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Islamic Microfinance helps to finance start up business

31st Mar 2017
Islamic Microfinance helps to finance start up business

Islamic Relief Shea Butter project led by local entrepreneur Donmbia Kadia Samaki in southern Mali (Photo: Islamic Relief)

Islamic Relief is committed to giving people a chance to support themselves and to live a life of dignity. As one of the world’s largest faith-based humanitarian aid charities, we provide emergency relief in the form of food, water and shelter to people in need. But we also invest in people’s livelihoods through projects financed through initiatives such as Islamic microfinance, which provides individuals with support to start their own businesses and provide for themselves and their families.

More than 70 percent of people living in Muslim countries do not use formal financial services and around the world Islamic Relief is empowering financially vulnerable people through microfinance loans that give them a way out of poverty. These small interest-free loans (Qard Hasan) are especially made available to those without access to financial services through programmes designed to meet their particular needs and circumstances.

Microfinance loans are usually relatively short term – for less than 12 months in most instances – and are generally for working capital with immediate regular weekly or monthly repayments.

Islamic microfinance replaces the traditional lender’s requirements for physical collateral such as property with a system of collective guarantee (or solidarity) groups, whose members are mutually responsible for ensuring their individual loans are repaid.

Loan application and payment procedures are designed to be helpful to the borrowers by ensuring they are simple to understand, locally provided and are quickly accessible.

Such schemes are intelligent solutions to poverty as every problem has a different solution. Poverty has many damaging effects on society – not just hunger and thirst – with women and children often the ones who are most affected .

This is why, in the West African country of Mali – one of the poorest countries in the world – Islamic microfinance has been critical to financially empowering the local community. Since 2010, Islamic Relief has invested over £150,000 in Mali and is supporting 2,716 micro-entrepreneurs there. A tremendous 99 percent repayment rate means we can continue to reinvest this money in other microfinance projects, which creates a virtuous development circle.

One microfinance project, which was started several years ago by a local woman, has grown to a co-operative of more than 70 women. They harvest the nuts from the Shea tree and reduce them to a butter-like paste which is then exported to Paris, where it is used in skincare cosmetics.

This Shea Butter microfinance project is so important as it is being driven by women and is enriching the entire community. The money made not only rewards the women and their families but is also invested back into the business to benefit the wider community.

We believe that such start-up finance is a means of giving people a hand up rather than a hand out.

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