The effects of Islamic microfinance on borrowers household income and wellbeing in Bangladesh: religiosity as moderator

Microfinance programs have been designed for the poor people to access the formal financial system easily without any collateral. From the beginning, microfinance programs have been trying to reach the poor people to improve their living standard through income generating activities. Following this objective, the Rural Development Scheme (RDS) and Muslim Aid Bangladesh (MAB) are working with the poor vulnerable people to improve their socioeconomic status through delivering interest-free microfinance in Bangladesh. This study is therefore, aims to examine the effects of Islamic microfinance on borrowers’ household welfare. Towards the achievement of its objectives, this study used descriptive and statistical techniques. To assess the effects, qualitative and quantitative data were collected from 192 borrowers from Chittagong district of Bangladesh. Quota sampling method was used to select the borrowers’. Quantitative techniques were used to analyze the data. The descriptive results revealed that the RDS and MAB have been trying to provide the handsome amount of loan and training to the clients to run their businesses though the amount of loan and training were not sufficient. Determinants, time duration with microfinance, client’s age and education level were found in the acceptable range but there are some issues that need to be considered according to the clients’ needs. The findings showed that the RDS and MAB effectively have increased the clients’ income. The RDS and MAB also helped to raise their clients’ wellbeing through improve the expenditure ability on food, clothing, child education, medical treatment, repair and maintenance. However, in terms of improving the household’s asset accumulations, the RDS and MAB still could not able to change the clients’ household assets as expected by the clients. Based on the hypotheses testing, the findings revealed that the amount of loan, tenure, education and age of borrowers had the most significant effects on income. In the case of overall wellbeing, the amount of loan, tenure and borrowers income shown the significant effects. This study also predicted that religiosity can act as a moderator in order to enhance the effect of microfinance success factors on income and wellbeing. The results of the study indicated that the role of religiosity as a moderator was evidenced on the relationship between three influencing factors (amount of loan, tenure, and education level) and income. On the other hand, the result was evidenced on the relationship between two influencing factors (amount of loan and income) and wellbeing. Therefore, these findings indicated that the overall welfare of the Islamic microfinance borrowers has increased after receiving and using the microfinance loan.