




































American International Journal of Multidisciplinary Scientific Research 

Vol. 13, No. 1; 2022 

ISSN 2638-1249   E-ISSN 2638-1273 

Published by CRIBFB, USA 

 

1 

ISLAMIC MICROFINANCE AS A TOOL FOR WOMEN 

EMPOWERMENT AND SUSTAINABLE ECONOMIC 

DEVELOPMENT GOALS IN BANGLADESH 
 

 

Md. Shahbub Alam 

Assistant Professor 

Dept. of Accounting and Information Systems 

Islamic University, Bangladesh 

E-mail: shahbub.ais07@gmail.com 

 

Md. Kamal Uddin 

Dept. of Accounting and Information Systems 

Islamic University, Bangladesh 

 

Md. Jafor Ali 

Ph.d Fellow 

Universiti of Selangor, Shah Alam, Malaysia 

 

Md. Nazmul Huda 

Dept. of Accounting and Information Systems 

Islamic University, Bangladesh 

 

Abul Bashar Bhuiyan 

Associate Professor 

Faculty of Business and Accountancy 

Universiti of Selangor, Shah Alam, Malaysia 

 
 

 Received: March 02, 2021         Accepted: May 21, 2021       Online Published: May 27, 2022  

 

DOI: 10.46281/aijmsr.v13i1.1734  URL: https://doi.org/10.46281/aijmsr.v13i1.1734  

 

 

ABSTRACT 

Bangladesh is now playing a role model in conventional microfinancing programs in the whole world. 

Though the financial sectors of this country cover both conventional and Islamic modes. There exist some 

limitations of conventional microfinancing operating by NGOs.  The Islamic microfinancing programs are 

not enhanced in comparing conventional microfinancing due to a lack of proper policy formulation. Most 

people are practicing Muslims and want to avoid interest. The Islamic financial institutions have 

emphasized women's empowerment through shariah-based microfinancing and achieving sustainable 

economic development. The main objective of this study is to investigate the effectiveness of Islamic 

microfinance for empowering women and achieving SDGs in Bangladesh. The methodology of this study 

is based on secondary data including existing relevant literature and annual reports of different financial 

institutions. The findings of this study show that Islamic microfinance institutions perform a significant 



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role in empowering women as well as attaining SDGs and have a broader scope to flourish more by 

applying their various investment modes. This study will help to promote shariah-based microfinancing in 

the future and transmit microfinance systems to other countries of the world. This paper also tries to 

recommend some strategies and policy options to promote shariah-based microfinancing to reduce the 

challenges to ensuring women's empowerment and attaining SDGs. 

 

Keywords: Islamic Microfinance, Women empowerment, SDGs, Bangladesh. 

 

INTRODUCTION 

The blooming of microfinance as a formal and an informal source of finance to help the poor have gained 

considerable recognition worldwide. There exists a relationship  between microfinance and poverty 

reduction, economic growth as well as gender inequality (Aninze et al., 2018).The development 

microfinance in Bangladesh occured more than the decades ago. Its origin can be traced back to 1976, 

when Muhammad Yunus set up the Grameen Bank, as experiment, on the outskirts of Chittagong 

University campus in the village of Jobra, Bangladesh. Since then several microfinance institutions came 

up and have succeeded in reaching the poorest of the poor but most of microfinance instituitions are now 

in mission drift for the fulfillment of their vision. These included the provision of collateral free loans to 

poor people, especially in rural areas, at high interest rates that are repayable in frequent 

installments(Khan & Rahaman, 2007). Microfinance is one of the powerful tools for the poor to fight 

against poverty in Bangladesh. Since nearly last three decades the microfinancing institutions have been 

providing millions of microcredit loans to the poor and have reduced poverty but not such a rate as 

required (Baten, 2009). The experience of poverty programs of NGOs reveals that they have, in general, 

been successful in serving the moderate poor but failed in reaching the extreme poor mainly due to higher 

rate of interest and operational cost, lack of customized products and reluctance of religious people to 

participate in interest based programs (Nabi et al., 2017). Islamic microfinance programs have been 

working as an instrument for empowering women and fight against poverty. Women are specifically 

targeted by Islamic microfinance under the rural development scheme espicially Islami Bank Bangladesh 

Limited (IBBL), which provides interest-free-loans and many other benefits to the women groups 

involved (Hassan et al., 2017). Sustainable Development can be defined as the state of the world which 

can be attained by combining local and global effort to meet the needs of human being with the activities 

that will ensure the safety of the society and environment of future generation (Kates et al., 2005). Islamic 

Microfinance Instruments has been working to achieve the Sustainable Development Goals (SDGs) and 

have a broader scope to attain SDGs through their various investment modes (Rashid et al., 2018) 

In the most of the muslim country poverty is considered as a main obstacle for economic 

develoment. The half of the total population in Bangladesh is women it is not possible the ensure 

economic development without the involvent of women in development works. Muslim women remain 

the least empowered part of society. So there is no option without empowering women for ensuring 

sustainable econmic development of the country. The  UN has announced 17 goals to be achieved in 2030 

to ensure sustainable devolopment. Every country in the worlds are now trying to achieve SDGs within 

specified time period and using different types of tools. Bangladesh is planning and using numerous tools 

for achieving these goals. It is well known to every one that the Islamic microfinance tools contributed a 

lot to attain MDGs successfully. The main aim of the Islamic microfinance is to ensure the equity and 

justice in wealth distribution and  remove hunger, suppression of poverty, increasing employment 

opportuinty which areconsistent with the motto of SDGs. As a Muslim country, many Islamic financial 

institutions are working in Bangladesh and helping ensure sound economy. This study tries to to 

investigate the effectiveness of Islamic micro finance for empowering women and achieving SDGs in 

Bangladesh.  

OBJECTIVES OF THE STUDY 
The main aims of the study is  to investigate the effectiveness of Islamic microfinance for empoweing 

women and achieving SDGs in Bangladesh.  

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Other broad objectives included in the study are: 

 To elucidate on the concepts and models of Islamic microfinance  

 To identify the Islamic microfinance instruments through which Islamic financial institutions are 

empowering women and  contributing to achieving SDGs 

 To examine challenges faced by Islamic microfinance in Bangladesh  

 To put forward policy options to build a strong Islamic micro finance market in Bangladesh and 

transmit shariah based microfinance systems to other countries of the world. 

 

LITERATURE REVIEW 
Khan and Noreen (2012) states that women empowerment is economically significant issues in any 

developing countries. Microfinance strengths women decision making by participation in economic 

activities. The study investigated the socio-economic development of women through micro credit. The 

study results that microfinance has positive effect on women empowerment but not up to the expected 

level. Rashid et al. (2018) conducted study on exploring the Islamic Microfinance Instruments in 

achieving the Sustainable Development Goals (SDGs) in Bangladesh. Financial institutions are playing 

vital role to the attainment of SDGs through the orientation of variety of microfinance products. The study 

results that Islamic microfinance has strong impact on ensuring economic development, achieving social 

and environmental sustainability. The study concludes that Islamic microfinance institutions are 

wholeheartedly trying to improving the socioeconomic condition of the rural which are related to SDGs. 

Lamichhane (2020) mentioned in a study that microfinance services are considered as the prime access or 

entry point towards the empowerment of women. The study finds a positive relationship between 

microfinance and women empowerment. Microfinance has a profound impact on women’s self-

worthiness, decision making power, economic status, community activities and self-help group programs. 

Ananda (2011) argued that microfinance in the developing world is emerging as an effective instrument 

for alleviating poverty, empowering women and sustainable development. He also states that the 

economic benefits derived from microfinance is sustainable. Loro (2013) highlights in her paper that 

microcredit loans significantly enhanced rural poor women’s self-esteem and self-worth which 

empowering them. This not only impact on gaining women higher status in society but also developing 

Bangladeshi economy by the inclusion of more people and business into the economy. According to 

Mohamed and Fauziyyah (2020), Islamic microfinance is an effective tool of poverty alleviation and 

improvement of social well-being as well as the economic development of poor, especially in the Muslim 

society. The study reveals that Islamic microfinance would be the impactful measures for a developing 

country through innovative products in achieving sustainable economic development goals.  

According to Aninze et al. (2018), micro finance provisions helps women participants to eliminate 

their social and cultural barriers in developing countries. Akhter (2018) points out that in the case of 

microfinance, institutions mostly targets the poor women participants. He also mentioned that provision of 

financial resources and its effective utilization along with group-based works can strengthen women’s 

economic status and roles in developing countries.  Akhter and Cheng (2020) analyzed the use of 

microcredit as a tool to bridge the gap between the accessibility of microfinance among poor rural women 

and sustainable socio-economic development, providing innovation to the concept of sustainability of 

empowerment. The empirical analysis finds that there is a significant impact of microfinance on 

increasing women participation in the overall decision-making process, in legal awareness, independent 

movements, and mobility, as well as enhancing living standards to encourage sustainable women 

empowerment. Rahayu (2020) opines in similar way and concluded the paper with stating the financial 

self-sustainable paradigm triggers the practice of Islamic microfinance in a country. 

Nisser and Ayedh (2017) examined the significance of microfinance role to the empowerment of 

women and their socio-economic development. The paper shows that there is a strong relationship 

between microfinance and women empowerment. Microfinance institutions should introduce diversified 

products to the inclusion of women in microfinance program which is very important for extending 

women empowerment and sustainable development of a country. Debnath et al. (2019) examined the 

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determinants of microfinance accessibility by rural women households and its effect on women 

empowerment in Bangladesh. The study reveals that the users of microcredit have a greater control over 

savings, household decision making and legal awareness.  

Usman and Tasmin (2016a) investigated the conceptual framework on the relevance of Islamic 

microfinance in achieving the sustainable development goals (SDGs) of a country. The paper finds that 

Islamic microfinance contributes significantly to the development of human capabilities towards 

knowledge and skills, empowerment, self-reliance and social status of rural women. Islamic microfinance 

led to the empowerment of women that assure their economic life effectively. Islam (2020) investigated 

the role of Islamic microfinance to the women empowerment in rural Bangladesh. Islamic microfinance 

services (IMFS) led to rural family’s occupational transformation from agriculture to retail business. The 

study focused on three dimensions of empowerment viz. economic empowerment, sociocultural 

empowerment and familial empowerment. IMFS impacts on all three dimensions out of which economic 

and socioeconomic empowerment positively contributed toward overall women’s empowerment whereas 

familial empowerment negatively on overall empowerment.     

Uddin and Barai (2016) in her research paper studied the role of Islamic microcredit to the 

enhancement of borrowers’ income in Bangladesh under the rural development scheme of Islamic Banks. 

The paper explored that Islamic microfinance instrument helps poor people releasing poverty through 

rising of income. Uddin et al. (2020) analyzed the Islamic microfinance instruments in attaining 

sustainable development goals (SDGs) in Bangladesh. Islamic microfinance brought the socio-economic 

changes of rural women by alleviating poverty, ending hunger for food, ensuring good health, clean 

drinking water, sanitation & gender equality and empowering women that all lead to the attainment of 

SDGs.   

 

METHODOLOGY OF THE STUDY 

The required information and data has been collected from secondary sources to derive the objectives of 

the study. The secondary source contains scholarly articles, reports of regulatory authority, research 

organizations, donor, Government agencies on Islamic microfinance and Islamic banks in Bangladesh. 

Descriptive analytical method has been used in the paper. This study covers different Islamic 

Microfinacing Institutions of Banagladesh. 

 

CONCEPTS AND MODELS OF ISLAMIC MICROFINANCE 

Islamic Microfinance 

There exists multidimensional poverty in a country and it requires different strategies to tackle it. The 

central focus of this strategy was to enable the poor people to generate income, build assets or attain an 

educational level necessary to get out of poverty. But it is very difficult to provide loan to the poor men 

because they are incapable  of own collateral security, and possessing a lower human capacity (GIFR, 

2012). Islamic microfinance refers to financial services delivered among low income or destitute people 

based on Islamic Shariah. The conventional microfinance is operated based on interest which is prohibited 

in Islam. Islamic microfinance is offered as an alternative among religious poor people for poverty 

alleviation by employing both charity and profit based unique models. Islamic microfinance operates its 

programs following the principles of Islamic Shariah which includes prohibition of interest, risk sharing, 

and avoidance of gharar or ambiguity and ensuring falah (welfare) for all member of the society (Nabi et 

al., 2017). Islamic micro-finance has evolved to provide financial mediation for producing factors of 

production, goods and services through profit and loss, leasing and sale with emphasis on ethical and 

moral values in business. There is evidence to suggest that Islamic micro-finance has a comprehensive 

approach towards human empowerment, leading to human development in Muslim societies (Usman & 

Tasmin, 2016b). GIFR (2012) has reported that Islamic micro-finance products can be divided into three 

classes such as micro-credit, micro-equity and charity. The micro-credit entails the usage of business asset 

based on loan or lease that eases the lack of capital in the face of a business opportunity. Micro-equity 

establishes a business relationship between provider of capital and the entrepreneur who manages the 

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business. Under micro-equity, factors of production are brought together while profit or loss is shared in 

line with agreed upon formulae. The charity type of Islamic micro-fi nance serves as a source of 

additional empowerment in the form of safety nets and for sustainability motives. 

 

Islamic Microfinance Structures 

 
 

Figure1. Islamic Microfinance Structures; Source: GIFR (2012) 

 

Islamic Microfinance Model  

Islamic microfinance has inclusive models to incorporate moderate poor and extreme poor. Islamic 

microfinance models can be divided into charity and profit based model as shown in Figure 2. Charity 

based model based on zakat, sadaqa, waqaf and qard hasana serves for extreme poor and marginal poor 

just above poverty line. Profit based model based on qard hasana and commercial funds serves for low 

income poor. 

Models of Islamic Microfinance 

 
Figure 2.  Models of Islamic Microfinance; Source:Obaidullah, (2008) and Iqbal, (2015) 

 

ISLAMIC MICROFINANCE TOOLS THROUGH WHICH ISLAMIC FINANCIAL 

INSTITUTIONS ARE EMPOWERING WOMEN AND  CONTRIBUTING TO ACHIEVING 

SDGS 

 

Charity based mode of Islamic Microfinance  

 

Zakat: It is the third of the five basic pillars of Islamic faith. Zakat is a compulsory levy imposed on the 

Muslims so as to transfer a portion of wealth from the rich members of the Muslim society to distribute 

the same among the poor. It is th right of the poor on the assets of rich muslim brothers. Thus, zakat works 

as a tool for the distribution of wealth and a sustainable source of funding of charity based microfinance to 

empower  poor women and promote SDGs. 

 

Sadaqa: It means voluntarily donations made by Muslims to remove hardship of the poor people. Prophet 

Muhammad (SM) urge Muslims to give charity to the needy peoples in the society. Funds collected as 

sadaqa may be a viable source of funding of charity based microfinance. 

 

Waqf: The word waqf in Islamic legal terminology is defined as protecting an asset in order to refrain the 

Microcredit 

• Intrest free loan

• Murabaha

• Lease

• Salam 

Micro equity

• Murabaha

• Musharaka

Charity

• Zakat

• Sadaka

• Waqf

Charity based Model

• Microfinance based on zakat, sadaqa 
and waqaf for extreme poor

• Microfinance based on Zakat, waqf 
and qard hasana for poor above 
poverty line

Profit based Model

• Microfinance based onqard hasana for 
low income poor

• Microfinance based oncommercial 
fund for low income poor

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usage, and will be utilized and benefited for the purpose of charity.There are different types of Waqf in 

muslim societies  which may be a viable source of funding of charity based microfinance. 

 

Qard hasana: Quard means loan without interest and Hasana means beautiful. Quard-e-Hasana implies 

beautiful loan on good faith or beneficial loan. Here the lolan holder only pays pricipal in reaonable time 

and need not top pay anything exta compensation for the fund. This facilities may be most viable way to 

for empowering women and attaining SDGs. 

 

Wadia: These deposits or savings accounts may be used to encourage the microfinance client to save even 

smaller amounts as they are allowed to withdraw whenever they want, and there is no risk of loss. This 

small fund may be ultilized for empowering women and attaining SDGs. 

 

Mudaraba: The microfinance clients can open mudaraba savings account with MFI to save surplus funds. 

Under this mode, the client is exposed to investment risks and shares the profit with the institution on a 

pre-determined ratio. This mode helps both paties in sustianable economic benefits. 

 

Profit based mode Islamic Microfinance 

 

Mudarabah (silent partnership): This is a collaboration deal  business enterprise between two parties. 

One  party provide  capital and called Rabb al-mal (the owner of capital). Another party, manages the 

organization using his expertise in using capital is called Mudarib. Every party shared benefit 

predetermined agreed ratio. Actually most of the commercial Islamic institutions use this for for 

empowering women and attaining different  SDGs targets. 

 

Musharakah (partnership): It is a mutual relationship involving two or more parties; both stakeholders 

give funding in the project.  In this agreement if any profit aises then distributed an anagreed ratio  and if 

any loss occurs then distributed on the basis of propotion of capital.The investment in this may play 

significant role in cearting employment opportunity basically women empowerment as well as fulfill th 

SDGs targets. 

 

Murabaha: Contractual buying and selling at a mark-up profit is called Murabaha. In this case, the client 

requests the MFI to purchase certain goods and MFI purchases as  per  requirement of the client. The 

client receives the goods on payment of the price which includes mark-up profit as per contract. Medium 

and large enterprsises get advantages from this IMF mode.  

 

Muajjal : “Bai-Muajjal” means sale for which payment is made at a future fixed date or within a fixed 

period. Actually, it is a sale on credit. It is a contract between a buyer and a seller under which the seller 

sells certain specifi c goods (permissible under Shariah and Law of the Country) to the buyer at an agreed 

fixed price payable at a certain fixed future date in lump sum or within a fixed period by fixed 

installments. This mode of financing helps the small and poor businessmen inperforming sound business 

environment. 

 

Salam: Salam means advance purchase. It is a mode of business mainly used in agriculture under which 

the buyer pays the price of the goods in advance on the condition that the goods would be supplied or 

delivered at a particular future time. The seller supplies the goods within the fixed time. Though this mode 

is most expected for empowerment of women but the application is not a satisfactory level. 

 

Istisna: Istisna is a contract executed between a buyer and a seller under which the seller pledges to 

manufacture and supply certain goods according to specification of the buyer. 

 

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Ijarah (leasing): This is lesase conntract occured by the mutual consent between the two or more parties. 

Whereby an Islamic bank buys and rentals a customer for a rental payment a real estates such as 

machinery, truck, residence, furniture, construction, and other equipment.  

 

Ijarah waIqtina (lease to purchase): This arrangement is like Ijara. The distinction between the two is 

that the consumer is obligated to buy the property at the close of the leasing term in the event of Ijara 

waIqtina. The entire ownership is returned to the user at the completion of the contract, and the 

maintenance costs payable to date are included. 

 

Qard al-hasan: It is a loan free of charge, either for social services or for short-term financial needs. 

Within this case, the creditor shall only recover without any increase in the balance of the loan. Though it 

is not considered as a investment scheme but this financing helps to the  people who are poor.  

 

Takaful: Takaful, a risk management tool is one of the most important products for clients of MFI 

institutions who are generally unable to plan or save for unexpected or uncertain events in the future. 

Takaful, ideally, is a non-profi t mode where all the participants provide joint guarantees. Takaful fund 

contributing in difficult times like death, sickness, crop or business loss, etc  

 

EFFECTIVENESS OF ISLAMIC MICROFINANCE AS A TOOL WOMEN EMPOWERMENT 

AND SUSTAINABLE ECONOMIC DEVELOPMENT 

 

Women Empowerment in Islam 

Empowerment is commonly defined as an increase in citizens' capacity to make policy decisions in an 

environment in which they have historically been deprived of such potential (Hassan & Saleem, 2017; 

Nurasyiah et al., 2018). The word 'empowering women' is perhaps the most contentious topic in the field 

of development. Empowerment of women is recognized as key in developed countries to sustained 

economic development and poverty reduction (ULFI, 2018).  

There is always raises a voice on gender inequality in developed and developing countries. It is 

assumed that the gender inequality is more acute in Muslim societies.  The Muslim women are deprived in 

working at home or outside, education, and attaining assets from family. But real situation is different 

Islam gives equal opportunity women sometimes gives more than men. Our Prophet Muhammad (PBAH) 

urge that women are not to perform only home-based activities, they may busy and stood with their men 

in Jihad, and they treat the injured. At the time of Muhammad (PBAH), the first wife of Muhammad 

(PBAH), Hazrat Khadija, was an esteemed businesswoman. Those rights and responsibilities that the 

Muslim woman had that time most women do not enjoy now. Therefore, it is clear that true Islamic 

principles always support women in helping their families and supporting welfare. In this relation, the 

Holy Quran devotes women as a whole surah to Islam, granted a very special role. It also says that 

Muslim women are responsible for the same moral values as men. In particular, Islam respects the images 

of strong women such as Khadijah, Bibi Maryam, and Aisha. It is observed that women are maintaining 

important roles in Islamic countries, where the campaigns for women's rights are seen as one of the most 

important social movements in favor of justice and rights. 

 

The Impact of Islamic Microfinance on Women's Empowerment  

It is found that women microcredit has a major influence in empowering women. By providing working 

facilities, women might have the chance to start their small enterprises close to or outside their homes 

within the microfinance system, thereby not having to leave their children alone at home. Islamic 

microfinance has an important influence on economic inclusion, access to schooling, access to health care, 

women's rights and empowerment (ULFI, 2018). According to Nurasyiah et al. (2018) Islamic 

microfinance has no significant impact on women’s economic empowerment. Islamic microfinance 

schemes are also very much directed towards assisting corporate resources and women's moral growth. 

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Females from poor backgrounds, especially those who became a study respondent, have a deficiency, 

expressed in the degree of trust and still faintness of mental and bravery. It takes some time to build this 

character, though members (women) are not too long to join in the Islamic microfinance program. 

Despite, as Islam is the second largest religious in the world and unfortunately the researches estimated 

that more than 650 million Muslims living under poverty line. Therefore, for the governments and as well 

as for the community’s leaders it should be in their first duties to fight with this important issue and build 

and develop stable Islamic microfinance organizations to help poor and involved every economic unit in 

economic development (Safiullah,2021). 

In Bangladesh the Islamic microfinance institutions works moderately in empowering women. As 

a Muslim country people are want to avoid interest and want to get profit sharing mode of financing. The 

Islami Bank Bangladesh Limited is pioneer in Islamic microfinance in this country and performing the 

activities through Rural Development Service Scheme (RDS) and Urban Development Service Scheme 

(UPDS). This institution shows a positive result on empowering women in this country.  Some other MFA 

are also performing a significant role in empowering women. 

 

Sustainable economic development 
The tasks for economic and social development must be set taking into account its sustainability and 

correspondence to environmental imperative in all countries and applied on both macro- and micro-levels 

(Аvtorhanov et al., 2018). Sustainable development is the organizing principle for meeting human 

development goals while simultaneously sustaining the ability of natural systems to provide the natural 

resources and ecosystem services on which the economy and society depend(Wikipedia). Sustainable 

development can be defined as development that meets the present needs as well as ensuring future needs 

without considerating the abililty of the future gerneration.  

 

The Contributions of Islamic Microfinance in Achieving SDGs 

The major portion of investable fund invested on the basis on weight of the products. The study observes 

in an Islamic finance sector-wise investment are highest in Micro, Small and Medium Enterprises. As 

most of the people in this country living below in poverty line so these investment covers a large portion 

of the total population. The contribution of Islamic microfinance in achieving SDGs are summarized as 

under: 

 

Poverty Reduction and End Hunger (SDG 1 and SDG 2)  
Bangladesh is making progress in reducing poverty rate and has a chance of overcoming the extreme 

poverty by 2030 (World Bank, 2016). The Islamic microfinance funds are spent on different types of 

education, training and health care programs in Bangladesh. Basically. Islamic banks serve the deprived 

and retarded segments of people who live below extreme poverty through their micro-financing (Mamun 

et al., 2017).  The Islamic financial institutions accumulated the fund of Zakat, Waqf and Sadaqah and 

distributed to the real poor in the country that plays a significant role eradication of poverty and hunger. 

 

Good health and Quality education (SDG 3 and SDG 4)  

Islamic microfinance provides education and Medicare facilities to the down-trodden people. Besides 

many charitable hospitals such as Ahsania Charitable cancer hospital, Islami Bank Foundation are also 

giving medical treatment with low costs to the poorer section of the society all over the country. The 

vulnerability of the poor is reduced and their socioeconomic status improved with the better health 

condition and the education level of their children (Bhuiyan et al., 2011). The Islamic Foundation works 

with twenty nine missions including treating patients, providing literacy training to illiterate people and 

supplying person with interest-free microcredit loans is working overall districts in Bangladesh. 

 

Clean Water, Sanitation Energy, Consumption and Production (SDG 6, SDG 7 and SDG 12)  
Islamic microcredit helps to improve the livelihood of both rural and urban poor especially the health, 

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sanitation, education status by providing investment facilities. It also extends the investment facilities 

providing hand tube-wells keeping in view the needs of safe drinking water and rural housing facilities of 

the rural dwellers. Bangladesh is an agricultural country so Islamic microfinance investment can help the 

farmers empowerment.  

 

Gender Equality and Empowering Women and Girls (SDG 5)  

Islam gives the equal rights in the women and Islamic financial institution works for the empowering 

women by providing various shariah based microcredit investment.  

 

Sustainable Economic Growth and Employment Opportunity (SDG 8)  

The IMF has shown the power and success in achieving the accelerated economic growth of their 

microcredit with reaching the rural poor people. Besides, it enhances employment opportunity (Mahmood 

& Mohd Rosli, 2013; Shirazi, 2012). The Islamic microfinance institutions deployed their fund in 

development that helps to achieve the goal of SDG-8. 

 

Infrastructure and Human Safety (SDG 9 And 11)  

Islamic Microfinance empowerment has been regarded as an important tool for improving the household's 

quality of life regarding better and bigger houses and healthy conditions (Bin Mohamad, 2013; Usman & 

Tasmin, 2016a). 

 

Peace, Justice and Global Partnership for Sustainable Development (SDG 12) 

Zakat and waqf regulated by separate ordinances are not capable of solving social problem. IMFs such as 

the "Urban Poor Development Scheme (UPDS)" of IBBL established to develop welfare oriented banking 

system and to ensure equity and justice in the field of all economic activities is also trying to reduce the 

level of crime & violence through the development of ethical and religious values through its 

microfinance (Dhaoui, 2015). Islamic microfinance increase human morale to maintain peace, justice in 

society as well as creating international brotherhood. 

 

Combating Climate Change, Ocean Resources, Managing Land and Forest (SDG 13, SDG14 and 

SDG 15)  

With increasing the global awareness, the microfinance institutions are considering the environmental, 

social and governance (ESG) issues during their decision-making process (Caplan, 2013). The 

microfinance institutions deployed their fund in environment friendly project like agriculture, forestation 

and bio diversified sectors.  

 

CHALLENGES AND POTENTIALS OF ISLAMIC MICROFINANCE IN BANGLADESH 

 

Challenges of Islamic microfinance in Bangladesh 

Islamic Microfinance in Bangladesh did not grow like conventional microfinance due to lack of visionary 

leadership, negative attitudes public, lack of motivation from top management, lack of directions and 

guidelines from regulatory authorities, lack of proper application of investment mechanism, inadequate 

funds, lack of proper use of zakat and Waqf funds, want of dedicated trained professionals and 

compromising in shariah rulings. The key challenges that Islamic microfinance industry faces include:  

(i)Absence of proper Guidelines for Islamic Microfinance from Microcredit Regulatory Authority; (ii) 

absence of sufficient Islamic microfinance institutions; (iii) Paucity of well-trained expert human 

resources; (iv) lack of motivation from management; (v) absence of self-oriented supportive guidelines 

from Central bank of Bangladesh; (vi) absences proper application of investment mechanism and, (vii) 

Compromising in shariah rulings. 

 

 

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Potentials of Islamic microfinance in Bangladesh 

Though Islamic Microfinance bears samll portion of total microfinace. There are huge opportunity to 

flourish Islamic micrifinace in Bangladesh. The following factors may be explained for bright prospects 

and significance of Islamic Microfinance in Bangladesh.  

 Majority of the people in this country belongs to muslim religion. So bring the muslim religious 

people under the umbrella of Islamic microfinance scheme.  

 The Success of Islamic banking in Bangladesh is repuated all over the world. So IMF can take this 

chance to be  role model microfinancing.  

 There are huge liquidity in Islamic financial institutions in Bangladesh. These excess liquidity may 

be used for Islamic microfinacing.  

 The Islamic Microfinance Programs of IBBL(RDS & UPDS) are already proved the success in this 

arena. So IMF get advantages from this miletone.  

 Bangladesh has a great experience of conventional microfinance. So this may be crucial in 

expanding Islamic microfi nance. 

 The proper management of Zakat and Waquf fund may enhance the Islamic micofinance  

 Attracting foreign funds may enhnace the operations of Islamic Microfinace in Banladesh 

 Performing work in good faith, the ruling of Islam may improve relationship between Muslim and 

non-Muslim. This may improve the IMF opertaions. 

 

POLICY APPLIANCE AND CONCLUSION 

It is imperative to adopt following policy options to promote Islamic microfi nance industry in 

Bangladesh:  (i) Issue of guidelines on Islamic Microfinance Institutions by Micro credit Regulatory 

authority (MRA) covering all operating aspects including capital adequacy, risk management, auditing 

and monitoring, and global financial reporting standards. (ii) Allowing a good number of Islamic 

Microfinance Institutions (IMFIs) by MRA. (iii) Adopt programs to develop devoted and skilled human 

resources and promote more efforts to train Islamic MFI manager and staffs. (iv) Improve the motivation 

and morale of the management for enhancing IMF. (v) Implementation of self-oriented supportive 

guidelines from Central bank of Bangladesh. (vi) Application shariah based diversified investment 

instruments of flourshing Islamic microcredit. (vii) Application of modern technology to reduce 

operational cost and expand network in remote areas towards promoting IMF. (viii) Undertaking proper 

steps for credit, liquidity and market risk management for ensuring sustainability of Islamic Microfinanc 

(ix)Arranging dialogue with conventional microfinance institutions to introduce Islamic microfinance for 

promoting IMF among hardcore poor people. (x) Must follow the shariah rulings in microfinancing 

because shariah is called the main arms for islamic financial institutions. 

There are some limitations of conventional microfinacing but conventional microfinancing more 

or less successful in women empowerment. The participation in the microfinance programmes helps to 

empowering women and contribute socio economic development.  At the same time Islamic microfinance 

program act as a viable tool in promoting women empowerment  and combating poverty through its 

inclusive and innovative models based on zakat, sadaka, waqf and commercial funds to cater the demand 

of all categories of poor. Islamic Microfinance is working to achieve the targets of  Sustainable 

Development Goals. The study finds that the Islamic microfinance touches all 17 goals of SDGs in the 

economy of Bangladesh. Finally Islamic Microfinance Institutions are wholeheartedly working to improve 

the socioeconomic condition of the especially women empowerment and attaining people the  goals of 

sustainable development.  

 

AUTHOR CONTRIBUTIONS 

Conceptualization: Md. Shahbub Alam, Md. Kamal Uddin, Abul Bashar Bhuiyan 

Data Curation: Md. Shahbub Alam, Md. Kamal Uddin, Md. Nazmul Huda, Abul Bashar Bhuiyan 

Formal Analysis: Md. Shahbub Alam, Md. Kamal Uddin, Md. Jafor Ali, Abul Bashar Bhuiyan 

Funding Acquisition: Md. Shahbub Alam, Md. Kamal Uddin, Abul Bashar Bhuiyan 

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Investigation: Md. Shahbub Alam, Md. Kamal Uddin, Abul Bashar Bhuiyan 

Methodology: Md. Shahbub Alam, Md. Kamal Uddin, Abul Bashar Bhuiyan 

Project Administration: Md. Shahbub Alam, Md. Kamal Uddin, Abul Bashar Bhuiyan 

Resources: Md. Shahbub Alam, Md. Kamal Uddin, Abul Bashar Bhuiyan 

Software: Md. Shahbub Alam, Md. Kamal Uddin, Abul Bashar Bhuiyan 

Supervision: Md. Shahbub Alam, Md. Kamal Uddin, Abul Bashar Bhuiyan 

Validation: Md. Shahbub Alam, Md. Kamal Uddin, Abul Bashar Bhuiyan 
Visualization: Md. Shahbub Alam, Md. Kamal Uddin, Abul Bashar Bhuiyan 

Writing – Original Draft: Md. Shahbub Alam, Md. Kamal Uddin, Abul Bashar Bhuiyan 

Writing – Review & Editing: Md. Shahbub Alam, Md. Kamal Uddin, Abul Bashar Bhuiyan 
 

CONFLICT OF INTEREST STATEMENT 

The authors declares that they have no competing interests. 

 

ACKNOWLEDGEMENT 

All authors contributed equally to the conception and design of the study. 

 

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