Abstract
Community economic development is a relatively new strategy employed to increase employment, income, and entrepreneurship activities in small town and communities. The Centre for Islamic Economics, International Islamic University Malaysia (IIUM) has initiated a smart partnership with CIMB Islamic Bank to offer entrepreneurship training and Islamic microfinance facility to the poor in Malaysia. This project adopts several modes of Islamic microfinance financing instruments which include equity-based and debt-based financing. The program aims to educate the communities surrounding the IIUM campus with entrepreneurship knowledge and skill in addition to giving Shariah-compliant micro-financing facility for them to implement their business ideas. CIMB Islamic, which is the main partner for this project, provides funds for Islamic microfinance facilities and IIUM contributes expertise in providing entrepreneurship trainings to the communities located near IIUM campus. It is hoped that this smart partnership would empower the surrounding communities and create more successful entrepreneurs.
TopIntroduction
Entrepreneurship has long been recognized to have an influential role in the economic development of a country. One of the most important contributions of entrepreneurship is in community development (Van de Ven, 1993; Bryant, 1989; Gartner, 1985). Research indicates that if the community members are able to motivate themselves, self-development strategies are great tools to empower the community to enhance their economic condition (Korsching & Allen, 2004). Despite the heavy preference and emphasis on centralized approach of economic development, researchers such as Loveragde (1996) and Flora and Flora (2004) state that professionals and government agencies who are involved in community economic development programs continuously assert that attracting industry and entrepreneurship is an effective strategy to create jobs and empower a community.
A survey conducted by the US Chamber of Commerce reveals that the biggest business challenge faced by entrepreneurs is getting access to business financing (CO, US Chamber of Commerce). The findings of the survey are consistent numerous studies which indicate one of the major difficulties faced by micro, small, and medium-size enterprises (MSMEs) is getting access to financing (Teo & Cheong, 1994: Mensah et al., 2015; Peprah, C. 2016). The ability to access financing is a crucial factor for MSMEs to start, grow, sustain, and improve themselves.
Microfinance service has been developed in order to provide financing needed by micro and small enterprises. Microfinance has been acknowledged as one of the easiest ways for micro and small entrepreneurs to obtain financing as well as an effective tool to alleviate poverty. The microfinance movement started because many people believed that thousands of creditworthy poor and minority borrowers were sometimes excluded from the formal credit market. Many people argue that excluding such individuals will permanently affect their chances to help themselves to come out of poverty (Aghion & Boltin, 1997; Banerjee & Newman, 1993 (cited in Aghion & Boltin, 1997)). Traditionally, the poor in developing countries resort to borrowing from informal sectors that impose exorbitantly high-interest rates (Sen, 1981; De Aghion & Morduch, 2005).
Offering relatively cheap credit to the poor and providing basic business skills to micro-entrepreneurs are believed to be an appropriate development strategy, therefore, many governments and non- governmental agencies (NGOs) have provided aids, subsidies and technical assistance to many firms and agencies that are involved in micro-lending activities. Grameen Bank from Bangladesh is considered to be a pioneer microfinance institution assisting the poor by giving them small loans to be involved in business and generate income to sustain themselves and their families.
Key Terms in this Chapter
CIMB Islamic Bank: A global Islamic banking and finance services franchise of CIMB Group. The Bank offers innovative and comprehensive Shariah -compliant financial products in investment banking, consumer banking, asset management, private banking, and wealth management. Headquartererd in Kuala Lumpur, Malaysia and is the fifth largest banking group in ASEAN with over 39,000 staff.
Gombak: Administrative district located in the state of Selangor, Malaysia. It was created on February 1, 1974. The International Islamic University Malaysia (IIUM) is located in Gombak district.
Murabahah: A n Islamic financing structure in which the seller provides the cost and profit margin for the purchase of an asset. Murabaha is not an interest-bearing loan but is an acceptable form of either cash or credit sale under Islamic law. In the case of credit sale, the buyer does not become the owner of the asset until the loan is fully paid.
Musharakah Munataniqah: Musharakah Mutanaqisah is a contract of partnership between two parties, where initially the two parties jointly purchase an asset, then, one partner gradually buys over the whole shares of the property. The buying and selling agreement must be independent of the partnership contract. It is not permitted that one contract is combined with another contract as a condition for concluding the other.
Mudharabah: A widely known profit sharing contract in Islam in which one party (the Rab al Maal) provides funds and the other (the managing trustee, the Mudarib) party provides management expertise. Profits are shared between the Rab al Maal and the Mudarib in a proportion agreed in advance. Losses, if any, are the liability of the former, and the latter loses his share in the expected profits. If, however, the loss is due to the negligence, fraud, or a breach of trust on the part of the Mudarib in handling the funds, he/she is totally responsible for the losses. Funds are to be used for Shariah -compliant activities.
Centre for Islamic Economics: A network collaborator which links research, training and consultancy activities of the Kulliyyah of Economics and Management Sciences (KENMS), IIUM to the wider community in the areas of Islamic economics, management, accounting and finance. The CIE conducts training and consultancy programmes for both academics and industry players in Malaysia and regionally/globally.
Al-Qard al-Hasan: A loan contract between a debtor and creditor. Debtor only pays back the principal amount which is borrowed. The debtor can pay more than the amount borrowed so long that it is not stated in the contract.
Nebraska: A midwestern state in the United States. Lincoln is the capital city and a lively university town.
Kulliyyah of Economics and Management Sciences: One of the first two faculties established when the International Islamic University Malaysia was established in 1983. There are four academic departments within the Kulliyyah: Department of Economics, Department of Business Administration, Department of Accounting, and Department of Finance. The Kulliyyah’s vision is to be a leading faculty of international excellence in teaching, research and consulting services integrating conventional economics, accounting, business and finance with values and morality based on revealed sources of knowledge.
Shariah-Compliant: An act or activity that conforms with the requirements of the Shariah , or Islamic law. The term is frequently used in the Islamic banking and finance industry as a synonym for “Islamic”—for example, Shariah -compliant financing or Shariah -compliant product.