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Mainstreaming Islamic Social Finance

July 24, 2018 • FINANCE & BANKING, Asia - Pacific, Responsible Finance

By Ebi Junaidi and Primandanu FA

Over the years, Zakah (mandatory alms-giving), waqf (Islamic endowment funds) and Islamic not-for-profit microfinance have been regarded as traditional and miniscule in importance. In this article, the authors present the direct effect of such condition as evident in several phenomena as well as how creative ideas on contextualising centuries old of Islamic social funds in the current lifestyle can result to a sweet fruit of giving helping hands to the needy.

 

It was such a typical gloomy winter morning in Durham back in early February. Yet, students were so passionate to come to the Durham Centre for Islamic Economics and Finance’s Professional Speaker Series. This time, the talk invited Dr. Mahmoud Mohieldin, Senior Vice President of the World Bank Group. The topic was Sustainable Development Goals (SDGs) and the Role of Islamic Finance – which is as much as interesting as the speaker, Dr. Mohieldin. Indeed, he is the right person to discuss on this matter, as he is the World Bank’s person-in-charge for delivering the SDGs as well as having a distinguished expertise on Islamic Finance.

One of the highlights in the talk was the use of Islamic Social Finance in achieving the SDGs’ 17 goals and 169 targets. The Islamic Social Finance is expected to cover part of the $3.1 trillion investment gap needed by 2030. Investment gap in this case is the difference between the total investment needed and the development fund available.

The Islamic Social Finance expected to cover the investment gap includes Zakah (mandatory alms-giving), waqf (Islamic endowment funds) and Islamic not-for-profit microfinance – sectors that over the years have been regarded as traditional and miniscule in importance. Prof. Mohamed Azmi Omar, former Director General or Islamic Research and Training Institute (IRTI) once even said, Islamic Social Finance “failed to catch the fancy of the (Islamic finance) professionals and practitioners.” As a result, he added, “mainstream Islamic finance is now understood to comprise banking, insurance and financial market participation (only).”

The direct effect of such condition can be found in several phenomena. Firstly, there was very less education given to the community over the importance of the provision and payment of Islamic social finance. The recent controversy over the Indonesia government’s plan over zakat collection on Muslim civil servant is just one of the consequence of it, despite the fact that Indonesia is the home of most populous Muslim country in the world. Looking back, the dimension of many teachings over Islamic social finance were mostly “hereafter-motivated” without many references on the significant role that the Islamic Social Finance can play in the world, let alone in development and poverty alleviation.

 
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About the Authors

Ebi Junaidi is School of Economics Lecturer at Universitas Indonesia. He is currently pursuing his PhD in Islamic Finance at Durham University Business School. His research areas are Waqf, Trust, Venture Capital, Risk Attitude and Financial Decision. He is now the Chairman for Indonesia Islamic Economics Society-United Kingdom Representative.

Primandanu FA is currently pursuing Master’s degree in Islamic Finance at Durham University. He is now the General Secretary of Islamic Economics Society (MES-UK). He commenced his career at Capital Market Supervisory Agency in 2010 and has been working at Indonesia Financial Services Authority since 2013.

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