Can Islam contribute to social finance?

Deloitte describes social finance as “an approach to managing investments that generate financial returns while including measurable positive social and environmental impact.” An OECD policy paper echoes this and describes social finance as “the provision of finance to organisations with the explicit expectation of a social, as well as financial, return.” Social investment involves private investment that contributes to the public benefit. This ranges from “impact-first” investors who are willing to provide funding for organizations that are not able to generate market returns to “financial-first” investors who are more traditional investors but with an interest in also having a social impact. Unfortunately, there is no single definitive explanation of social finance. However, all social finance initiative shares a social objective.

The OECD notes that social investment has become increasingly relevant in today’s economic environment as social challenges have mounted while public funds in many countries are under pressure. New investment approaches are needed for addressing social and economic challenges, including new models of public and private partnership which can fund, deliver and scale innovative solutions from the ground up. What can Islam contribute to the sphere of social finance?

An ethical framework

It is as a result of morally corrupt business practices that corporations disregard the wellbeing of society. Ethics are an important part of ensuring the well being of society. Islamic social finance can help to revitalise the ethical components that are often overlooked during the progression of unimpeded capitalism. Islamic and social finance can steer the extant market mechanisms in a way that makes it significantly more conducive to financial inclusion and positive social impact.

Banning exploitative practices

Islam is a religion of justice and mercy. Unsurprisingly, Islam prohibits acts and avenues to exploitation. Aspects which may lead to exploitation are prohibited in Islam. The most prominent examples of this is the prohibition of riba and gharar in Islam.

Added offerings

Islamic finance opens the door to a variety of different mechanisms with an Islamic flavour. Many of these mechanisms have an overlap with conventional finance. This overlap is mostly found in objective, but sometimes also in structure. Therefore, these offerings may appeal to those beyond the Muslim community. Some of these offerings include:

·        Takaful

·        Sukuk

·        Zakah

·        Qard hassan

·        Waqf

Ultimately, Islam is a holistic religion. Therefore, any development of Islamic finance should correspond with the development of society.

Allah Knows Best