Is Cooperative Microfinance a Myth or Reality? An Economic Analysis of the Welfare of Marginalized Segments

Abstract

The present study was conducted to investigate the impact of the Islamic Cooperative
Microfinance program (Murabah’ah 2) on the standard of life of the poor and the
marginalized segments of the society. The Islamic microfinance program of the
Islamic Relief-Pakistan was taken as a model of cooperative microfinance. A sample
of 100 clients along with a control group of 25 respondents was selected randomly
so as to avoid selection bias. The socio-economic impact of the said programs on the
poor marginalized groups was evaluated by two Binary logistic models. The first
model is based on respondents’ perception regarding the overall welfare, while the
second model is based on standardized consumption expenditure, used as a proxy for
welfare in quantitative term. Findings of the study suggest that the Cooperative
microfinance program has a positive impact on the overall welfare of the clients. This
is also reflected in the empirical investigation which reveals that standardized
consumption expenditure as a proxy for well-being (welfare) of the clients represents
a more appropriate picture as compared to the welfare model based on respondent
perceptions only. The results suggest that the respondents who avail the facility of
the cooperative microfinance are approximately 10 times more likely to increase
their welfare as compared to non-clients. We propose that by expanding the facility
of the cooperative microfinance by sensitizing the poor and the marginalized
segments regarding this facility can effectively alleviate the absolute level of poverty,
and also has the required potential to increase the social wellbeing of these people.