Islamic Financing: a different approach to banking and poverty alleviation.

Byline: MUHAMMAD ABEER FAROOQ - DR. MUDASSAR RASHID

Islamic law, also known as Shariah law, serves as the foundation for the financial system known as Islamic financing. Islamic financing's main objective is to advance economic development and prosperity while making sure that all financial dealings are done in accordance with the values of fairness, justice, and social responsibility. Through its focus on microfinance, Islamic financing is assisting in the reduction of poverty in a number of important ways.

A type of financing called microfinance is intended to assist people who are too poor to use standard banking services. Low-income people are given access to small loans, savings accounts, and other financial services through microfinance companies, which helps them start enterprises and improve their economic standing. Islamic financing is especially well suited to microfinance since it places a strong emphasis on civic engagement and community improvement.

The idea of Zakat, which calls on Muslims to donate a percentage of their money to aid those in need, is one of the fundamental tenets of Islamic finance. This philosophy is closely related to that of social responsibility, and it strongly encourages Islamic financial organizations to concentrate on eradicating poverty. Islamic microfinance organizations enable individuals to escape poverty and raise their level of living by giving small loans to low-income people and assisting them in starting enterprises.

Its focus on equity and justice is aiding in the reduction of poverty. Interest rates in conventional banking systems can be excessively high, making it impossible for people with modest incomes to acquire loans. On the other hand, the foundation of Islamic financing is the idea of profit sharing. Islamic financial institutions provide money in exchange for a portion of the profits made by the borrower's company rather than charging interest. This strategy is more egalitarian and ensures that people with modest incomes have access to the capital they need to launch and expand their enterprises.

Furthermore, through encouraging financial inclusion, it is aiding in the reduction of poverty. Low-income people are frequently shut out of traditional banking institutions because they lack the security or credit history needed to obtain loans. On the other side, Islamic microfinance organisations are made to be more inclusive, offering loans to people who might not have access to...