Role of Islamic microfinance in poverty alleviation in Nouakchott-Mauritania

Abstract

Even though the relationship between financial inclusion and poverty alleviation through Islamic microfinance has been widely discussed in several studies, there is a lack of empirical research on this topic, especially in the context of Mauritania. Poverty is very high in Mauritania as compared to other African countries, and those who are financially excluded from the formal financial institutions are estimated at 80 percent. Even though Mauritania is a Muslim majority country, the adoption or usage of the available Islamic financial services is still very low. This study attempts to determine Islamic microfinance's role in developing microenterprises and alleviating poverty in Mauritania by focusing on the case of the largest Islamic microfinance institution, namely PROCAPEC, in the capital city of Nouakchott. This research is underpinned by a combination of various poverty and microfinance theories, making the theoretical framework stronger, meaningful, and well-based. The variables used in this study are voluntary and involuntary barriers to financial inclusion, usage of Islamic microfinance products, microenterprises development, and poverty alleviation. This study uses primary data collected through the questionnaire method adopting a cross-sectional design. The respondents to the questionnaire are 381 beneficiaries from the Islamic microfinance institution (PROCAPEC). The data collected is analysed through AMOS 23 via the Structural Equation Modelling techniques (SEM). SPSS 23 is used for analysing the descriptive statistics. The findings revealed that awareness, accessibility, and debt-phobia do not have a statistically significant impact on the Islamic microfinance products' usage. In contrast, affordability, eligibility, social barriers, and religiosity have a significant effect on the usage of Islamic microfinance. Moreover, the usage of Islamic microfinance has a high impact on the development of microenterprises, which subsequently has a significant effect on the poverty alleviation of the beneficiaries of PROCAPEC institutions. Microenterprise’s development has a full mediator effect on the relationship between the Islamic microfinance products’ usage and poverty dimensions, except for the assets ownership, the mediation is partial. This study has contributed theoretically and empirically to the worldwide controversy about the effectiveness of Islamic microfinance on poverty reduction and microenterprises development. Some relevant recommendations and suggestions for the government, policymakers, microfinance operators, and Islamic banks managers are proposed. Also, propositions for future research are offered at the end of the last chapter.