By Valentina Costa, Hala Makhlouf and Perrine Mazaud, published by Microfinance Gateway, February 2010, 14 pages, available at: http://www.ceistorvergata.it/Public/files/mesci/file/ColonnaDX/Women%E2%80%99s%20Empowerment%20through%20Islamic%20Microfinance%
20in%20Egypt%20COSTA%20MAKHLOUF%20MAZAUD.pdf

The article posits that Islamic microfinance helps to eliminate gender discrimination in Egypt. It begins by citing improvements in various indicators over time such as higher age of marriage, maternal death rate and education.

Despite some recent positive changes for women, 74.3 percent of women aged 15 to 64 remain unemployed. The article states that encouraging women to start their own businesses can help offset this large unemployment rate by increasing women’s access to credit, and microfinance institutions (MFIs) can serve this purpose. The article cites a study released in 2008 by Planet Finance which states that microfinance provided to women in Egypt led to an improvement in the quantity and quality of food eaten by households, improvements in the borrowers’ financial independence and helped borrowers gain greater respect from their spouses.

The authors detail the nuances of Islamic microfinance, which is based on the religious principles of the Koran. One of the five pillars of Islam is Zakat, which is essentially mutual cooperation and economic empowerment through poverty alleviation. According to Islamic rules, it is immoral for a lender to charge interest on a loan. Islamic microfinance is categorized into two groups: Profit/Loss Sharing and Non-Profit/Loss Sharing. The former is called “mudaraba” in which a financial institution finances an entrepreneur’s short-term project and will share in the profits or losses of the entrepreneur. In the latter, the bank acts as in intermediary by buying the entrepreneur’s goods and sells them at a higher price.

The article then draws differences between an Islamic microfinance system and a traditional one. The authors argue that with Islamic microfinance, the goal is to eradicate poverty and to target the poorest people, while this is not allegedly the case with traditional microfinance. According to the authors, the cost of loans with traditional microfinance is much higher than with Islamic microfinance because traditional microfinance is sometimes profit-maximizing. Lastly, the focus of traditional microfinance providers on serving women differs from Islamic microfinance, where the focus is more on the family as a unit rather than on women in particular.

The article concludes with citing Alashanek Ya Balady Association for Sustainable Development (AYB-SD), an MFI in Egypt which has enacted “service fees” instead of interest rates, in which the fees are directly paid by the beneficiary in a set amount in exchange for the loan. The organization reports a 100 percent repayment rate on its small business loans which range from USD 500 to USD 2,500. The authors cite this organization as ethical from an Islamic microfinance perspective because it does not charge an exorbitant fee and practical because the organization is self-sustainable.

By Julia Korn, Research Associate