Analytical Review of Micro Finance in Pakistan in the light of Islamic injuction

Abstract

Islamic injunctions refer to the principles, rules, and guidelines derived from the core sources of Islamic law: the Qur’an, the Sunnah (traditions of the Prophet Muhammad), and the interpretations by Islamic scholars. These injunctions shape various aspects of life, including financial transactions, to ensure ethical practices that align with Shariah (Islamic law). In the context of finance, several key injunctions are particularly relevant: Prohibition of Riba: Islam strictly prohibits riba, or interest, as it is viewed as exploitative and unjust. Earning profit from money lending is forbidden, promoting instead profit-sharing and risk-taking.Risk-Sharing and Profit-Loss Sharing (PLS): Islamic finance encourages partnerships where both profits and losses are shared. Contracts such as mudarabah (profit-sharing) and musharakah (partnership) are based on mutual risk and benefit, in contrast to interest-based loans.Prohibition of Gharar (Excessive Uncertainty): Transactions involving high uncertainty or speculation are discouraged, as they are seen as unethical and harmful. Contracts in Islamic finance are designed to be clear and transparent, avoiding excessive risk or ambiguity.Asset-Backed Financing: Islamic finance promotes asset-based transactions where real assets back each contract, emphasizing tangible value creation. This requirement aligns with Islamic ethics, which discourage money from being earned solely from money.Prohibition of Haram (Forbidden) Activities: Islamic finance prohibits investing in businesses or activities that are considered unethical or harmful, such as alcohol, gambling, or any other activities against Islamic values.Justice and Fairness: Islamic law emphasizes fairness in all transactions, advocating for transparency, honesty, and the equitable treatment of all parties. This focus is meant to promote social justice and prevent exploitation.In microfinance, these principles shape how Shariah-compliant institutions design their products and services, differentiating Islamic microfinance from conventional models by eliminating interest, focusing on ethical investments, and fostering financial inclusivity that aligns with spiritual values.