Challenges of microfinance and the prospects of developing an Islamic microinvestment model in Nigeria

Abstract

Poverty alleviation efforts dominate the agenda of developing nations. Various government and donor agencies have been applying various techniques to alleviate the menace of poverty. Recently, microfinance has been touted as an effective tool in fighting poverty. However, the institution of microfinance faces some obstacles on its way to success. These include high and fixed interest rate on loans, mismatch between the objective of fighting poverty and the service provided. This has led to the emergence of Islamic microfinance in some Muslims countries and communities. However, the practice of Islamic microfinance again raises an alarm on the mismatch between the objectives of Islamic economics and Islamic finance with that of the institutions offering Islamic microfinance. In Nigeria, there exists a sizable number of poor below the poverty line engaging in microenterprises that are in dire need of financial services to prosper, but who have no access to finance. In lieu of this, there is need for alternative model that will ensure business success with socio-economic objectives of the Muslims community. This research has developed an Islamic micro-investment model (IMIM) that can be applied by any Islamic microfinance institution which has the dual objectives of attaining profitability and promoting socio-economic welfare of the society. IMIM incorporates waqf and microfinance and as the former is a voluntary act, it can be seen to be an ‘ethically superior’ institution. A mixed-methods approach was used to collect the data. Findings from this study, using structural equation modeling, showed that Theory of Reasoned Action (TRA) model was useful in predicting intention to use Islamic micro-investment instruments. The hypotheses tested showed that the model fits the data well, thus, the TRA predicts the behavioural intention of Islamic micro-investors in Nigeria. The result showed that intention to use Islamic micro-investment model was impacted significantly by the attitude of the micro-investors while subjective norms were found to be insignificant. However, subjective norms were able to predict intention through attitude in the revised model. Findings from qualitative data also indicated that the Islamic micro-investment model is applicable in Nigeria and has tremendous benefits for the micro-investors in particular and the society at large.