Islamic Social Financing
Each of the existing models have specific target beneficiaries driven by a clear and transparent humanitarian and/or developmental objective, although the scope can be diverse like in the case of the Life and Livelihood Fund.
Central to the effective fund disbursement to target beneficiaries is the role of local actors or intermediaries such as local civil society as strategic implementers or partners in the projects that such funds create. The consideration for partnership should be premised on the capability, reliability and track record of such local actors in implementing the innovative social finance (in particular, Islamic) models in countries that are in need of humanitarian and developmental assistance.
While most models are location specific, some have a global focus. It is also noted that the institution that manages the fund does not necessarily need to be based in the locality of the beneficiaries/recipients (for example, the Salma Relief Program in UAE for beneficiaries in Palestinian, zakat and Waqf crowdfunding platforms that will focus on the Western markets).
Multiple sources of funding is key to maintaining the “financial sustainability” of the institution as well as “sustainable empowerment” of the beneficiaries. BMT Indonesia is a case in point whereby various types of services are offered to different levels of beneficiaries (for example, the use of takaful, skill training and other non-financial/social assistance). These models focuses on facilitating consumption and productive activities where returns or profits are to be retained for future funding (for example, the Integrated Waqf based Islamic Microfinance Model). Separation of various funding sources would also ensure Shari’ah compliance and minimize potential reputational risk.
The sophistication of funding instruments need to be contextualized and paced according to the context of the institution managing the fund and beneficiaries receiving those funds. For example, social impact sukuk, especially a global issuance, is a more complex structure that requires various building blocks to be put in place (for example, credit rating, pricing mechanism, regulatory approval, legal documentation and other structuring process).
A robust institutional and governance framework is key to the success of these models. For example, the Zakat Chamber of Sudan has an in-built organizational structure, audit, control and reporting function that would help to maintain transparency and accountability. In some cases, an apex religious body or ministry to ensure compliance with the Shari’ah and with local rules and regulations would be helpful. In the case of social impact sukuk, the presence of evaluation advisers and independent assessors plays an important role in ensuring check and balance.
Collaboration with diverse stakeholders helps to expand outreach and impact. The cooperation of BAZNAS of Indonesia with various domestic and international institutions can be a good point of reference.
Assessment of impact of the funding would further enhance accountability of the process and increase confidence of donors/investors. The assessment of AIM microfinance program against the principles of Maqasid al Shari’ah is a basic illustration. Other socio-economic impact assessment tools can be adopted in the future, possibly on a real-time basis given the technological improvements nowadays.