Integration of Waqf - Islamic Microfinance Model for Poverty Reduction: The Case of Bangladesh

Type Working Paper
Title Integration of Waqf - Islamic Microfinance Model for Poverty Reduction: The Case of Bangladesh
Conventional Micro Finance Institutions (MFIs) were established essentially to alleviate poverty. Despite their operations for more than four decades, the problems of poverty continue to aggravate. MFIs have been constrained by high cost of fund, high interest rate charge and poor human resource quality of the recipients. Islamic MFIs have recently evolved with the hope of overcoming these financial, ethical and human capital deficiencies faced by the conventional finance. Moreover, a good number of integrated models have been proposed to enhance the role Islamic MFIs. Most of these models however lack empirical justifications. The present paper has developed an integrated Waqf-Microfinance Model (IWMM) and conducted a survey in Bangladesh to validate the model by gauging the perception of Microfinance clients. A total of 381 respondents were included in the survey. There are six constructs presenting the IWMM, namely Waqf Resources, Islamic MF, Takaful, Project Financing, Human Resource Development and Poverty Alleviation. In the survey instrument, 45 items represent the six constructs but only 26 items have been retained after factor analysis. The average Cronbach alpha value of the constructs is more than 0.85. Structural Equation Modelling (SEM) has been adopted to examine the relationship among the constructs. The SEM is deemed the most appropriate for validating the model with empirical data. The results show that there are significant relationships between Islamic Micro Finance and Takaful, Waqf Resources and Human Resource Development, Takaful and Human Resource Development, Islamic Microfinance and Human Resource Development and, Waqf Resources and Project Financing. The results also indicate that poverty alleviation is possible through the integration of these constructs. The paper concludes that the proposed model has a potential of being applied for poverty alleviation programs in most of the OIC member states.

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