It was January 15, 2015. Mainstream Islamic finance was no longer an infant discipline. Overall, the global Islamic financial services industry now had total assets of around $2 trillion with nearly 80%, entrusted either to Islamic banks or to the Islamic units of conventional banks. The rest took the form of sukuk (15%); Islamic investment funds (4%) and takaful (1%). Together, these sectors had been growing at an annual rate of over 15%. Analysts expected this growth to continue well into the future. Such frenetic pace of the industry also resulted in Islamic finance maturing as a discipline, which naturally attracted a growing number of students and researchers. There was a steady growth in number of teaching and research programs across the globe in the fields of Islamic commercial banking, Islamic funds, sukuk & Islamic capital markets and takaful. However, Islamic finance is not all about making and taking profits, as it is often made out to be. As I wrote in the opening pages of Islamic Social Finance Report (ISFR) 2014:
While philanthropy-based and not-for-profit modes attracted the attention of early researchers of Islamic economics and finance, they apparently failed to catch the fancy of the professionals and practitioners. As a result, after growing at a frenetic pace for over four decades, mainstream Islamic finance is now understood to comprise banking, insurance and financial market participation. These are for-profit segments of the Islamic economy. The impressive growth has also been matched by a large-scale increase in research and documentation pertaining to these segments. At the same time there appears to be a gross imbalance in resources committed to research and documentation of the Islamic social, philanthropy-based and not-for-profit sector.
The Jeddah-based Islamic Research and Training Institute of the Islamic Development Bank Group was among the first to note this imbalance with concern and rightly identified ISFR 2014 as its flagship multi-year project. As the project leader of ISFR 2014, I had to often strive to define this “new animal”. Why should we call this Islamic social finance? Should we not include “for-profit” microfinance in the scope of its definition? Why should we not address the sectors individually as zakat, awqaf and what-have-you. However, the initial resistance gave in, once the ISFR 2014 was launched by IRTI in association with Thomson Reuters in February 2014.
The present research team at IRTI fondly remembers these developments in the following words:
“The ISFR (2014) was the first ever publication to use the term “Islamic social finance” to describe the Islamic philanthropy-based and not-for-profit sector. The report, focusing on the zakah, awqaf and microfinance institutions in South and South-East Asia, brought to the fore some mind-boggling facts. A small upward push in zakah and waqf mobilization in many countries could generate enough funds to meet the resources gap for poverty eradication. Such resource raising was also a clear possibility, given that countries that were proactive in reforming their respective Islamic social finance sectors were also the ones with steady double-digit growth rates in the flow of social funds.
Soon, IRTI’s pioneering efforts in underlining the significance of Islamic social finance led to a number of forums, seminars and conferences being organized around the theme. In a meeting of the Governors of Central Banks and Monetary Authorities of the OIC Member States, in Surabaya, Indonesia on 6 November 2014, the OIC Secretary General called for the rejuvenation of Islamic social finance (i.e. zakah and waqf) for the purpose of mobilizing adequate resources to address the problems of financial exclusion, poverty and unemployment among the vulnerable groups of population in OIC countries. Based on the deliberations, the meeting adopted its communique containing a set of recommendations to further increase intra-OIC cooperation in this domain.
The second issue of ISFR released in March 2015 contributed further to bridging the information gap relating to the sector. It focused on zakah, awqaf and not-for-profit microfinance sectors in selected countries in Sub-Saharan Africa, including Sudan, Nigeria, Kenya, Tanzania, Uganda, Mauritius and South Africa. In October 2017, the third issue of ISFR was released. This issue of the report analyses the Islamic social finance sector in the Russian Federation, Kazakhstan, Kyrgyzstan, Tajikistan, Bosnia and Herzegovina, and Macedonia. The forthcoming fourth issue of ISFR, to be released in 2020, will focus on countries in North and West Africa.
Barely a year after the launch of the second issue of ISFR, in May 2016, a special session at the first ever World Humanitarian Summit, organized by the UN at Istanbul, was dedicated to the theme, “Islamic Social Finance as a New Alternative for Humanitarian Financing.” The speakers at this session, including the Sultan of Perak, OIC Secretary General, IsDB President, and experts from the World Bank, UNDP, WFP and other international agencies, acknowledged the significance of this sector. They called for efforts to strengthen the sector to significantly enhance its contribution to humanitarian financing. The summit also witnessed the launching of a seminal document “Core Principles for Effective Zakah Supervision”, an outcome of a collaborative initiative by IRTI, Bank Indonesia and the National Board of Zakah of Indonesia, to develop core principles of supervision and management, uniform standards and performance indicators for the zakah sub-sector. Among the other documents produced under this initiative are: Technical Notes on (i) Good Amil Governance and (ii) Risk Management for Zakah Institutions. A document on “Core Principles for Awqaf Supervision” is currently in advanced stage of preparation. Theses principles and standards are expected to significantly contribute to mainstreaming of the Islamic social finance sector.
Dr. Mohamed Obaidullah, Lead Economist at IRTI, has been leading the ISFR project since inception. He explains the successes of IRTI’s work in the Islamic Social Finance sector: “IRTI, as part of its flagship research and publication program, has dedicated significant resources to publication in the field of Islamic social finance. Since inception, IRTI has produced as many as 26 books and monographs and 30 policy/working papers relating to zakah, awqaf and Islamic microfinance in multiple languages. Indeed, due to the pioneering efforts of IRTI, Islamic social finance is now firmly etched as the new paradigm that reflects the objective and spirit of Islam, perhaps far better than the for-profit financial institutions and markets.” The IRTI ISFR project will continue to take stock of the Islamic social finance sector by focusing on other regions in the subsequent studies.”