Evaluating the Governance Framework of Islamic Microfinance Institutions (IMFIs) in Pakistan and its Compatibility with the Federal Shari’at Court Judgment

Muhammad Naveed Aslam Aslam; Abdul  Rashid; Abdul Karim  Usman

doi:10.32350/ibfr.92.04

Muhammad Naveed Aslam Aslam
Abdul Rashid International Islamic University, Islamabad
Abdul Karim Usman International Islamic University, Islamabad

DOI: https://doi.org/10.32350/ibfr.92.04

Keywords: Poverty, Maqāṣid Al Shari’ah and Federal Shari’at Court

Abstract

Abstract Views: 68

Microfinance is a growing industry for an un-privileged segment of the society that caters various forms of financing. However, governance and regulations are still a major concern for both conventional and Islamic microfinance industries. As the microfinance industry expanding and scaling up, the decision making and operational process is becoming complex. Therefore, good governance is a vital need for credibility and integrity of this industry to accomplish their social, financial and spiritual goals. Federal Shari’at Court (FSC), in its recent decision, declared riba as illegal and repugnant to Islamic Law. Furthermore, FSC asked government to eliminate riba from economy within five years. Despite achieving maturity level, Shari’ah compliant microfinance capture only 7% market share of the microfinance industry. Therefore, it is a big challenge to implement FSC decision within five years. In this study, we evaluated the governance framework of Islamic microfinance institutions and its compatibility and reliability in order to comply in letter and spirit with FSC order in the light of Shari’ah. This study is survey based and also relies on secondary data of whole Islamic microfinance industry of Pakistan as a sample size. Responses received from top management of IMFIs and analyzed through descriptive statistics and frequency analysis. The results depict that governance framework needs to be improved as per changing environment, specifically, in the areas of acquiring the services of Shari’ah advisor, Shari’ah compliance, Shari’ah audit, impact assessment evaluation, reporting mechanism and identification of poverty stages. The existing regulator guidelines also need to be improved in contest of financial support. In conclusion, strong governance approach with true spirit of Shari’ah, will definitely make it possible to achieve the target given by FSC.

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