The Role of Inclusive Finance in Reducing Poverty: a Comparison of Traditional and Sharia Loan Models

Muhammad Reza, Rahmi Rahmi, Maksalmina Maksalmina, Cut Hamdiah, Cut Sunaya

Abstract


This study compares conventional and Sharia lending strategies to evaluate inclusive finance's poverty reduction potential. The method uses literature, case studies, and data on sharia and conventional finance, microfinance, SMEs, and related issues. Gap analysis examines pre- and post-loan financial access, corporate sustainability, and poverty levels. The study found that profit-sharing and interest-free sharia loans help small and micro companies in unstable economic times. Sharia borrowers are more successful in maintaining and growing their businesses than traditional loans. The survey also found that Islamic loans are more likely to be used in community-beneficial industries like agriculture and infrastructure. Based on these findings, the proposals include boosting government support for sharia financial goods, producing financial products that help the productive sector, and changing policies to expand access to sharia financial services in poor areas. This study emphasises the need for an inclusive financial system focused on social goals and long-term sustainability to end global poverty.


Keywords


Inclusive financing, conventional and Sharia loans, poverty reduction, small and micro enterprises

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References


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DOI: https://doi.org/10.30596/miceb.v2i0.720

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