THE ROLE OF ISLAMIC MICROFINANCE IN POVERTY REDUCTION AND ECONOMIC RESILIENCE

Abstract

This study examines the role of Islamic microfinance in poverty alleviation and economic resilience among low-income communities. The aim is to explore how Islamic microfinance institutions contribute to improving livelihoods, strengthening financial inclusion, and supporting sustainable economic activities in accordance with Sharia principles. Using a qualitative approach, the study conducted in-depth interviews with Islamic microfinance beneficiaries, institutional managers, and community stakeholders, supported by an analysis of institutional reports and academic literature. The findings indicate that Islamic microfinance significantly reduces poverty by providing accessible financing, promoting entrepreneurship, and encouraging ethical financial behavior. Sharia-compliant instruments such as qard al-hasan, murabaha, and profit-sharing schemes help beneficiaries meet basic needs while developing small businesses. Islamic microfinance also contributes to economic resilience by fostering social solidarity, risk-sharing, and community-based support systems. Beneficiaries reported increased income stability and a greater capacity to cope with economic shocks. The study concludes that Islamic microfinance effectively reduces poverty and builds economic resilience when combined with financial education and institutional support. Strengthening governance, outreach, and integration with social finance instruments is crucial to maximizing impact and long-term sustainability. This research provides insights for policymakers and practitioners developing inclusive Islamic finance programs.