Do Islamic microfinance institutions affect the socio-economic development of the beneficiaries? The evidence from Turkey

• DOI: https://doi.org/10.1108/IJOES-09-2021-0179
• Published date: 19 May 2022
• Date: 19 May 2022
• Pages: 286-311
• Subject Matter: Economics,Social economics
• Author: Salih Ülev,Fatih Savaşan,Mücahit Özdemir

Do Islamic microfinance institutions

affect the socio-economic

development of the beneficiaries?

TheevidencefromTurkey

Salih Ülev

Islamic Economics and Finance Department, Faculty of Political Sciences,

Sakarya University, Sakarya, Turkey

Fatih Savasan

Public Finance Department, Faculty of Political Sciences,

Sakarya University, Sakarya, Turkey, and

Mücahit Özdemir

Research Center for Islamic Economics and Finance, Sakarya University, Sakarya,

Turkey and Durham Centre for Islamic Economics and Finance,

Durham University Business School, Durham University, Durham, UK

Abstract

Purpose –This paper aims to investigatethe effect of Islamic microfinance on poor householdsthrough the

case of the IKSAR Qard al-Hasan Program in Turkey. To achieve this aim,it examined the changes in the

socio-economicstatus of beneficiaries before and after the program.

Design/methodology/approach –This paper adopts the convergent parallel mixed method

design. It conducted two surveys to micro-entrepreneurs: the firstiswhentheyreceivedtheloanand

the second is when they finished their installments. In addition tothe longitudinal data obtained from

these two surveys, qualitative data were collected by participant observation and interview technique

with visiting these people periodicallythroughout the interest-free loan (qard al-hasan).

Findings –According to the results obtainedfrom the analysis of the pre- and post-surveys, a statistically

significant increase of 35% was experienced in the monthly household income after receiving the qard al-

hasan loan compared to before. Similarly, a statistically significant increase was found in the monthly

expendituresof 23 out of 30 households after receiving the qard al-hasan.

Originality/value –There are two originalities of this study. To the best of the authors’knowledge, it

is the first research that examines the only Islamic microfinance program in Turkey. Second, it uses

longitudinal data while examining the impact of Islamic microfinance on the welfare of the poor. In the

relevant literature, no study has been identified that uses longitudinal data in Islamic microfinance.

Similarly, a limited number of longitudinal studies examine the impact of con ventional microfinance

institutions on the poor.

Keywords Microfinance, Microfinance institutions, Islamic microfinance, Qard al-hasan,

Longitudinal, Poverty, Turkey

Paper type Research paper

This research did not receive any specific grant from funding agencies in the public, commercial or

not-for-profit sectors. The authors declare that they have no competing interests.

IJOES

39,2

286

Received23 September 2021

Revised1 January 2022

15February 2022

12April 2022

Accepted26 April 2022

InternationalJournal of Ethics and

Systems

Vol.39 No. 2, 2023

pp. 286-311

© Emerald Publishing Limited

2514-9369

DOI 10.1108/IJOES-09-2021-0179

The current issue and full text archive of this journal is available on Emerald Insight at:

https://www.emerald.com/insight/2514-9369.htm

1. Introduction

Microfinance institutions (MFIs) have provided financial (lending, saving, insurance, etc.)

and non-financial services (education, etc.) to low-income people for the past 30 years.

According to many researchers, microfinance is among the most effective tools in poverty

alleviation (Servin et al.,2012). However, because MFIs do not comply with the Shariah

principles (Islamic law), many Muslims stay away from them (Karim et al.,2008). This

situation has led to theemergence of Islamic MFIs in Muslim and non-Muslim countries.

According to Mixmarket, the most comprehensive data provider in the microfinance

sector, approximately 15% of the MFIs in the world are Islamic MFIs (Ahmad et al.,2020).

With the development of the microfinance sector in Muslim majority countries, such as

Pakistan, Bangladesh, Indonesia, Malaysia and Sudan, many successful Islamic MFIs have

been serving low-income people in different institutional structures. In Turkey, as of 2020,

there are only two conventional MFIs provide financial and non-financial services to micro-

enterprises. Among those two, Grameen Microfinance Program (T_

ISVA) is the most

prevalent one and has operated since 2003 in the differentcities of Turkey [1]. On the other

hand, Islamic microfinance is a new conceptfor Turkey as the first Islamic MFI, the IKSAR

Association (_

IKSAR Derne

gi), was established in 2018. The unique Islamic microfinance

program (IKSAR Qardal-Hasan Program) is the subject of this study.

Many researchers, such as Aitken (2010),Giron (2015) and Mader (2015),criticized

conventional MFIs for charging intereston their loans. They asserted that these MFIs place the

poor household in a debt spiral rather than improving their welfare (Khandker and Samad,

2013). On the other hand, Islamic microfinance is free from interest and expropriation of the

poor. Islamic value is embedded in the financing transaction along with providing

microfinance services according to Shariah principles. Moreover, the lender is considered to

have lent money to God [2]inoneofthefinancing contracts used by some Islamic MFIs. This

type of loan is named qard al-hasan and translated as “beautiful loan”or “benevolent loan.”In a

qard al-hasan transaction, the borrower repays only the principal amount of the loan without

interest or any markup. In the hadith of the Prophet, it is emphasized that qard al-hasan is more

rewarding than charity (sadaqah), and it is also recommended that the borrower pay his debt in

fullandontime(IbnMajah,Sadakat,19).Thisemphasisisalsoplacedonlendingmoneytothe

beneficiaries in IKSAR Qard al-Hasan Program [_

IKSARKarz-ıHasen Programı].

The qard al-hasan based Islamic microfinancemodel has the potential to have a positive

impact on the welfare of the poor household because this modeldoes not receive any excess

on the loan given to the microenterprises.In addition, it emphasizes the values of Islam and

does not impose an increasing debt burden on the borrower in case of delaying repayment.

However, there are not many empirical studies available to examine the impact of Islamic

microfinance on poor households. Therefore, this study aims to investigate the effect of

Islamic microfinance on poor households through the case of the IKSAR Qard al-Hasan

Program in Turkey. To achieve this aim, the changes in the socio-economic status of the

people who receivedqard al-hasan from IKSAR are examined.

Many empirical studies have investigated the impact of conventional microfinance on the

welfare of the poor. Most of these are cross-sectional studies examining the change in the socio-

economic status of microfinance beneficiaries (Adnan andAjija, 2015;Al-Mamun et al.,2015;Imai

and Azam, 2012;Woutersen and Khandker, 2014;Yaumidin et al.,2017). Cross-sectional studies

show the current situation at a particular moment because of its nature (Ashraf et al.,2014;Dalal

et al.,2013;Karlan, 2001;Kianersi et al.,2021). For instance, Kianersi et al. (2021) focused on

microfinance’s potential role in the recovery of households after the devast ating hurricane in

Haiti. Because they had interviews with Haitian female microfinance clients between 2017 and

2018, one year after the hurricane, the study provided findings and recommendations based on

Socio-economic

development

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