Conventional microfinance was supposed to end poverty. Instead, in many communities it deepened it — trapping borrowers in cycles of compounding interest that Islamic law prohibits outright. Allah says: “Allah has permitted trade and forbidden interest (Riba).” (Quran 2:275). Islamic microfinance offers a proven alternative.
The Problem with Riba-Based Lending
Conventional microloans typically carry annualised interest rates of 20 to 60 percent. For a family borrowing to start a small business, this creates a debt spiral: if earnings fall short, the family ends up poorer than before. Research from Bangladesh and India shows many microfinance borrowers take new loans to repay old ones — a trap the Prophet explicitly warned against.
The Qard Hasan and Murabaha Models
Qard Hasan (the beautiful loan) is an interest-free loan with principal repayment only. The Quran mentions it six times, each time with a promise of divine reward. Compassion Fund uses Qard Hasan as our primary financing tool — providing capital without interest, without collateral. For trade financing, we use Murabaha: Compassion Fund purchases the goods a borrower needs and sells at a disclosed, agreed markup. No interest. Full transparency.
340+ Businesses and Counting
Since 2019, Compassion Fund has supported over 340 micro and small businesses across 14 countries. Our repayment rate exceeds 91 percent. Sixty-eight percent of supported entrepreneurs hired additional staff within 18 months. These are families freed from debt, communities with new productive capacity, and entrepreneurs who can face their children with dignity.
