ID Series 17: How Social Finance Makes Islamic Finance More Meaningful Globally

Kuala Lumpur, 1 Aug 2024 – Despite making great strides particularly among the Muslim population, the commercial segments of Islamic finance (such as banking, Sukuk, asset management, and Takaful) are seen to be less impactful globally compared to the voluntary sector.

This observation was shared by INCEIF Board Member Dr Aamir Rehman at the INCEIF Discourse Series 17 titled `Reach and Relevance: How Social Finance Makes Islamic Finance More Meaningful Globally’ which was moderated by INCEIF Faculty Member Prof Syed Abdul Hamid Aljunid. He was joined by another panellist Hasan VC Managing Director Umar Munshi.

According to Dr Aamir, social finance institutions which primarily comprised Zakat (obligatory almsgiving), Sadaqah (voluntary charity) and Waqf (endowment and trusts), have received greater acceptance among the Muslim population, than Islamic commercial finance. Unlike Islamic financial products, these voluntary sector instruments have had greater relevance to social financing than Islamic financial instruments and products.

The Islamic capital market evolved based on the goal of promoting Islamic or Shariah compliant investment products while at the same time sought commercial rather than redistributive goals. Historically, the government or public sector was regarded as the key sector for equitable growth and development. The received viewpoint among scholars was that the voluntary sector only played an informal and unstructured role in supporting the government’s national economic agenda, said Dr Aamir, who is also Senior Fellow at Columbia University’s Richman Center for Business, Law, and Public Policy.

However, with the changing societal orientation towards social sustainability and social inclusion, the potential role of the voluntary sector to provide funding and other supporting services for social finance gained recognition as an important initiative in the national and global agenda.

Umar, co-founder of ethical crowdfunding platform Ethis, shared his years of experience in the field to confirm the potentials alluded above. He underscored the need for a mindset change among the Muslim population as well as the important role of educational and regulatory institutions to fill the gaps in the ecosystem of social finance.

Umar has proposed a comprehensive model be initiated by the key stakeholders to foster a significant transformation and acceptance of Islamic social finance as part of the overall purpose of an Islamic economy based on the renewed understanding of the worldview of Islam. The model has to be far beyond its current perceived secondary role, he added.

The panel agreed that the key stakeholders of social finance were different from the commercial enterprises. Therefore, a well-developed and regulated eco system involving relevant stakeholders was necessary to make social finance relevant, and at the same time reached its targeted goals in promoting social justice with products that “are not only Shariah compliant but is also recognised as Halalan Toyyiban.”

INCEIF Discourse Series is a monthly event where current issues of interest in the Islamic finance & sustainability sphere and beyond are discussed by scholars, policy makers and industry players. Today’s hybrid event was attended by students, staff and industry players, and attracted online participants from – among others – Belgium, Turkey, UK and Singapore.

For Dr Aamir’s slides, click

https://drive.google.com/drive/folders/1Zi_ZqwklEB2CfjOokyrEGp2l0CA_qMyT

 

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Date

Sep 01 2024
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