'Islamic Social Finance' can be understood broadly as a framework or an approach for delivering greater social good following the teachings and principles of Islam with respect to morality and ethics. Worldwide the Islamic banking and finance sector is huge that was worth more than $2.4 trillion at the end of 2018, whilst zakat contributions are estimated to be between $200 billion and $1 trillion a year (IRW). The major components of Islamic Social Finance (ISF) include, inter alia, charities such Zakat (obligatory charity), sadaqah (voluntary charity) and wqaf (endowment), cooperation, like qard (loan) and takaful (insurance). On the social investment side, it covers sukuk (bonds), and non-profit Islamic microfinance investments that offers qard hasan (interest-free loans).
The underlying goal is to share the wealth of the society with the needy and the poor and pro-activity act against exploitation of the disadvantaged. In fact, this overarching principle is at the root of Islamic Finance that aims at promoting social justice through wealth sharing and fair financial activities among the members of the society. In fact, Islamic Finance engulfs the social aspect or social finance perspectives that envisages that the share of community wealth like Zakat percolates down to those who are in need. This makes ISF a major avenue to inclusive development of a society. At the same time, inclusivity in our socio-economic growth paradigm is at the centre of the Sustainable Development Goals (SDGs). Hence, it is obvious that ISF is by nature can contribute a lot to the achievement of the SDGs in many countries and societies. The essence of Islamic world view is enshrined in the Holy Quran where Allah (swt) says: “Help one another in acts of piety and righteousness. And do not assist each other in acts of sinfulness and transgression. And be aware of Allah. Verily, Allah is severe in punishment” (Quran 5:2).
Against this backdrop, various Islamic scholars and social, economic and financial organisations have highlighted as to how ISF can be better utilised to uplift the society. In 2018, the International Waqf Core Principles were announced by the IMF and World Bank providing the standards on disclosure and transparency. Another international agency UNDP also emphasised on the use of blockchain enhanced digital platform to not only increase Waqf fund but also to ensure more effective use of Waqf land for the betterment of the society. There are a number of initiatives coming to the limelight from various parts of the world. Indonesia’s national Zakat collection agency and UNDP collaborated on benchmarks that were shared in their report entitled 'Unlocking the Potential of Zakat and Other Forms of Islamic Finance to Achieve the SDGs in Indonesia'. These and many other success stories that correlated the objectives of the SDGs and ISF principles. Impressive impact of judicious use of Zakat funds on the ground are being reported that indicated a 27 percent increase in beneficiaries’ monthly income that is propelled by the Zakat-enabled assistance in Indonesia (UNDP & BAZNAS, 2018).
ISF components like Zakat, Islamic microfinance, Waqf and Sukuk can help reducing poverty by promoting an inclusive and sustainable economic growth in the society reaching out to the poorest of the poor. Combining traditional resources like Zakat fund with other sources of Islamic Finance can boost growth of small businesses and entrepreneurship and thus promote financial inclusion in a community. Waqf can also be considered a flexible form charity that can be leveraged for supporting livelihood avenues for the downtrodden and them increase their income. While Zakat, Islamic microfinance and Waqf are largely seen as a charitable forms of funding, Sukuk (Islamic bonds) can be used a more commercial route to support social entrepreneurship projects that are in turn going to add value to the achievements of the SDGs.
Good governance and transparency in ISF activities with lowers operational costs, more accuracy in regular reporting makes the available resources more reachable and accessible to the potential beneficiaries. If implemented in tandem with the declared roadmaps of the SDGs in respective continues, ISF can help people grow and see the impacts more on the ground. Periodic impact assessment can further help them to scale up the initiatives to a larger population and such models can be replicated by other countries also. To move in that direction, ISF stakeholders need to focus of the scale, inclusiveness, and programme differentiation aspects of their projects. At the same time, in the emerging world of big data and artificial intelligence the ISF actors also need to new technological applications with sound governance practices, and establish mutual beneficial partnerships with organisations like UNDP and IMF to visibility of their initiatives.
Besides the charitable nature of the resources generated by the richer sections of the communities themselves, ISF can be strongly grounded in commercial and social dimensions. There is convergence between the nature, aims and principles of ISF and the SDGs, as both are geared towards poverty reduction, livelihood generation and mitigating economic disparity in the society through redistributing wealth. In particular Zakat and the SDGs related closely to the five distinctive principles of Islam in terms of preserving –
(1) Faith: by reducing physical, social and moral vulnerabilities by mitigating poverty, hunger, poor health, unsafe water and inequality (SDGs 1, 2, 3, 6, 10);
(2) Life: by alleviating food diffidence, supporting healthy lives, ensuring drinkable water, safe, sustainable and hygienic living conditions, providing employment and livelihood (SDGs 2, 3, 6, 8, 11);
(3) Progeny: by ensuring peace and security in the society and protecting the natural environment (SDGs 3, 5, 7, 11,12, 13, 14, 15, 16);
(4) Intellect: by offering adequate nourishment and quality education to the children in order develop enabled human capital (SDGs 1, 2, 9); and
(5) Wealth: by supporting necessary economic activity and providing a social safety net (SDGs 1, 3, 8, 10). (Noor and Pickup, 2017)
To sum up, ISF strengthens the philosophy of sharing, caring and cooperation for the common social development that also support the SDGs. If SDGs are humanity’s common call today to end hardships of the millions of poor across the world, preserve the environment, peace and security, then ISF can be a leading light in that direction. The need of the hour to see how fast we can achieve this synthesis in our socio-economic development endeavours.
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Reference:
Islamic Relief Worldwide (n.d). “What you need to know about Islamic social finance.” Retrieved from https://www.islamic-relief.org/islamic-social-finance/
UNDP and BAZNAS (2018). The Potential of Zakat and Other Forms of Islamic Finance to Achieve the SDGs in Indonesia. A report.
Noor, Zainulbahar and Pickup, Francine (2017). The role of zakat in supporting the Sustainable Development Goals. UNDP & BAZANAS brief.
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