The struggle against poverty has taken a positive turn in the previous decade, with the proportion of the world’s population living in extreme poverty falling by half, as reported by the UN (n.d.). However, this progress was hampered by the impact of the COVID-19 pandemic, which forced over half a billion people into poverty. Furthermore, many people have been subjected to increasing levels of stress as a result of shocks caused by climate change and geopolitical risks. This has resulted in a rising worldwide food shortage and a slew of other recurring issues. While some countries do have the ability to manage these overwhelming obstacles, many others, particularly the poorest ones, are still struggling. Unfortunately, many Muslim-majority countries fall into the latter category.
As a result, the role of Islamic social finance in addressing these concerns and assisting countries in developing strong economic systems is becoming more important. Increasing access to new opportunities and educating themselves on how to affect positive social change are profound in the face of global uncertainty. It is very important that Islamic social finance helps the most vulnerable groups prepare for the effects by adopting the right solutions.
Review of 2022
Zakat, Waqf, Sadaqah and Islamic microfinance are the four main components of Islamic social finance. Our aim is not to provide an exhaustive list of initiatives within the scope of Islamic social finance but rather share some of the most recent success stories and these stories are critical in demonstrating the potential of Islamic social finance. The success of Zakat and Sadaqah can be recorded through established funds, such as the United Nations High Commissioner for Refugee (UNHCR)’s Refugee Zakat Fund (2020). It reports that yearly donations are increasing, with the most recent documented donation stream being US$61.5 million. The greatest bulk, 79%, is given as Zakat.
These donations were largely utilized to assist internally displaced people in Yemen, followed by Rohingya refugees in Bangladesh and India. These efforts have benefited 651,425 and 580,911 people respectively.
The Zakat Foundation of America is another Zakat and Sadaqah donor vehicle that has made significant contributions to individuals in need. The foundation’s latest report (2020) highlighted its activities during the pandemic, with the institution assisting approximately 2.6 million people with emergency aid. Over 8.3 million life-saving meals were supplied to the needy. However, the foundation’s assistance does not end there; it is committed to finding a long-term solution for food security through agricultural projects. It also focuses on resolving issues such as the lack of access to clean water, demolishing barriers on education and so on. In the end, this helps hundreds of millions of people live better lives.
Waqf are endowments that have traditionally supported a community’s necessities, such as healthcare and education. The International Waqf Fund exemplifies the potential of such endowments. Its primary goal is to enhance people’s livelihoods. This is done through a variety of initiatives, including sustainable living, education, healthcare, clean water access, children’s welfare and others. The fund’s annual report (2021) highlights its gifts for the most recent fiscal year, amounting to GBP395,307 (US$485,797), which resulted in improved living conditions for thousands of individuals worldwide. Islamic microfinance is another means of alleviating poverty. Shariah compliant financing is available to assist individuals in need of establishing a small company, thus, going beyond simply delivering a care package and eradicating poverty as a whole.
Preview of 2023
This report is not just about looking back and celebrating some of our recent accomplishments; it is also about looking forward to scaling up and mainstreaming Islamic social finance. Apart from the success stories listed previously, we are also aware that Islamic humanitarian deeds have benefited people all over the world, from mending war-torn houses in Bosnia to assisting the destitute in Gaza and Chechnya to even improving cancer care in Albania, as recorded by Islamic Relief Worldwide (2021).
Nonetheless, despite all of these attempts, poverty, food insecurity, a lack of access to clean water, educational hurdles and even basic healthcare appear to be obstructing a big portion of the world, particularly in Muslim nations. This raises the question of how to broaden the function of Islamic social finance. We propose harmonizing regulations, encouraging innovation, transforming institutions and developing talent. First, many people regard regulation as a challenge, and adhering to new norms and practices may be difficult since Zakat and Waqf rules are dictated by Islamic scripture and legacy.
Despite disagreements over interpretation, the rule of common principles should be followed in order to improve uniformity and therefore boost the relevance and usefulness of Islamic social finance. Second, in terms of innovation, the exploitation of fintech and associated development in the domain of digitalization should be fostered further.
Nonetheless, some funds have already opted to adapt to the ongoing digitalization, such as the UNHCR’s Refugee Zakat Fund (2020) with the launch of its GiveZakat app. This project gives the fund access to a much larger pool of donors, which means more money is raised and, in the end, more people can benefit. Third, the underlying difficulties of institutional quality span from low credibility to low levels of trust, with instances including governance issues, as highlighted by the ‘Maximizing Social Impact Through Waqf Solutions’ report jointly published by World Bank Group, International Centre for Education in Islamic Finance and International Shari’ah Research Academy for Islamic Finance (2019). Institutional transformation is required since the performance of social finance is largely determined by the degree of social capital. The use of blockchain as a method of documenting transactions has the potential to improve public perception and confidence. Last but not the least, it goes without saying that unless these institutions are led and managed by skilled individuals, social finance would struggle to compete with its competitors.
Conclusion
We hope that this piece highlights the potential and possibilities of what we can achieve through Islamic social finance. Transformation is essential; this might be the key to achieving an inclusive world. We have the liquidity, technology and people in place; all that is needed is the determination to pursue a better solution.
Dr Mohamed Eskandar Shah is the associate dean of academic and associate professor of Islamic finance at the College of Islamic Studies at Hamad bin Khalifa University. He can be contacted at [email protected]. Mohamed Umar is the project analyst at the College of Islamic Studies, Hamad bin Khalifa University. He can be contacted at [email protected].