ISLAMIC MICRO FINANCE BANK: AN ALTERNATIVE TOOL FOR POVERTY ALLEVIATION IN NORTHERN NIGERIA

Despite the modest achievements recorded by Microfinance Banks in Nigeria, the poverty rate in the country remains daunting and that majority of the disadvantaged and economically active poor remain financially excluded. A huge part of the Islamic population particularly in northern part of the country are also reluctant to use conventional Microfinance products due to their incompatibility with Islamic principles, charging high fixed interest rates, credit diversion and the skewed nature of the distribution of Microfinance Banks which further limits financial inclusion in the region. These basic challenges can be resolved if an Islamic Micro-Finance Institution is designed in an integrated manner by incorporating the two basic and traditional institutions of Islam, Awqaf and Zakat with Islamic Micro-finance into a single framework in order to promote financial inclusion and reduce poverty among such population. The proposed model will be effective in poverty alleviation since the poor borrowers will have less debt burden as their capital investments will be partly met by funds from zakat that does not require any repayment and part of the Zakat funds will be used in disbursing funds to fulfil basic consumption needs to the hardcore poor target group. Thus, the paper recommends that a Non-Governmental Organization abiding by Islamic norms and ethics with the objective of poverty alleviation would be the ideal form of organization that will provide micro-finance facilities based on Islamic principles using Zakat and Awqaf funds as two major sources of finance.