The impact of waqf-based microfinance program on clients’ well-being during COVID-19 pandemic: empirical evidence from Indonesia

Abstract

Purpose

The purpose of this study was to evaluate the impact of a waqf-based microfinance program on clients’ well-being during the COVID-19 pandemic.

Design/methodology/approach

This study obtained primary data from a survey distributed to 282 respondents, consisting of 150 clients and 132 nonclients of the Bank Wakaf Mikro (BWM) Al Kausar in Indonesia. This study constructed a well-being index (WBI) and compared clients’ and nonclients’ WBI before and during the pandemic using the difference-in-differences (DID) method. DID measures the effect of a treatment in a “treatment group” versus a “control group” using data from two periods.

Findings

This study found that clients and nonclients alike experienced an increase in well-being throughout the pandemic, but the increase was greater for clients than for nonclients. This study argues that the waqf-based microfinance program run by Bank Waqf Mikro model can assist their clients – as more vulnerable groups in society – to maintain their well-being during the pandemic.

Research limitations/implications

To ensure the effectiveness of waqf-based microfinance programs in diverse settings, this study should include more respondents from different institutions.

Practical implications

This research has several practical recommendations, particularly for integrating Islamic charity for microfinance. The findings of this study suggest that the BWM model, which combines three institutions – the government, zakat groups and Islamic boarding schools (pesantrens) – can play a substantial role in enhancing the welfare of its members during the pandemic.

Originality/value

This study contributes to the body of knowledge on Islamic microfinance by providing empirical evidence of the importance of waqf-based microfinance in reducing the pandemic’s impact on clients well-being.