The key players' perception on the role of Islamic microfinance in poverty alleviation The case of Pakistan

Purpose - This study aims to know the present structure and move of the Islamic banks of Pakistan as well as current issues and challenges for Islamic microfinance. However, this is based on perceptions of the Islamic bankers, regulators and micro-entrepreneurs and petty traders, as they are the key players in the credit market. Design/methodology/approach - The study gathered relevant information through conducting field survey. Two questionnaires were designed for the survey. One questionnaire was administered to survey 270 micro-entrepreneurs and petty traders in three major cities of Pakistan. Another survey deals with the perceptions of Islamic bankers. In total, 100 people from middle and top management were surveyed from five full-fledged Islamic banks of Pakistan. The SPSS software, version 16, was used for questionnaire reliability and descriptive analysis to analyse the data. Findings - In general, the study found the strong opinions of the respondents speak in favour of Islamic microfinance under a system of profit and loss sharing. Conversely, the majority of the clients also feel that Islamic banks do not encourage lower-income micro-entrepreneurs. In addition, the study found that Islamic microfinance is constrained by lack of knowledge, experience and professionalism of the supporting staff; however, Islamic bankers have shown great consensus that Islamic banks should offer Islamic microfinance products and instruments to respond to the needs of the poor for poverty alleviation. Research limitations/implications - The first limitation of the study is the meagre interest of micro-entrepreneurs and petty traders to participate in the survey. The second limitation of this work concerns the extremely busy schedule of top management and administrative impediment to approach and fix an appointment. Despite these limitations, the findings of this study provide insights to Islamic banks in diversifying their products by offering Islamic microfinance to the low-income entrepreneurs but with proper guidelines and policies. Practical implications - There is a need to educate the community towards the merits of Islamic banking system by developing a good information system using good visuals and professionally presented seminars, banners and arranging regular sessions with the business community. The growth and development of Islamic banking in the country largely depend on its customers' enhanced knowledge and awareness about its products and services. Social implications - It is the responsibility of the community as well as of government to change the mindset of the poor that banks are meant to serve the interest of everybody, regardless of social, economic and political status. Originality/value - Theoretically, this study contributes to the existing body of knowledge in the area of Islamic microfinance by examining the perceptions of Islamic bankers and micro-entrepreneurs. This can help Islamic banks of Pakistan to design and formulate new administrative as well as operational procedures to serve the interest of the poor with commitment towards Islamic values.