Cost minimisation through interest‐free micro credit to micro entrepreneurs: A case of Bangladesh

The purpose of the paper is to present the result of an empirical review as to how and to what extent the interest‐free microfinance to micro entrepreneurs contributes in minimising different cots of both the lender and the borrowers. An institutional‐network theoretical approach is used to study the phenomenon. A qualitative nature of research methodology is used while studying this particular phenomenon. A multiple explanatory case study was adopted as a research strategy in order to focus on contemporary phenomenon within the real life context of different rural‐based micro entrepreneurs and their relationships with the lending organisations. Interest‐free microfinance by Islamic banks is characterised by a close supervision and an in‐kind type of financing, which contributes greatly in promoting lender‐borrower network relationships between the bank and the rural based micro entrepreneurs. Such network relationships result in minimising exchange costs and other business related costs of both the borrowers and the lending organisations. The study was mainly concerned with rural‐based micro entrepreneurs who are engaged in grass‐root type entrepreneurs like poultry and diary firm, handloom industry, etc. Particular reference is made here to the facts of rural‐based micro entrepreneurs and their relationships with Islamic banks in Bangladesh.