KARACHI (PEN) :Islamic finance is the area of finance that complies with Shariah guidelines and the Islamic commercial law while avoiding transactions involving interest, speculation, gambling and artificial financial instruments.
Generally, when we refer to Islamic finance, our focus is on the commercial aspect of finance that includes Islamic banking, Islamic insurance, Shariah-compliant mutual funds and Sukuk. According to the London Stock Exchange Group reports, the size of Islamic commercial finance has surpassed $4.5 trillion globally and it is expected to reach $6.6 trillion by 2027.
However, the domain of Islamic finance also includes Islamic social finance, an integral area that not only broadens the reach of Islamic finance to almost all Muslims but also has the potential to contribute at the global level towards sustainable growth and economic development of society.
Islamic social finance is a multifaceted approach that blends Islamic finance principles with a focus on principles of justice, equity, social responsibility and community welfare. It aims to address socio-economic inequalities, promote sustainable development and foster community cohesion.
This unique financial framework aligns with Islamic ethics and values, offering an alternative to conventional finance systems. In essence, Islamic social finance seeks to create financial instruments that not only comply with the Shariah law but also address social issues by integrating ethical and moral considerations into financial practices and seeks to create a more inclusive and equitable society.
At the heart of Islamic social finance is the principle of Shariah compliance. Islamic law prohibits activities involving interest, speculation, deception, gambling and unethical investments while emphasising ethical and equitable financial dealings. This foundation shapes Islamic finance as a whole, and in the realm of social finance, it guides the development of instruments that prioritise societal well-being.
During the last 1,450 years of Islamic history, the areas of Islamic social finance have played a pivotal role in not only supporting Muslim societies in times of need but also supporting economic development and sustainable growth.
Islamic social finance instruments primarily include Zakat (obligatory almsgiving), Sadaqah (voluntary charity), Waqf (endowment and trusts) and Qarz al-Hasan (benevolent interest-free loans) while innovative developments in the area now also cover Islamic microfinance, Social Sukuk, socially responsible investment and Islamic crowdfunding and ethical investments. The above-mentioned instruments, if used properly, can provide much-needed stimulus and support to the economy.
