Social Empowerment Through Islamic Finance

Introduction

Sadly, Islamic Development Bank (IDB) member countries are known to be home to nearly one-third of the world’s multi-dimensional poor people. It is estimated that 504 million people in 43 out of the 57 IDB countries, mainly in South Asia and Sub-Saharan Africa, are living in multi-dimensional poverty, and are suffering from a range of deprivations (Islamic Solidarity Fund for Development ISFD Strategy 2016-2025). Ironically, in the midst of this situation is the phenomenal growth of the Islamic financial services industry (IFSI), which has been growing rapidly over the past decade. In some specific jurisdictions, the share of the Islamic banking sector has become large and systematically important. Thus, it is clear that the demand for Islamic banking is growing and notably in some markets, with predictions that more conventional banks will convert into Islamic banks. However, Islamic financial institutions that exist in a dominantly conventional environment, have despite the theoretical assumption of being ethical, as well as their remarkable levels of expansion, received barrage of criticisms on their lack of contribution to the aspirations of Shari’ah and Islamic socio-economic objectives as noticed in literature. (Badr, 2006)

Thus, in many countries, eradicating poverty is one of the biggest global concerns and remains an essential requirement for continuous development. This is more so in Muslim countries where the Islamic perspective on the concept of basic income as an issue arises. It is a matter of consideration while discussing Islamic social finance and it positive impacts on Ummah. As governments struggle to tackle growing phenomenon of inequality in human societies, coupled with the apparent short-comings of the welfare state, the changing and phenomenal technological challenges to the labour-force, and the changing nature of work in the twenty-first century, the basic income concept is gaining attention from wide spectrum of stakeholders.

According to the IFSB draft exposure document on Technical note 3 on financial inclusion and Islamic finance released in November 2018, estimates suggest that, on average, approximately 9% of the population across 35 selected Muslim-majority countries financially exclude themselves from the formal financial sector due to religious reasons. This translates into nearly 40 million individuals financially excluded from the formal financial system, thus representing a specific gap for the IFSI to bridge. In many jurisdictions, several different efforts have been undertaken in a number of aspects to realise poverty reduction goals, such as raising education levels, improving the provision of medical care, enhancing-socio-economic standard among the poor and last but not the least, offering loans to small and micro sized business entities. In spite of all the several efforts, poverty remained a recurring decimal across vast majority of the Muslim Ummah globally.