Abstract:
Modern economists claim that fostering financing inclusion through microcredit and micro-financial
institutions have great potential to improve the well-being of financial marginalized and destitute stratum of
society. But, in Pakistan where the majority of the population adheres to Islam as their code of life, many are
reluctant to impart the conventional microfinance institutes on the religious grounds. The paper argues that
Islamic alternatives can replace interest-based institutions with equity-based products and participatory
financing to develop entrepreneural opportunites, social transform, and hence economic development. It
highlights the significance and comparative advantages of Islamic finance over conventional and claims that
Islamic finance is a holistic, viable and dynamic approach for achieving the greater goals of development.
Furthermore, the paper makes an empirical study of the operations of GEAR, an Islamic philanthrophic
organization and reveals that Islamic microfinancial institutions can significantly contribute in ability and
capacity building of the financial excluded and marginalized peoplethrough their specialized modes of
participatory financing.
