Microfinance meets Islam

Mohammed Obaidullah, a senior economist at the Islamic Development Bank, argues for the compatibility of microfinance with Islam:

Contemporary mainstream Islamic finance has expended considerable effort in developing Shariah-compliant products and services for deposit mobilization, finance, remittance, […]. These products with minor modifications if required, can be used for microfinance as well.

A charity based approach inherent in the institutions of zakat and sadaqa exists to take care of consumption needs of the extremely poor […]. The awqaf is ideal for creation and preservation of assets that can build capacity and provide technical assistance. The financial assistance is aimed at wealth-creation using Shariah-compliant for-profit modes with free pricing.

Except in the matter of designing products that do not violate Shariah-related prohibitions, there seems to be little room for conflict between Islamic micro finance and conventional best practices micro finance.

For more on the subject see Blake Goud's very good blog on the Islamic finance industry.