The Impact of Benevolent (Interest-Free) Loans on Poverty in Iran

Articles in Press

Document Type : Research Paper

Authors

Faculty of Economics, University of Tehran, Tehran, Iran.

10.22059/ier.2025.382731.1008107

Abstract

Although extensive research has been conducted on the impact of microfinance on poverty reduction, limited studies exist on the effect of charitable loans (interest-free or Qard al-Hasan) as an Islamic microfinance tool, primarily due to a lack of data. This article addresses this gap by employing a micro-data econometric model to investigate whether charitable loans have effectively reduced poverty among Iranian households. The study utilizes comprehensive data from 36 official financial institutions in Iran, including two specialized Qard al-Hasan banks—Resalat and Mehr of Iran—as well as data from numerous voluntary informal charity funds. Additionally, it incorporates household budget data from a large sample. The findings, derived from 24 distinct models, indicate that charitable loans significantly enhanced the spending power of poor urban and rural households, thereby having a positive and substantial impact on poverty reduction in Iran. Therefore, it is appropriate for the government to implement policies to expand them.

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Iranian Economic Review

Articles in Press, Accepted Manuscript
Available Online from 05 March 2025

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