By Arno Maierbrugger
Gulf Times Correspondent Bangkok
With mainstream Islamic finance rapidly taking on greater significance in the international finance world, several of its sub-disciplines are also gaining in importance. One such sector is Islamic social finance, which focuses on three segments of Islamic philanthropy - zakah, sadaqah and awqaf - as well as on cooperative-based social finance, qard and kafala, and on contemporary Islamic microfinance and their role in global poverty alleviation and ability of bridging development funding gaps.
Authored by the Islamic Research and Training Institute (IRTI) of Jeddah-based Islamic Development Bank (IDB), there are already two comprehensive studies on the sector available.
Last year’s Islamic Social Finance Report 2014 analysed the state of Islamic social finance in seven countries of South and Southeast Asia, namely India, Pakistan, Bangladesh, Malaysia, Brunei, Indonesia and Singapore, and the newly released Islamic Social Finance Report 2015 sets, for the first time, its focus on Islamic social finance on sub-Saharan Africa and on the countries Sudan, Nigeria, Kenya, Mauritius, South Africa and Tanzania.
Both reports identify how Islamic social finance could be better utilised to tackle poverty and other needs of the poor. One result is that zakah alone, a form of obligatory alms-giving and customarily 2.5% of a Muslim’s total income, if fully institutionalised, would have the potential of wiping out poverty in most of the countries surveyed. To that end, the IDB has already approved the channelling of Islamic social finance funds towards helping people in fragile and conflict states, with the funds to be used to rebuild education, healthcare, sanitation, public facilities, public works, electricity, transportation and housing in the troubled and impoverished countries.
Apart from institutionalised zakah collection and distribution, the 2015 report also recommends the offering of microfinance products for smallholder farmers and allowing the creation of awqaf – a form of perpetual charity deriving from donated assets being held in trusts – by non-Muslims.
The reports show that Sudan, Nigeria and South Africa could “easily” generate adequate resources for poverty alleviation through zakah, while Islamic social finance also had great potential for curbing poverty in the three other countries studied. The report estimates the annual zakah potential in Sudan, Nigeria and South Africa stands at about $1.84bn, $8.78bn and $179mn, respectively. However, the actual collection in 2013 was $220mn, a mere $3mn and $100mn, respectively, in the three countries.
The big differences are caused by the significantly different levels of the facilitation of Islamic social finance, as well as the percentage of Muslims within the population. While in Sudan compulsory zakah remittances are boosting collection levels, such a policy has not been successful in parts of Nigeria because of the lack of enforcement mechanisms. Incentives in the form of tax rebates for zakah payments have also helped in Sudan.
Dr Mohamed Azmi Omar, director general of IRTI, said he hopes that the reports “will satisfy a long-felt need for adequate and relevant information that will help towards instituting an enabling environment for the Islamic social finance sector.”
This is particularly important as the global funding gap for humanitarian initiatives has reached $7bn in 2014, according to Dr Jemilah Mahmood, chief of the World Humanitarian Summit Secretariat at the UN.
“Tapping into Islamic social finance could reduce this huge gap,” she said.
According to calculations by the UN, the world could get rid of poverty if only 5% of people would pay zakah as due.
