Islamic Microfinance Model for Small Businesses in Uganda in the Post-Covid-19 Era

Abstract

The measures taken to contain the Coronavirus are having a huge socioeconomic impact all over the world. Uganda has been subjected to some of the most severe lockdown measures in the world. Many businesses are forced to close on a regular basis or operate under strict social distancing rules and curfews. Small and medium-sized businesses face severe consequences, including high transportation and input costs, lower demand, losses, bankruptcies, and so on. This has nearly wiped out micro and small businesses, raising the possibility of an increase in extreme poverty in the post-Covid-19 period. There is evidence that Micro Finance Institutions (MFIs) help developing countries recover economically after major shocks like wars, droughts, floods, and pandemics. Indeed, microfinance institutions (MFIs) are a promising tool for eradicating poverty, increasing income and employment, and improving food security. However, MFIs in Uganda have historically overcharged the public by charging exorbitant interest rates. As a result, the overall goal of this research is to create a more affordable and viable Islamic microfinance model for Ugandan small businesses. The study employed a qualitative research method, reviewing existing literature on both Islamic and conventional microcredit finance, as well as secondary data. Because charging interest on loans is prohibited in Islam, the model was built on charitable contracts such as Sadaqah, Waqf, Zakat, and Qardh Hassan. Waqf and Sadaqah will be used to raise funds for the Islamic Microfinance Fund, and Qardh Hassan will be used to carry out the loan. We anticipate that the model will benefit the poor and low-income groups by providing them with access to interest-free loans that will allow them to start businesses and improve the welfare of the Muslim community.