Interest-free microfinance in India: A case study of Sanghamam multistate cooperative credit society

Abstract

Purpose

The purpose of this study is to understand the operations of interest-free microfinance institutions, find the issues and recommend possible solutions in the Indian context.

Design/methodology/approach

This paper is based on the case study of Sanghamam Multistate Cooperative Credit Society. This research uses both primary and secondary data. The institution is assessed in terms of two major performance aspects, namely, outreach indicators and financial performance indicators. A brief comparative study of Sanghamam with the aggregate performance of the Indian microfinance industry has also been included.

Findings

It is found that Sanghamam has been successfully providing interest-free microfinance services in India. The performance of Sanghamam on selected industry benchmarks is in line with the performance of the Indian microfinance industry. However, a few issues such as potential liquidity risk, lower penetration in the poorer sections of the population, Shariah issues in the method of determination of service charges on demand loans and in the structure of group deposit scheme and profit-sharing business loans have been highlighted.

Research limitations/implications

Sanghamam is evaluated from only outreach and financial performance aspects and not from the aspect of the impacts of its services.

Practical implications

This study would help in documenting the operations of Sanghamam. Moreover, the recommendations provided, if implemented, would help Sanghamam in further growth.

Social implications

This study would help create awareness in the society about the practices of interest-free microfinance.

Originality/value

This paper highlights the interest-free microfinance practices in India that have not received the needed attention. The authors have discussed the key issues related to the interest free microfinance and recommended the possible solutions.

Citation

Shaik Mohammed, W. and Waheed, K. (2019), "Interest-free microfinance in India: A case study of Sanghamam multistate cooperative credit society", Journal of Islamic Accounting and Business Research, Vol. 10 No. 5, pp. 695-709. https://doi.org/10.1108/JIABR-11-2017-0176