Musharka Financing for Poverty Alleviation in Pakistan

Abstract

Unemployment, with other factors, leads to poverty. Poverty is an important characteristics of the developing countries including Islamic countries. Poverty causes human degradation in all aspects of life. It causes widespread diseaes and ignorance which contributes in lowering physical productivity and income level. In this way, poverty perpetuates overtime. Poverty eradication needs expansion of SMEs. SMEs need less capital and create more jobs in society. Employment opportunities increase as the SMEs spread in the country. The economic impact of SMEs can be measured by their contribution to output, employment, income, investment, export and other economic indicators. But expansion of SMEs needs flow of financial resources. Current arrangement of SMEs are linked to commercial banks. Commercial Banks do not find practicable to finance SMEs because processing case for small loans, their monitoring and recovery is costly to them. A comparison between Grameen Bank Methodology and Sudanees Islamic Bank is discussed in the paper. SMEs are financed through various institutions of Islamic financing. Among their institutions, Musharka financing is an effectiveinstument. Therefore, the paper is interested to explore the issue of Musharka financing for financing SMEs in Pakistan. The paper discusses both theoritcal and practical aspects of Musharka financing. In the above back ground this paper focuses on financial problem in the light of Islamic finance. It is the content of the paper that Islamic financial framework is better alternative to micro credit programmes. To alliviate the poverty, SMEs sector can play a better role which is facing the shortage of credit.