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Innovation in Islamic Social Finance: A Brief Snapshot

Innovation in Islamic Social Finance: A Brief Snapshot

By Umar Munshi | June 12, 2018

Innovation in Islamic Social Finance: A Brief Snapshot


The role of Islamic social finance assumes great significance, as it can be potentially tapped to address the global shortage of humanitarian aid. It can be provided to aid countries made vulnerable by conflicts and poverty. Islamic social funds include zakat (compulsory tax on wealth), sadaqah (charitable acts) and waqf (endowment).

To fulfill this objective, it is imperative to first know the extent to which Islamic social funds can meet the resource requirements for poverty alleviation, and whether the current distribution of Islamic social funds to the poor have been effectively managed and distributed.

It is observable that even though the total amount of Islamic social funds given yearly is huge, the poorest and neediest communities and countries are Muslim. Let us together analyse some mind-boggling numbers in relation to Islamic social funds.

The Islamic Development Bank’s research institute estimates that zakat collections come up to a total of at least US$500 billion a year, which is about 20 times more than total global humanitarian aid! Moving to sadaqah, let’s calculate a casual estimate: For example, 20% of 800 million male Muslims give average of $20 a month to the mosque, times 12 months = $38.4 billion a year! In reality, it may even be much more. And we have not even touched on waqf, which is known as the wealth of the Ummah.

The figures prove that we are a wealthy Ummah, but unfortunately our system of Islamic social funds is terribly broken. We give the most and still remain the neediest. Based on observable facts and figures, it is clear that the proceeds of Islamic social funds are misplaced, not knowing exactly where it ends up at. Even for those who are sincere and honest, there is a lack of understanding and procedures in place to prevent leakages and fraud.

One way to address the above problem is innovations. With innovations, rapid technology and digital ecosystem will be embraced and this will positively reshape the functioning of Islamic social finance today.

An example of innovation in Islamic social finance is crowdfunding. Crowdfunding, which briefly means the process of raising funds online is not a new concept. It has been hugely successful in the US, parts of Europe and China. The largest platforms now move billions of dollars every quarter. Of more importance, online crowdfunding platforms are instilled with features which are clearly absent in the traditional Islamic social finance system such as transparency and campaigns progress updates.

Crowdfunding is a powerful innovative technological tool implemented for positive change and over time ensures a fairer circulation of wealth. Even though there are many well-established crowdfunding platforms in non-Muslim jurisdictions, Islamic crowdfunding, on the other hand, has only started to gain momentum. But on a positive note, a handful of Islamic crowdfunding platforms have started to generate considerable impact. Some of the selected examples of emerging Islamic social finance crowdfunding platforms amongst others include Humancrescent.org and GlobalSadaqah.com.

Humancrescent.org is a newly established Islamic social finance crowdfunding platform that lends voice and support to displaced people worldwide, focused on zakat distribution. The GlobalSadaqah.com crowdfunding platform was recently launched specifically for Islamic charity, where it hosts campaigns from the top charities and institutes globally, for the Ummah or ‘the crowd’ to give sadaqah, zakat and even cash waqf. With the impact tracking features of GlobalSadaqah.com, it will allow donors to see how their money is being utilised and receive regular updates on their contributions via emails and in their donor dashboards. Updates inform donors on the current status of their donations and help keeps track of its impact. Unlike traditional donation systems, donors can now know that their money is dealt with responsibility and care.

Further highlighting the strong growth of GlobalSadaqah.com, its charity partners include reputable names such as Bank Islam Malaysia (Sadaqa House), Institut Jantung Negara (National Heart Institute Malaysia), JREC School for Rohingya refugee children and more.

On this blessed month of Ramadan where good deeds are multiplied, Global Sadaqah has partnered with the Islamic Development Bank (IDB) and the Islamic Solidarity Fund for Development to invite the world to join in and contribute to two of their most impactful programs, including the Alliance to Fight Avoidable Blindness (AFAB).

An incredible 80% of blindness is curable - a Cataract operation takes just 10 min and in this program, it costs just $15 for one eye. Imagine, giving just $15 online on Global Sadaqah from the comfort of your own home, and giving the gift of sight to poor and needy individuals. Just a few minutes of your time will bring a lifetime of change for them. You have the chance to donate to men, women, and children directly and confidently, and then come back to see how your donation made a difference. Some campaigns are Zakat-eligible so you can allocate your donation from your Zakat responsibility.

It is clear that the traditional Islamic social finance distribution has failed us. I believe that this challenge can be addressed through the adoption of innovation and technology, specifically crowdfunding. Crowdfunding platforms are like knights in shining armour, especially with its features such as transparency and progress updates.

The implementation of online Islamic social finance crowdfunding platforms will potentially change the Islamic social finance landscape. This is because through innovation in Islamic social finance, this will further complement the traditional mosques and related bodies by helping them to fulfil their role better through raising funds for them in a more effective and transparent manner. As innovations in Islamic social finance gain momentum, it will automatically ensure that the role of giving, distributing and receiving is responsibly upheld by all of us together.

On this blessed month of Ramadan, let us do our part to make this positive change together. Visit GlobalSadaqah.com to subscribe, donate, share and participate in the #AFABCharityChallenge and much more!


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4 Comments

Abdullah Zaman 6 months ago
Student, Aligarh Muslim University

you forgot to mention launchgood.com.
also, what would you say about the introduction of blockchain technology in Islamic social finance? (edited)


Founder, Ethis Ventures

blockchain can potentially enhance a working system. our system is broken and needs to be fixed first.

I know launchgood well - we are part of the Islamic Fintech Alliance :)


Robert Hannah 6 months ago
N/A

It is indeed disconcerting to note the very large volume of zakat funds raised, and the lack of accountability and transparency in their use. Where are all these funds going? (edited)


Founder, Ethis Ventures

there is no clear data to answer this, although our own direct experiences and anecdotal evidence suggest that alot of charity (not only in the Muslim world) used ineffectively and lost to 'leakages' from fraud to corruption