfinance emerged as a movement with the objective of poverty alleviation- an unfulfilled promise of capitalist microfinance. Despite reaping the goal of empowering the marginalized population, the blend of capitalism and microfinance had become ‘just another business which makes profits’. It clearly lacked the vital ingredient- ‘an expression of solidarity with the poor and mutual support’, which was identified and addressed by Akhuwat.
Whatever is conventional, is bound to create a stir
A society left at the mercy of a capitalist financial system witnesses the widening of the wealth gap leading to increased exploitation of the underprivileged segments of society- the wealthy are assisted to gain more material gains while the poor are treated like untouchables. These shortcomings paved the way for necessary innovations in the conventional microfinance model. It was during this period of transformation that Islamic microfinance- based on the principles of brotherhood and solidarity with the poor emerged as a beacon of hope.
To this day, Akhuwat Islamic Microfinance stands as a testament to the success of this paradigm shift in the model of microfinance. It demonstrates the slight remodeling of the concept of traditional microfinance practice has been successful in meeting the challenges in the way of pursuing equity and equality for society.
The Expansion of the Concept of Profit
The two models of microfinance follow different approaches to define ‘profits’.
The capitalist microfinance model measures profit as subjective material gains. These gains are serving the interests of individuals or a community at most. Capitalist microfinance often places profit maximization at the forefront when offering credit assistance to marginalized populations. In this approach, microfinance institutions (MFIs) are driven by the pursuit of investment returns, often adopting individualistic lending practices.
On analyzing the differences in the models of microfinance, Malcolm Harper, an Oxford and Harvard alumnus, remarks that conventional microfinance has moved away from its goal of delivering social and financial justice. It has become ‘Walmartized’- functioning more like a business hungry for profits rather than a route to empowering the underprivileged.
The statement of Founder Akhuwat, Dr Amjad Saqib takes this debate one step ahead- he says, “ Poverty could not be eliminated by business, only by altruism.”
The slight realignment of the concept of profit proved to be sufficient to expedite the poverty alleviation process. Akhuwat Islamic Microfinance defies the concept of material advantage and monetary benefits being confined to individuals or specific groups. It defines profits as ‘gains that benefit all’. This is in vein with Malcolm’s inference when he claimed moral values of generosity and brotherhood to be equally powerful motivations as profit maximization.
Integration of Brotherhood and Generosity in Islamic Microfinance Model
While for the capitalist microfinance model, profit is the north star, Akhuwat on the contrary offers a powerful alternative that is fueled by the spirit of solidarity and brotherhood (mawakhat). Those who are affluent and have resources are encouraged to share their wealth with their needy and not-so-privileged brethren.
This approach leaves no room for charging interest from the beneficiaries and thus, an interest-free microfinance model emerges as a ray of hope. The goal is community empowerment over individual profits. Another motivation for the donors of these interest-free loans or Qarz e Hasan is their anticipated reward through a Higher Being in the next life. These faith-based investments push the concept of Islamic microfinance even further.
Beyond Profits, Towards Transformation
While capitalist microfinance has undoubtedly expanded access to credit, it can sometimes fall short of addressing the root causes of poverty and inequality. Akhuwat invites microfinance institutions to reassess their priorities and question whether profit maximization be allowed to overshadow the goal of poverty alleviation and social justice.
The success of the Akhuwat Islamic Microfinance model not only challenges capitalist microfinance but also invites us to envision a more equitable and values-driven approach to financial inclusion—one that prioritizes the well-being of individuals, communities, and society as a whole.