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Fatwa CenterMicrofinance or Microcredit
Question
Microfinance or microcredit is a wide spread method of providing the poor with access allowing them to borrow from banks that are established specifically to provide this credit facility. The loans that are given in small amounts, usually between US 100 and 1500, and are repaid to the micro- finance institution with a high interest rate that somtimes reaches 30% of the loan value. The borrower needs to pay back the interest and the loan amount within a short period, say one year. Although this manner provide loans to poor people who otherwise are not able to get loans to start small businesses, many view the loans and the interest as a form of Riba. Others speak of the interest as a form of adminstrative overhead. Micro finance is becoming famous in the Islamic and Arab world. In Bangladesh, for example, the Gramen bank has attained world-wide reputation for helping the poor. In Morocco and Egypt and elsewhere in the Arab world micro finance is hailed as one of the important tools we have to fight poverty. Is it Riba that we are dealing with? or is it a legitimate development area? Allow me in conclusion to thank you for your valuable efforts to enlighten us.
Answer
All perfect praise be to Allah, The Lord of the Worlds. I testify that there is none worthy of worship except Allah, and that Muhammad 
is His slave and Messenger.
This is Riba (usury and/or interest) itself which Allah has forbidden. If this is not Riba, then there is no Riba at all. We do not know any prominent scholar who permitted this kind of Riba. Allah has forbidden Riba for both the needy and the wealthy whether it is a big amount or a small amount. Allah has declared a war against those who deal with Riba or consume it. Allah says in this regard (what means): {O you who have believed, fear Allah and give up what remains [due to you] of interest, if you should be believers. And if you do not, then be informed of a war [against you] from Allah and His Messenger.} [Quran 2: 278-279]
There is no sin against which Allah has given a threat of war other than Riba.
Note: We do request our brother to inform us of the names of the Muslim scholars who permitted it. Their viewpoint may be improperly understood. Likewise, we would also like to know the names of the banks involved in this practice.
Allah knows best.
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