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Why to create a Sadqa bank 

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Sheikh Irfan Ahmed

General Secretary

Zu-Al-Noorain trust (NGO)

When we discourse for human development on surviving grounds, poverty remains at paramount position that integrally needs to be addressed in uplifting the poor. As such, economic welfare stimulation is of supreme importance. Reasonably, among various ways to support/help the poor, the conventional institutions particularly micro finance institutions are meant to serve such issues by way of financing tiny businesses in groups or at an individual level. Moreover, to be specific this way of financing is unceasingly backed by extra burden in the shape of interest that the borrower has to bear in all cases that at times may lead to moral hazards? On the contrary, when we talk spirituality we are basically talking of religion. For the author, spirituality means religion. Here, unburden financing plays a key role in the same. To finance the extremely poor is not among the purposes of any financial institutions even in conventional micro-finance institutions. Hence, to address those lies under the Doman of religious umbrella and Islam provides a solution for some. Today, Islamic micro finance/interest-free finance which is in operation offers trade-based financing as well as charity-based financing. Islamic Microfinance Institutions (IMFIs) have been working for decades, mostly in Asian countries. As a subset it gives economic setup in supporting   poor and poorest in the shape of grants and provides Qard Hasan or trade based on promoting trade activities in terms of entrepreneurship development among Muslims as well as Non-Muslims.Today, as of date, over 500 Islamic microfinance institutions operate in the world both in Islamic majority and minority nations in more than 52 countries with a market size as estimated at over USD 1 billion. It is observed among Islamic micro finance operating countries,  as per (CGAP) Indonesia, Bangladesh, Pakistan and Afghanistan are the leading stakeholders of the industry that address share of about 80% share of the current Global Islamic microfinance industry. It amounts to Over 3 million active financing clients of extremely poor . In order to extent assistance to a greater number of people, new models of Islamic microfinance are being built. Besides various models developed by the IDB, Muslim Aid and a nonprofit contemplate reservoir. As reported by researchers, in the United States and in Asia, the Institute of Halal Investing (IHI). In the early days of Islamic microfinance, the loans/advances were usually given with no cost (qardhasan) and any costs deserved were covered with other charities such as sadqa specific and general Clemency with zakat. To ensure Sharia compliance, even when repayment rates are between 96% to 99% equivalent to the most successful microfinance institutions (MFIs). It’s seen in many cases the reliance on voluntary Contributions makes the continuing operation of the organizations inexact. It is noteworthy that early adopters of microfinance, Bangladesh was also a beginner to introduce Islamic microfinance at formal level. Many establishments have recently entered Islamic microfinance syndicate a Sharia-based microfinance program with zakat for the extremely poor to be able to use microfinance.

Literature review and experience reveals that the financial institute works for monetary rewards as when we analyze conventional micro finance for the average poor. But the hard poor is almost excluded. So as per data from various sources and people experience, it is quite evident there are incredible openings for Asia to develop the Islamic Micro finance industry in order to uplift thepoor for their growth at ease. IMF is able to support many chronic areas to enrich financial inclusion. Asian markets are home to a large Muslim poor population which enables a ready market. Every year for the introduction and distribution of Sharia-compliant, particularly those having a spiritual base. The progress represents more opportunities for the region to benefit from this rapidly growing Sharia-compliant industry. To have a cursory look at what we learn.   The great Indian microfinance crisis has shaken the world of microfinance. An industry that grew at 90% on an annual basis from 2002- 03 to 2009-10 was reduced to just 7% of growth in 2010-11.2 The Andhra Pradesh crisis is part of a chain of events which are bringing microfinance a bad name, not just in the hallowed halls of the global development finance industry, but more importantly at the societal level. India suffered from a lot of problems in its microfinance sector particularly in Andhra Pradesh by charging exorbitant rates of interest, restoring to unethical ways of recovering loans by confiscating title deeds, using abusive language, etc.  If we remember in  October 2010,  the Government of Andhra Pradesh issued the Andhra Pradesh Microfinance Institutions (Regulation of Money Lending) Act, 2010 effectively shutting down all private sector microfinance operations in the State. This was a major blow to the entire microfinance industry. There are undoubtedly lessons to be learned from the Indian experience with microfinance and it is obvious from the above discussion that up to a large extent interest is the root cause of this crisis. In order to overcome this crisis, interest-free microfinance (Islamic microfinance) can be conceived as an alternative to interest-based microfinance. The Interest-Free economics aims at equity and justice in economics. India, being the second largest Muslim populated country in the world, may further accelerate the development of an interest-free Islamic microfinance system here. In addition Islamic microfinance could be beneficial in other ways like better recovery rates and increased organizational and borrower sustainability, as well as more effectively meeting microfinance’s core objective of poverty alleviation, increased production and job creation. Simultaneously, Islamic microfinance can also offer an alternative paradigm for millions of poor. In this context it is suggested that Interest-free micro finance may be a fruitful initiative towards the main goal of poverty eradication and microenterprise development

Experience so far:  India offers a huge consumer marketplace for prospective enterprises. Micro credit role of poverty eradication is obvious on the grounds of employment generation, women empowerment, but still hunger, poverty exists in good form. It is reasoned so because of high interest rates in general, interest refuted Muslims and what not, the suicides and credit partialities have been empirically proven by MFIs. Therefore UN (United Nations) MDG (Millennium Development Goals) remains UN met in fighting poverty and hunger, Despite the fact that Islamic Finance is growing at a faster rate, and  ability to engage the  poor.  IFMF is a new concept still in infancy and demands a deeper market research to enhance the relevant market segmentation and customization of products. As per pandemic crises it is the poor who suffer badly and as per social media even government circulations in directing and appreciating the efforts by NGOs while reaching the poor in providing food, medicine etc particularly by Muslim communities. With this if a scenario is built, I feel it is time to pool all such efforts in one streamlined manner in a way to connect zakat fund formally to address poverty at the national level with a sword of interest-free micro credit. That would be a direct a trend towards sustainable growth viz a base for recurring sources of income in fighting hunger, poverty and what not.

Summary: -Time has reached to pool zakat collectively to avoid giving directly to the poor/needy. Once institutionalized, the overlapping, shyness, dignity etc. will be preserved, and for such Sadqa banks can play a vital role. In religion, the, the wellbeing of society is preferred over the wellbeing of individual keeping in view justice and fair play must reach all the levels. Islam provides a well-adjusted lifestyle to human life. As Islam provides the comprehensive code of life and to deal with poverty reduction is as one of the fundamentals of faith. While dealing with the wellbeing of humans it provides the mechanism for one’s material wellbeing as well as spiritual wellbeing for prosperity. In Islam Zakat/sadqa is the option available to be given directly given to poor/needy but it is not encouraged for the poor to solely rely on same. It is encouraged to be self-employed or independent in a way to exploit whatever possible resources they have access too. Therefore, sadqa banking also gives a solution in minimizing ones dependence on charity.


(Views expressed in this article are exclusively of the author and is no reflection on our website or newspaper)

The author can be mailed at ([email protected])


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