Grameen La Riba Model: A Strategy for Global Poverty Alleviation

Abstract

"The objective of this paper is to develop and implement an Islamic micro-finance model, using the Grameen group financing methodology, which can be used as a tool for global poverty alleviation. We posit that the fundamentals of Shari'ah concerning: (i) equitable risk and return sharing between the lender (bank) and the borrower (client) and (ii) helping the poor especially, the 'poorest of the poor' to be self sustaining, provide the necessary foundation for an Islamic finance model that is better suited to help the poor increase their sustainable income and eventually escape poverty. Our model begins with providing carefully self-selected client groups with murabaha contracts before providing musharaka finance. The murabaha financing agreement includes fixed payments each period of repayment and therefore is easier to administer and can be used to screen out potentially problematic clients who are most likely to default. Those clients who are in groups with successful repayment of the murabaha finance will have a choice between murabaha and musharaka financing in future. Finally, we describe our implementation strategy and preparations for a pilot study in Colombo and Bibile, Sri Lanka."