Role of Interest-Free Microfinance in Enhancing Financial Inclusion and Sustainable Development

DOI

10.2991/978-2-38476-575-1_17How to use a DOI?

Keywords

Interest‑free microfinance; Islamic microfinance; cooperative credit; financial inclusion; microfinance regulation; India; Sharīʿah‑compliant finance

Abstract

In India, the creation of interest-free microfinance (IFM) has emerged as an inclusion mode through which households who do not want to seek traditional interest-based borrowing in an ethical, religious, or other affordability reasons do so. Although Indian microfinance has grown in significant proportions, the fact that financial exclusion still persists and that socio-cultural barriers continue to be relevant prompts the notion that plural models of inclusive finance, which do not compromise consumer protection standards or institutional sustainability, are required. This hypothetical paper presents the synthesis of India-specific evidence of the documented cooperative case-studies, and policy-based evidence to illuminate the contractual tools applied in IFM, institutional pathways of IFM implementation in India, and regulatory tensions and policy alternatives that influence its scaling opportunities. The discussion will be based on peer reviewed case studies of Bait-un-Nasr Urban Cooperative Credit Society and Al-Khair Cooperative Credit Society and supported by evidence of collateral-based lending by Muslim funds and by a modern microfinance regulatory framework and financial inclusion policy used in India. The paper contends that the IFM in India can well be viewed as a series of contractual and governance adaptations executed mostly through cooperatives and community institutions as opposed to a separate Islamic banking system. The synthesis identifies three key findings. They are 1. IFM outreach can be enhanced through trust in communities and mobilization of member savings 2.sustainability can be achieved through a clear cost recovery and governance discipline and 3.regulatory congruence by establishing standardized disclosure and reporting categories of non-interest pricing that are protective of borrowers and yet remain legitimate to the IFM. The paper finishes with the policy suggestions, standardization of the disclosures, capacity building to cooperative governance and the inclusion of the IFM in the broader financial inclusion policy of India.

Copyright

© 2026 The Author(s)

Open Access

Open Access This chapter is licensed under the terms of the Creative Commons Attribution-NonCommercial 4.0 International License (http://creativecommons.org/licenses/by-nc/4.0/), which permits any noncommercial use, sharing, adaptation, distribution and reproduction in any medium or format, as long as you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons license and indicate if changes were made.

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TY  - CONF
AU  - J. Mohamed Ali
AU  - M. Ahamedullah
AU  - T. P. Abdul Kareem
PY  - 2026
DA  - 2026/05/06
TI  - Role of Interest-Free Microfinance in Enhancing Financial Inclusion and Sustainable Development
BT  - Proceedings of the International Conference on Dynamics of Environment, Sustainability, and Gender Disparities: A Holistic Dialogue for Inclusive Futures (ICDESGD 2025)
PB  - Atlantis Press
SP  - 277
EP  - 292
SN  - 2352-5398
UR  - https://doi.org/10.2991/978-2-38476-575-1_17
DO  - 10.2991/978-2-38476-575-1_17
ID  - Ali2026
ER  -