Scholarly Journal of Business Administration, Vol. 3(2) pp.36-43 February, 2013 Available online http:// www.scholarly-journals.com/SJBA ISSN 2276-7126 © 2013 Scholarly-Journals Full-length Research Paper Islamic microfinance as a poverty alleviation tool: Expectations from Ogun State, Nigeria Adegbemi Babatunde Onakoya and Adefisayo Olasunkanmi Onakoya Department of Economics, Tai Solarin University of Education, Ijebu-Ode, Nigeria. London School of Business and Finance/University of Wales, U.K Accepted 23 January, 2013 This study attempts to understand how Islamic microfinance can be used to alleviate poverty and maintain sustainable development in Nigeria. It analyses the principles of Islamic finance and conceptualizes its operational details to see the linkage between the real economies and sustainable development. The survey conducted in Ogun State, a sub national government of Nigeria reveals that notwithstanding the current upsurge in religious tension in Nigeria, religion is not a hindering factor to the implementation of Islamic microfinance. It also showed that Islamic microfinance in concert with the right fiscal and monetary policies framework, will contribute positively to poverty alleviation in Nigeria. Key words: Islamic banking, microfinance, Islamic microfinance, poverty alleviation, Nigeria. INTRODUCTION The stability of the financial environment plays an important role in the economic development of a country. Through its many agency and general utility functions conventional finance have over the years recorded tremendous successes in the United Kingdom. Conventional banking is based on a pure financial intermediation model, whereby banks generate profits from the margin earned from savers' deposits and demand deposits on the one hand and the funds lent to enterprises or individuals (Ryu et al., 2012). The development of a healthy national financial system is seen as a channel for the broader goal of national economic development. However, the coverage of financial services for most people has often failed in developing countries (Adams et al., 1984). For over centuries, the conventional finance system has been trusted by the everyday participants of the economic cycle with its savings, because this system renders investment and banking opportunities to people whose savings could increase in line with an interest element. Microfinance is a subdivision of the financial sector with the focus of fighting poverty, which is common in the emerging countries. It is a medium to fill the credit Corresponding Author E-mail: adegbemionakoya@yahoo.com. unavailability gap created by the conventional banks. The advocacy for the emergence of an alternative form of finance is based on the need to effectively address the financial needs of the poor and low-income earners, hitherto neglected by the conventional banks. Khan (2008) explains that microfinance refers to making small loans available to the poor with a focus on those not served by traditional institutions through programs designed specifically to meet their needs and circumstance. The World Bank (2004) defines poverty as a condition where the basic human needs such as healthcare, education, food, water, shelter are not available. It further states in its 2002 publication that a person is deemed poor if his/her consumption level is less than US$1 per day. The World Bank (2004) reports that the scourge of poverty is evident today in both developed and developing countries irrespective of culture and geographical boundaries. The reason for this is the lack of access to adequate finance to acquire the basic necessities of life, which are food, water and shelter. Dogarawa (2007) reports that Nigeria is rated among the top 20 poorest countries in the world, with a poverty incidence on the high side, despite the amount of crude oil, natural gas and other natural resources the nation produces. As the decades have gone by, the number of people living in poverty continues to increase. The federal