Islamic social finance can play ‘key role’ in healthcare, sanitation

Good governance and policy needed to implement initiatives and practices professionally and ethically, a Jakarta symposium told


ISLAMIC social finance can play a “key role” in funding gaps in sectors like healthcare, education, sanitation and energy.

However, it has not been a thriving area of Islamic finance, partly due to the situation in some of the potential recipient nations, a recent symposium in Indonesia was told.

The ever increasing income inequality gap and political instability in many majority Muslim-populated countries have increased the need for social finance and economic empowerment, according to observations made at the “2018 Inaugural Symposium on Islamic Social Finance — Empowering Society through Islamic Social Finance”.

International Centre for Education in Islamic Finance (INCEIF) president/CEO Prof Datuk Dr Azmi Omar told the symposium that Islamic social finance is the “best instrument” to assist neighbouring countries.

“There is a need to have good governance and policy so that the implementation of these initiatives and practices can be done professionally and ethically,” he told the symposium, according to a statement released by INCEIF.

The one-day event in Jakarta was the inaugural symposium jointly organised by INCEIF, Bank Indonesia and the World Bank.

Among those who took part in the discussions at the symposium were INCEIF subject matter expert on Islamic social finance assistant professor Dr Ziyaad Mahomed.

Other panellists were Bank Indonesia director Dr Dadang Muljawan, World Bank financial sector specialist Ahmad Hafiz Abdul Aziz and Badan Amil Zakat Nasional Indonesia deputy Arifin Purwakananta.

While the challenges are there, Islamic social finance comprising zakat, waqaf and non-profit microfinance has gained traction in a number of countries globally.

In a report by the Islamic Research and Training Institute — the training arm of the Islamic Development Bank Group — it was observed that it’s gaining popularity in Russia, Kazakhstan and other surrounding nations.

However, the report titled “Islamic Social Finance Report 2017” found that the potential of Islamic social finance remained unrealised.

Among the reasons were a multiplicity of factors that include weak systems of zakat collection and distribution; the limited scope of waqaf; and failure to meet rising demand for Islamic microfinance, particularly in agriculture financing.

Social Finance

Social finance, as it is generally understood, encompasses various areas like innovative finance and domestic resource mobilisation strategies, as well as taking into account environmental, social and governance (ESG) factors in managing investor risk.

The other areas that come into play include social impact bonds and pay-for-performance; impact investing; blended finance; and alternative financing vehicles for non-profits, according to a brief at the Deloitte UK website.

The accounting firm recognises that many approaches to ESG, impact investing and measurement remain unchartered and many innovations remain untested.

But a number of projects are already making the difference. In the UK, for example, responsible lender Five Lamps had recently secured a £5 million (RM26.55 million) investment to help vulnerable households across the UK break out of the cycle of high-cost debt.

It is said to be the largest-ever single investment in a UK community lender.

The funding will mobilise over £60 million of lending, enabling Five Lamps to offer over 100,000 affordable loans, according to its statement.

It is being funded by nine social investors, including four charitable trusts and five social investment funds over six years.

Financial exclusion remains a pressing issue in the UK, and highcost credit is widespread. More than three million UK adults have one or more high-cost loans or have had one in the past year, the statement added.

The lender works with Social Finance, a not-for-profit organisation that partners the government, the social sector and the financial community to find better ways of tackling social problems in the UK and beyond.

On its part, Social Finance said it has mobilised over £100 million of investment to support both existing charities and new social enterprises since its inception in 2007. It pioneered the social impact bond model, a private-public partnership, to help vulnerable communities.

Such ideas would have featured in the Jakarta deliberations as the regional Islamic finance fraternity looked at how to put Islamic social finance to work.