Challenges and solutions in Islamic microfinance

Purpose – This paper aims to highlight the challenges faced by the Islamic microfinance institutions (MFIs) and map out suggestions in overcoming the issues. Design/methodology/approach – This is a conceptual paper. Findings – Among the challenges are low market penetration, sustainability of MFIs due to lack of fund mobilisation and high administrative costs, and the effectiveness of Islamic MFIs in alleviating poverty. Suggested solutions include a collective resolution in increasing bank participation in microfinance and diversifying their portfolios, provision of education and training, better coordination and networking, technical assistance through waqf and zakah funds, and the development of an enabling regulatory and policy environment. Practical implications – Regulators and MFIs can practice the suggestions made in the paper for the benefit of the ummah . Originality/value – Governments can use the suggestions made in the study to develop a sustainable Islamic microfinance framework which can bring about benefits to the country such as taxes and consumption from those who have graduated to a non-poor status.