The paper deals with the theoretical aspects of Islamic microfinance and its present status in India. A sophisticated methodology has been followed to realize the objectives of the study. This study is purely based on the information collected from different sources like websites, articles published in reputed national and international journals, newspapers and reputed reference books related to this field. Conventional microfinance system is very effective to alleviate poverty of developing

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... ntries. But it could not touch all community of people because of 'interest' component in debt and high degree of interest. Muslims dislike that microfinance which is based on 'interest' as it is strictly prohibited in Islam. Therefore the motto of financial inclusion is out of reach through conventional microfinance. An alternative interest free microfinance model has been developed in some part of world to include all Muslim poor people within the banking system is known as Islamic microfinance. The country India is yet to adopt Islamic microfinance though 20% of total population is Muslim. The author strongly opines that India should adopt Islamic microfinance as a tool for poverty alleviation of Muslims as well as other communities.