Fintech and partnership-based islamic microfinance framework for financial inclusion and economic empowerment in Bangladesh : a practitioner’s perspective

Abstract

Millions of people in Bangladesh live in extreme poverty because of their failure to access formal financial services. Consequently, they are unable to participate in different development projects and, hence, cannot fund their children's education, accumulate assets, and take advantage of various economic opportunities. The present frameworks of Islamic microfinance are unable to uplift the overall socio-economic conditions of the poor in this country. Therefore, this study aims to explore how Islamic microfinance might assist poor people in living in a culture that values dignity and respect and in improving their socioeconomic conditions. Specifically, the objectives of this study include: i. To identify the major challenges in implementing the Islamic microfinance system in Bangladesh; ii. To determine the best possible ways to effectively implement the Islamic microfinance system in Bangladesh; iii. To propose a new fintech- and partnership-based Islamic microfinance framework that will be appropriate for the poor people of Bangladesh; and iv. To assess the ways to enhance financial inclusion and economic empowerment through Islamic microfinance in Bangladesh. This study uses the institutional theory of savings, financial intermediation theory, and the theory of financial inclusion to explain the theoretical framework of the research. It employs a qualitative method in which data were acquired from both primary and secondary sources. A standard open-ended questionnaire was also used to elicit expert opinions from 15 experts in Islamic finance working in various Islamic financial institutions in Bangladesh. The findings of this study point to the primary reasons why Bangladesh continues to lag behind in successfully implementing Islamic microfinance products and services, including people’s ignorance, multiple borrowings, ensuring Shariah compliance, lack of resources and accountability of Islamic microfinance institutions (IMFIs), ineffective promotion, lack of experts, inadequate government assistance, lack of trained and skilled field workers, and mission drift. It also elaborates on the ways Islamic microfinance can be effectively implemented in this country, like conducting effective training programmes for both field workers loan recipients, raising public awareness and government support, enhancing the monitoring system, ensuring proactive approaches by Islamic commercial banks, introducing Islamic finance courses both public and private universities in Bangladesh, etc. Here, a new fintech- and partnership (Mudarabah, Musharakah, and Qard-al-Hasan)-based framework of Islamic microfinance is proposed, and the results have revealed that if implemented properly by IMFIs in Bangladesh, it can be hugely beneficial for Bangladesh's impoverished population in terms of improving the rate of financial inclusion and also enhancing the overall economic empowerment. It is recommended in this study that the government and policymakers must come forward to develop the necessary regulatory framework so that Islamic social finance tools and fintech can be effectively integrated with the Islamic microfinance programmes, thereby improving the socioeconomic standing of the impoverished population in Bangladesh.