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It is generally recognized that small businesses and microenterprises can make effective use of institutional finance. There is a wide range of methodologies through which such finance can be delivered to the owners of these enterprises, and recovered, in a way that is profitable for the businesses and self-sustaining for the financing institutions. Two problems remain, however: if the enterprises fail, for whatever reason, poor people who have borrowed money to finance them, lose their livelihood and whatever equity they have invested, and they are also burdened with a debt which must be repaid; in many poor countries, and particularly in some of the poorest, inflation is high and unpredictable. This means that loan funds are inevitably decapitalized in real terms, even if institutions can maintain high recovery rates and operating costs are covered by interest charges. There is one relatively little-known approach to enterprise finance which appears to have potential to overcome both these problems, and which is being practised for the benefit of small businesses and microenterprises with some success. "Musharaka", or partnership financing, is a method used by Islamic financial institutions which reject the concept of fixed interest. It is, effectively, a much-simplified form of venture capital and this book describes the experiences of a range of enterprises, banks and other agencies with partnership finance.
