ISF – AN ECONOMY OF INCLUSION

Author: Dr. Amnah Khalid

(ZAKAH, INFAQ, SADAQAH, WAQF)

One of the most interesting areas to emerge from Islamic finance recently is Islamic Social finance in supporting developement in Muslim countries and in expanding rapidly having an impact on humanity. Islam has promoted justice equitable distribution of wealth and resoiurces to maintain peace and order in society. It has done this by institutionalization of charity to be spent for social good of society. There are different forms of charity that Muslims give and expected to regularly,  such as sadaqah, zakat waqf and infaq.These when collected from huge population can act as a corpus fund for the betterment of society and has been done historically and became mismanaged with change of political and administrative systems. With growing financial  disenchantment in recent years and prolonged economic recession, many alternatives are being considered to source out funding for social causes and support poverty alleviation programs by various schemes like micro financing small scale businesses, crowdfunding, use of technology and innovative financial solutions. This chapter will introduce the ideas and concepts on the above and the various initiatives taken by start up and institutions in the area of Islamic Social finance to vitalize social structure at the community level to develop and support the Islamic vision of Rahamatual Lil alamin or humanity.

1. INTRODUCTION OF ISLAMIC SOCIAL FINANCE
   1. Social Finance and Social Welfare

Social finance is a natural complement of the social economy which aims to put social impact above profits. Since the social economy normally refers to the third sector or economic activities; charities, cooperatives and mutual, as well as social enterprise and corporations.^[1] Social finance is a non-profit enterprise that works together with philanthropic foundations, local authorities, national government and investors to find better solutions of tackling social problems. Philanthropic organizations provide a determined and unique solution to the issue of maximization rather the focus is impact on social welfare. In other words, profit maximisation is not the main objectives of these organisation unlike the regular corporations such private companies, but social finance supports and relies on charities, social enterprises and community groups.^[2]

Social finance is recognised as a method in investing and managing certain funds with the purpose of solving different social challenges. This is considering a pivotally important in generating the merits to society such as alleviating poverty, providing necessary infrastructures such as school and hospital, and preserving life and dignity (Zain & Engku, 2017).

Based on  Rexhepi (2017) the number of donors is actually dropping in 2006, while charity organization are financed mainly by the government at about 80%. As an illustration, Benevolent society, Australian’s first and oldest charity, with more than $80 million income per annum, whereas 82% of the fund is given by the government. By this case, this seems that Benevolent societies rely more on government’s grants which may negatively affect the charity organizations’ activities in case the government failed to support them. 

Apart from Benevolent, Bill and Melinda Gates foundations, are among the most well-known philanthropist in the world and just in 2012, they gave a total direct grantee support of approximately $4,718,000 by the end of 2017 ^[3]. They declared that they are continuously making an important progress alongside with the Global Polio Eradication Initiative towards global polio eradication. Along with Bill and Melinda Gates, Warren Buffet Foundation, is helping to shape their vision and develop strategies to address the world’s most challenging inequities. Buffett has invested in a broad range of companies, from See’s Candies to Geico Insurance to Fruit of the Loom. His gift to the Gates Foundation of 10 million shares of Berkshire Hathaway stock was worth approximately $31 billion in June 2006.

Initiated in 2008, the Grameen Credit Yunus was established by Group Credit Agricole in partnership with Grameen bank. The objective is to fight against poverty in developing countries through the financing of microfinance institutions and social business enterprises. It provides loans, equity, guaranties and technical assistance to its partners. Initially, the Foundation received an endowment of 50 million euros. Currently, the Foundation works with 70 partners in 33 countries (Report, 2018). Moreover, The Swedish International Development Cooperation Agency (Sida) on behalf of the Swedish parliament and government, established in order to reduce poverty in the world. Their goal is to improve the living conditions of people living in poverty and under oppression. Also, decides mainly about the support channelled through multilateral organizations such as UNDP, UNICEF, the WHO and the World Bank (Report, 2018).

The above-mentioned social finance organizations provide an agility in the way that it adapted to the user community and their needs. Social finance is literally designed to achieve economic and social development, .  however, non- profit organizations are relying more on grants which is discouraging them from being productive looking toward creating sustainable projects.

Figure 1

The Role of Social Finance

From the depicted picture, Rexhepi argue that social finance is influencing social change in a society giving up from profit maximization toward a profit that is generated while taking care of social needs. Social finance tends to create an organization that is self-finance and that will not be relying on grants or charities to operate successfully.

Source: (Rexhepi, 2017)

1.   Islamic Social Finance

The traditional methods of Islamic social finance broadly comprise of Sadaqah (voluntary charity), Zakah (alms giving), Waqf (endowment) and Wassiyyah (Islamic Will) have a long history of contributing to the development of many Muslim communities.

Islamic social finance seems to be similar to the conventional social finance. However, the former is conducted and ruled under the principles of shariah. It is also known that in order to create a significant impact in the society, Islamic Social finance instruments ought to be fully utilized to achieve the Objectives (Maqashid) of Shariah. Islam has already provided us with clear guidelines on the social-based financing… investment which is not only able to benefit individuals but also society at large. Also, Islamic social finance emphasis on social justice, in which it has a strong preference for risk sharing, profit sharing, or equity-like modes financing and views debt with suspicion.

According to Zain and Engku 2017, the concept of Islamic social finance is broad and already exists in Islam. This inclusively covers the Islamic traditional instruments based on philanthropy (such as Zakah, Sadaqah and Waqf) and cooperation (such as Qard and Kafala). Those not only limited to the traditional instruments, but also modern form of Islamic financial services such as Islamic microfinance, Sukuk and Takaful which stand with the objectives of solving societal challenges.

Soyan Financial consulty report, mentioned that the global Islamic finance industry’s assets are worth USD2 trillion and are forecasted to rise to USD5 trillion by 2020, Islamic social finance is an under- explored territory according to the High-Level Panel on Humanitarian Financing Report to the UN Secretary General (Soyan Financial Consulty, 2017). Moreover, Islamic Development Bank (IDB)’s research on zakah (mandatory alms-giving) in 2015 conservatively estimates between US$ 232 billion and US$ 560 billion circulating annually with just one per cent of zakah. Yet, there is no specialised coordination mechanism or an autonomous body to help channel Islamic Social funds effectively at the global or regional level for humanitarian action, there is potential for Islamic Social Funds to fill the humanitarian funding gap if organised mechanisms to collect and distribute these funds could be established at national levels given the large scale of contribution from Muslim societies globally.

Nowadays, the high number of poverties has become the crisis issue in many countries. Meanwhile, Islamic social finance has a great responsibility to address that issue. Since the main objective of Islamic social finance (Zakah, Infaq, Sadaqah, & Waqf) is to meet the needs of poor people and to what extent this Islamic social finance could alleviate the poverty. Islamic social finance which currently applied nowadays might be divided into three main categories which consist of; Islamic traditional instruments based on philanthropy such: zakah, sadaqat and waqf, Cooperative-based foundations such: Qard and kafala (IRTI, 2015) and other modern forms of Islamic financial services, such Islamic microfinance, sukuk and takaful(Zain & Engku, 2017).

Zakah and Waqf these two represent has value proposition that are to a great extent, unique in nature as compared to conventional systems. Based on Adam et al 2018, zakah and Waqf represent a significant sector with a high potential. It is estimated that between USD200-USD1,000 billions are given annually in zakah across the Muslim world and Waqf assets are estimated between USD 100 billion and USD 1 trillion^[4].

1. THE DIFFERENCES CONCEPT BETWEEN ZAKAH, INFAQ, SADAQAH AND WAQF

1. Zakah

Zakah, linguistically means cleansing of purification of something from dirt or filth, theologically means spiritual purification resulting from giving of zakah, and legally means transfer of ownership of specific property to specific individuals under specific conditions^[5]. Zakah is commonly translated into English as ‘Islamic Alms’ and this is mentioned in the Quran on more than 30 occasions, in verses of praising giving away of wealth, material or financial, in an act of renunciation and reliance^[6].

Zakah is the obligation of almsgiving within Islam and constitutes one of the five pillars of Islamic worship and is requirements on the wealth of every Muslim based on prescribed criteria. Zakah has been variously described by scholars as a tool for redistribution of income, as an instrument of public finance, particularly a fiscal tool as highlighted before, and as a mechanism for development and alleviation of poverty. The shari’ah rules are clear and elaborative in defining who is liable to pay (zakah payer) and who may benefit from zakah (zakah recipient or beneficiary or asnaf). Since, this widely known that the poor and the destitute belong to the first and the foremost category of Zakah beneficiaries, zakah might be used for the benefits of poor and needy in society and has been applied by all Muslim in many countries especially by OIC member countries.

As cited in (Schaeublin, 2014), Hurgronje’s analysis of Zakah rests on the distinction between revelations occurring in Mecca and those occurring in Medina, and he argued that Zakah was slowly transformed from a virtuous gift into a justification used by the nascent Islamic polity to extract public contributions from Muslim. He also observed that was an intimate link between Zakah and virtues such as justice and piety. Then, he finally stated that Zakah is ceded its place in favour of a more legalistic conception of Zakah as a contribution and thus became an imposed obligation

There are two types of Zakah, namely Zakah al-fitr (Zakah paid during Ramadhan) and Zakah al-mal (Zakah on wealth). Zakah is a compulsory annual levy on the individual wealth who possesses wealth beyond a prescribed minimum, and Zakah is not levied on income used for consumption but saving that is transformed into stock of wealth, agricultural output and also another form of stocks such as gold, silver and the inventory of trade and livestock. Zakah is also not levied on the means of production such as tools, equipment and machinery^[7].

It is also interesting to note that there are any assets that is zakahable must fullfill the following conditions; firstly, absolute right of ownership of wealth with exclusive right of disposition, secondly growth or potential of growth in wealth, then wealth above the minimum threshold (Nisab), and Passage of a year (Hawl) applicable on live stock, money, and business assets (IRTI, 2015).

In addition to this, the holy Quran mention the eight kinds of people who are zakahable to receive the zakah designated by the God.

“Zakah expenditures are only for the poor and for the needy and for those employed to collect [zakah] and for bringing hearts together [for Islam] and for freeing captives [or slaves] and for those in debt and for the cause of Allah and for the [stranded] traveler – an obligation [imposed] by Allah . And Allah is Knowing and Wise” (9:60)

1. Waqf

A religious endowment in the Muslim world as “waqf” or “habs”^[8] and its plural form “awqaf” are derived from the Arabic root verb “waqafa”, which means causing a thing to stop and stand still. The second meaning is simply pious (charitable) foundations (Çizakca, 1998).  Jurists also commonly use the word Waqf to refer to a form of charitable donations or trust in Islam and is recognized by the Islamic law as religious, pious, or charitable donation. Waqf is to assist, directly or indirectly the demerits groups of a community (Iman & Mohammad, 2014).

The resources of Waqf are derived from the Holy Qur’an and Sunnah or al-Hadith of Rasullulah Puhb, whereby both of those resources are the primary source of the Shariah and Ijma’, Ijtihad, and Qiyas would be the second resources of Waqf. Yet there is no direct mentioned Waqf in Holy Quran. Instead Waqf refers to a religious endowment, such a voluntary and irrevocable dedication of one’s wealth of a portion of it in cash or kind. Hence, the basic idea of Waqf comes from a hadith of Abu Hurairah r.a. who reported that Rasulullah S.a.w. said:

“When a man dies, only three deeds will survive him: continuing alms, profitable knowledge and a child praying for him”

The terms perpetual charitable donation is widely accepted by the Muslim Scholars as waqf. Waqf literally means to hold, confine, prohibit, detain prevent, or restrain and legally to protect something by preventing it from becoming the property of a third person (Iman & Mohammad, 2014).

The majority of Islamic scholars have agreed on the following five components that make a waqf valid or acceptable. Some of those elements are: (1) the founder of Waqf which must be ‘aqil (someone in full possession of their mental capacity), Baligh (adult), Hurr (free Person), Capable of transferring the ownership of the asset or property from himself to the ownership of Allah, (2) the nature of the property which can be a movable or immovable property, (3) the mutawalli or wally or trustee, (4) the beneficiaries and the form of declaration of the waqf (Elkhatib, 2016)

Following the Elkhatib studies, he classified Waqf into two categories; (a) Waqf according to its purpose and the nature of the beneficiaries. Whereby this Waqf is divided into Waqf Khayri or public endowment, and Waqf Ahli or Dhurri or familial endowment. (b) Waqf according to the use of the mawquf asset. Whereby the intention of this Waqf is to achieve the direct purpose of the endowment such Mosque for praying. Another source, classified the types of Waqf are divided into four categories, Self-Dedicated Waqf (al-Waqf al-Nafs), Family Waqf (al-Waqf al-Ahli), Joint Waqf (al-Waqf al Mushtarak) and Charitable Waqf (al-Waqf al-Khayri) (Finterra, 2017)

Historically, charitable endowments have been practiced by earlier civilizations i.e. Mesopotamia, Greece and Rome, but there is no comprehensive legislation unlike the Waqf. Meanwhile, the first Waqf in the Islamic jurisprudence was conducted by the Prophet Muhammad himself who built Masjid Quba in the hijrah to Madinah and Masjid Nabawi which is also in Madinah. Also, there are seven gardens by a Jew named Mukhayriq who was killed in the battle of Uhud and he made a will that all his property would go to Muhammad SAW in the event of his death (Yaacob, 2013).

Waqf also refers to the assets and investment which are given by the donors based on the concept of trust to be utilized for the sake of large public or the owners may also specify the suitable beneficiaries. IDB reported that in 2014, the value of waqf is estimated to range from USD100 billion to USD1 trillion and reached 1/3^rd or above of cultivated lands. In practice, Waqf has been used to support the social, health, environmental, education and infrastructure (Zain & Engku, 2017).

In the applications of Waqf, Waqf of building or lands were the most popular forms of Waqf. However, nowadays, Cash-Waqf has become increasingly known and being used in many countries such as Malaysia, Singapore, Indonesia, India, Pakistan, the UAE, Kuwait, the UK and among several countries. This is due to its flexibility which allows distribution of the Waqf’s potential benefit to the poor anywhere.

As cited in Khademolhoseini, 2011, Majid classified the current application of Cash Waqf into:

1. Waqf Shares Model. This is a Public Waqf which has been practiced in the UK, Kuwait, Sudan, Indonesia and Malaysia.
2. Corporate Cash-Waqf Model. This model is a public Waqf which has been practiced in Pakistan in Hamdard Foundation 1953, Turkey in Sabanci Foundation 1974, Malaysia specifically in Kumpulan Waqf an- Nur 1998, and South Africa in the National Awaqaf Foundation 2000
3. Deposit Product Model. This model is a Public Waqf which has been practiced in Bangladesh, Social Investment Bank Limited (SIBL) and Islamic Bank Bangladesh Limited (IBBL).
4. Waqf Mutual Fund Model. This model is a combined Waqf which has been practiced by Dompet Dhuafa Batasa Indonesia which is managed by the Batasa Capital Asset Management.
5. Wakalah with Waqf Fund. This model is a Public Waqf which has been practiced in Pakistan and Malaysia.

As cited in Elkhatib, 2016, Abdel Mohsin, stated there are also another scope of cash Waqf:

1. Waqf Takaful, a khayri Waqf used in Malaysia
2. Direct cash cash waqf, a khayri or public waqf adopted by the IDB, South Africa, the US, India, UAE, Bahrain, Singapore and Malaysia
3. Mobile cash waqf, a public waqf practiced in Malaysia
4. Compulsory cash waqf, a public waqf implemented in Singapore
5. Co-operative cash waqf, a public waqf regime used in Uzbekistan

1. Sadaqah

Sadaqah means general charity, in cash as well as in actions. A smile or a good deed is Sadaqah. Sadaqah comes from the arabic root word ‘sidq’ which means sincerity^[9]. Sadaqah is the charitable amount which may be paid out voluntary in the form of donation and has no specific calculation provided in determining the amount. Practically, Sadaqah is given directly from an individual to another one. Hence, Sadaqah is obviously different from Zakah which measured its amount.

Islam calls upon its follower to give in Sadaqah as a way of life. The more Muslim gives Sadaqah the more Muslim will increase their eeman and thus, expect Allah’s rewards both in this world and in the hereafter. Giving Sadaqah out of our wealth does not decrease our wealth but instead Allah SWT will increase it.

This also has been known that Sadaqah is mentioned dozens of times in the holy quran. The verses below are only from the second chapter^[10]

“Who believe in the Unseen, are steadfast in prayer, and spend out of what We have provided for them” (2:3)

“And spend of your substance in the cause of Allah, and make not your own hands contribute to (your) destruction; but do good; for Allah loveth those who do good” (2:195)

“They ask thee what they should spend (In charity) Say: Whatever ye spend that is good, is for parents and kindred and orphans and those in want and for wayfarers. And whatever ye do that is good, -(Allah) knows it well” (2:215)

“Who is he that will loan to Allah a beautiful loan, which Allah will double unto his credit and multiply many times? It is Allah that giveth (you) Want or plenty, and to Him shall be your return” (2:245)

In addition, there are definition of sadaqah based on the Hadith. The following hadith elaborate the variety voluntary activities from freeing a slave, giving to the poor and also giving to the family is prioritised (Awang, Muhammad, Borhan, & Mohamad, 2017).

“Abū Ḥurayrah reported Allah’s Messenger as saying: “Of the dinar you spend as a contribution in Allah’s path, or to set free a slave, or as a sadaqa given to a needy, or to support your family, the one yielding the greatest reward is that which you spent on your family”

Sadaqah literally also could be done in the form of a will or wasiah as evidently found in the hadith of Ṣaḥīḥ Muslim:

“Aisha said that a person came to the Messenger of Allah and said: “My mother died suddenly without having made any will. I think she would have definitely given Sadaqa if she had been able to speak. Would she have a reward if I gave Sadaqa on her behalf? He (the Holy Prophet) said: Yes”

Furthermore, Sadaqah is not restricted to giving part of our wealth or material possessions or any special deed of righteousness. Yet, Islam considers all those good deeds as sadaqah which may increase the Muslim eeman.

Abu Musa narrated that the Prophet (s.a.w.s.) said, “Every Muslim has to give in sadaqah (charity).” The people asked, “O Allah’s Messenger (s.a.w.s.)! If someone has nothing to give, what will he do?” He said, “He should work with his hands and benefit himself and also give in charity (from what he earns).” The people further asked, “If he cannot do even that?” He replied, “Then he should help the needy who appeal for help.” Then the people asked, “If he cannot do that?” He replied, “Then he should perform all that is good and keep away from all that is evil and this will be regarded as charitable deeds.” (Bukhari Vol. 2, Hadith 524)^[11]”

Therefore, it is concluded that sadaqah might be done in any means which not only restricted to material things but also nonmaterial giving such as doing good. Awang, et all study classified that Holy Quran and Hadith lead to the formation of charitable giving classification.

Figure 2 – Classification of Charitable Giving
Source: (Awang et al., 2017)

From this depicted picture, Sadaqah is divided into two types, Mandatory and Voluntary charitable giving. In terms of the recipients, Ibn Kathir indicated the permissibility to give charity to the non-Muslim and most of the scholars widely agree that only voluntary charitable giving can be given to the non-Muslim but not the mandatory charitable giving. He also stated that, the source of charity must be purely and honestly earned. Whereby the giving things of food ought to be given away in a good condition.

Further explanation in giving is presented in Surah al-Baqarah verse 271^[12]:

“if you disclose your charitable expenditures, they are good; but if you conceal them and give them to the poor, it is better for you, and He will remove from you some of your misdeeds [thereby]. And Allah, with what you do, is [fully] Acquainted”

This verse elaborates that charity might be good exemplary to the society. This is also better when Muslim gives the charity in anonym to avoid the act of bragging and this will erase the sins. Giving the charity in public is better and for voluntary giving, secrecy is better. Ibnu Abbas said that Allah rewards a concealed noble deed up until 70 times and that the hidden mandatory charitable giving is rewarded 25 times higher than doing it openly (Awang et al., 2017).

1. THE ROLE OF ISLAMIC SOCIAL FINANCE INSTITUTIONS

Islamic Social finance comprises the traditional Islamic institution based on philanthropy and mutual cooperation as well as the more contemporary institutions of not-for-profit and for-profit microfinance. Besides, Islamic social finance institution has significant roles in the socio-economic development of Muslim throughout Islamic civilization.  They do mobilize the Islamic social funds from the public or the individuals to the target recipients. Moreover, this role is aligned with the main objectives of Islamic social finance which is the alleviation of hardship, poverty and human suffering (Soyan Financial Consulty, 2017). Taking back to a point in history, specifically during the colonial period, the role of Islamic social finance institutions had declined yet it is now being revived by several contemporary Muslim countries (Haneef, Ariffin, & Mohammed, 2012). It seems that this is pivotally important to have progressive reforms made in zakah and Waqf institutions in any Muslim countries to allow them to play a bigger role in the socio-economic development of the Muslims and poor in general.

1. Zakah Institution

Historically Bayt Al Zakah, it was under bayt al-mal, had a significant role in terms of income and wealth distribution to create the social welfare. According to (Adam Abdullah et al, 2018) zakah was collected and distributed by a central body under the state supervision. Also, zakah is not considered as the mandatory religious tax, but in ensures the wealth circulates throughout the whole societies. Hence, zakah should be major of funds to enhance the economic empowerment, equal distribution of resources, alleviate the poverty and establishes social justice.

Zakah institutions is an integral part of the Islamic socio-economic system. It has a major impact in complementing the government’s poverty eradication effort concern on the poor and the needy Muslim. According to Rahman, Alias, & Omar (2012) the effectiveness in carrying out the duties, zakah institutions would depend on several factors; expansion of new resources for zakah, the collection of tangible and intangible assets, well-managed zakah assets, the efficient distribution and the thoroughness of implementation of Islamic rules. Therefore, it is crucial to solve the inefficient issue in zakah institution and support the improvement of zakah institutions in terms of prospective payers and capacity building.

Taking back at a point on history proves that, during the period of Umar bin Al Khattab and Umar bin Abdul Aziz, zakah became an effective tool to alleviate poverty and completely eliminated. However, zakah Institutions have lost their glory with the fall of Islamic Empire and the increasing European influence during the colonialism period (Nadzri, AbdrRahman, & Omar, 2012). On the other side, currently zakah in many OIC countries normally collected by religious authorities established by the states. Zakah is collected and distributed to the needy depending on the country’s legal system, also some of the countries depend on their religious or Imam to pay the Zakah. Which means that the Imam plays the role to collect and distribute the zakah to the 8 asnaf. In Malaysia, the role of the Zakah institution has developed significantly in the last 3 decades, with having active programs to assist the poor and needy (Haneef et al., 2012)

Zakah institution have to distribute zakah in the periodical form of direct payment where asnaf is given zakah money monthly or annually. Nevertheless, many problems have shown that Zakah recipients end up being dependent on zakah fund and reduce the asnaf’s incentives to work (Nadzri et al., 2012). Thus, it is suggested that the distribution of Zakah should be given in the form of capital fund, in order to encourage the asnaf’s business activities or by giving them the educational or training to enhance their entrepreneurial skills.

During the Caliph’s ruling era, the Amil appointed by the prophet (pbuh) were retained by the first Caliph, Abu bakar As-Sidiq. Whereby Amil is used to go to the zakah payers, properly assessed their zakahable items, and collected the amount due to them. Later, under Umar bin al-Khattab reign, a new method of Zakah was introduced, al’ashir, and continued throughout the early history of Islamic governance. Umar sets several check points on major highways. The appointed tax collectors were allocated to collect zakah from the Muslim traders and collect tax import for the non-Muslim traders. Besides, the concept of Bait-al mal or public treasury was also introduced during the Umar reign. Bait-al mal aimed to manage the zakah and Waqf fund. In this case, Umar extended the list of zakahable items as the new sources of wealth, such as horses, lentils and chickpeas. As cited in Nadzri et al., (2012),  Hudayati and Tohirin study found that under the Umar’s ruling, there was so much prosperity that often it was hard to find an eligible recipient of zakah.

Malaysia, one illustration of OIC members country that is doing well when they establish an institution to manage the zakah. Its zakah collection is institutionalized even though zakah administration in Malaysia is a state matter in particular relating to the passing of regulations and statues. The respective state in Malaysia in zakah administration should be responsible on promotion, collection and distribution zakah, and organized assistance to the poor and needy (Rahman et al., 2012)

In Malaysia, zakat collection divided into some institutions regarding with its states. As illustrations, Pusat Pungutan Zakat Wilayah Persekutuan (1991), Lembaga Zakat Selangor (1994), Pusat Urus Zakat Pulau Pinang (1994), Pusat Kutipan Zakat Pahang (1995), Pusat Zakat Negeri Sembilan (1998), and Pusat Zakat Melaka (2001) (Rahman et al., 2012). As one illustration, has stepped into more professional through comprehensive data disclosure. Donation and distribution extended in various from whether in the form of productive and unproductive aid. Like other institutions, in order to preserve the faith LZS distributes zakat in some religious institution, Mosque and religious education class to the asnaf.

Badan Amil Zakat Nasional or The National Board of Zakat (Baznas) is the only official institutions formed by the Indonesian government based on Indonesia’s Presidential Decree No 8 of 2001. It responsible to collect and distribute zakat, infaq, and alms (ZIS) at the national level. To ensure the responsible and authorities, Baznas is required to possess various concepts as a reference in the zakat management. Hence Baznas might operate adequately its duties as the coordinator of zakah, infaq and alms funds management at the national level. Moreover, according to the Law Number 23 of 2011 specifically mandates the Baznas as the primary executor in zakat management in Indonesia, and the government acts as an advisor and supervisor towards the zakat management conducted by Baznas.  Going forward, the existance of Baznas in Indonesia has brought significant impact of the zakah management on the welfare of the Zakah recipients (mustahik). It has been proven that, in 2018 Baznas assessed 3284 respondents in 22 provinces, the national welfare index showed at 0.76 (good), increasing from 0.71 (good) in 2017 (Puskas Baznas, 2019)

Majlis Ugama Islam Singapura (MUIS), also known as the Islam Religious Council of Singapore, was established as a statutory body in 1968 when the Administration of Muslim Law Act (AMLA) came into effect. Under AMLA, Muis is responsible for the welfare of the Islamic community including the zakah system. Also, in section 68 (1) has mentioned that Muis should make rules for and regulate all matters in connection with the collection, administration and distribution of zakah. 

Through its zakat management, Muis provides additional assistance on top of the many social schemes readily available at the national level. Poor and needy families who are eligible for zakat assistance will receive monthly cash grant. In addition, they might also receive study grants and fidyah vouchers. Not only that, Muis also accommodate the zakah payers with the easy payment methods. Besides, going to Muis, they could make payment at the many mosques, through the AXS stations which are located island-wide, or through the internet via eNets Debit and via cheque or monthly instalments through Giro.  In addition to this, Muis has introduced the IRAS auto-inclusion scheme for zakat payers who wish to declare their zakat contribution. Zakat contribution is an allowable expense which is deductible against the contributor’s income.

National Zakat Foundation^[13], was established in United Kingdom in 2011.  This institution seems to be concern on Muslim woman in need to provide them hardship grants and help to out of the poverty. NZF has a significant impact helped over 10,000 people in the UK by distributing over 10 Euros million since 2011. Currently in 2018, they already supported more that 2,500 people, as well as investing in 30 emerging leaders and 16 vital UK projects and institutions by distributing 3.4 Euro’s millions of Zakah.

1. Waqf Institution

Apart from Zakah, Waqf is another Islamic financial instrument used for socio-economic development. ‘Ibadah and social functions both are considered as the two main function of Waqf. This is also note that, nowadays Waqf is more develop in many Muslim countries to compare with the past few decades, such during the ottoman empire, due to the mismanagement of the waqf institutions^[14].

Through the history in golden era of Islam, Waqf institutions played a significant role in the upliftment of society, especially through poverty alleviation. In the Ottoman Empire, waqf institutions, gained importance as they assisted the government in provision of public goods and services. During that era, there were two types of Waqf institutions; public waqf and family waqf. The family waqf was managed by the people who had donated their assets to the waqf institutions while, on the other hand, the Shariah court was the controller of the public waqf. As cited in World Bank Group, Incief, 2019 report, Mohsin and Bremer stated that Waqf institutions reached their nadzir in the wake of the Ottoman Empire’s collapse.

Nowadays, wealthy people used to donate their assets to waqf institutions, and the benefits were used for purposes such as building mosques, schools, hospitals, and rest houses for travellers. Waqf institution also may be used to assist poor class of society to finance their basic needs and starting small-scale businesses. Besides, Waqf institutions have also supported the improvements in income and wealth equality as wealthy individuals and families released property into the service of people who deserved the support of others.

Moreover, waqf institutions have good potential to expand available long-term financing for development purposes. Whereby this financing might be used to fund various projects to increase the economy productivity. Furthermore, Waqf institution is the most flexible and powerful instrument that might be effectively used to address the concerns raised in SDGs and has a redistributive role Twin Goals by 2030 as proudly promoted by the World Bank.

Malaysia is a federation of a 14 States, which each state with their own local governments that possess certain administrative autonomy. On 27^th March 2004. The Federal Government of Malaysia established Jabatan Wakaf, Zakat, dan Haji^[15], JAWHAR, under the Prime Minister’s department with the aim of harnessing the potential of waqf, zakah and mal, meanwhile assisting the Majlis Agama Islam Negeri or MAIN to realize these potentials of Waqf assets in a systematic and effective manner. JAWHAR is not an authority but an active complementary agency which roles to accommodate and facilitate the development of Waqf, Zakah and Mal and undertakes the Waqf development projects which is funded by the government.

Following this, on 23^rd July 2008, JAWHAR formed Yayasan Waqaf Malaysia^[16] (YWM) as the national body. Which are the principle purposes of the establishment of YWM are to facilitate consolidation and mobilization of Waqf resources and to collaborate with the MAINs to develop waqf assets in Malaysia and ensure continuous benefits to the intended beneficiaries, waqif and society in general.

Nowadays, Waqf developments undertaken by JAWHAR and YWM covers some areas of public interest and facility which are education, economy, healthcare, religious and shelter or accommodation. Ma’had AL-manshoor Al-Islami Education Comples in Penang as one illustration of the waqf development project for the education; Pantai Puteri Hotel Malaka and Commercial Shop-Office development in Ipoh Perak both are some of examples of Waqf development projects for economic returns; Integrated Hemodialysis Complex, Batu Pahat, Johor as the Healthcare waqf project; Al-Sa’adah Complex is dedicated for the New Muslim Convert in Negeri Sembilan as the Religion project and Waqf developments projects for shelter are Women Shelter in Taman Perling Mosque Johor Bahru and Female Orphan Hostel Darul Aitam Wal Masakin Sultanah Haminah binti Hamidon, Alor Setar, Kedah.

Badan Wakaf Indonesia (BWI) or Indonesia Waqf Board is the national independent institutions which was formed based on the Law no 41/2004 concerning on Waqf. This national board was established in the framework of developing and advancing representatives in Indonesia. As mentioned on the Law of Waqf, BWI has the following duties and authorities which are; to guide the Nadzir in managing and developing waqf property, to manage and to develop waqf assets on a national and international scale, to give approval and permission for changes in the allocation and status of property of Waqf and, to stop and replace nazhir, and to provide advice and consideration to the Government in policy formulation in the field of representation.

Not only that, through BWI regulation Number 1 of 2007 concerning the organization and work procedure; BWI have to advice and consider to the Minister of Religion in appointing Sharia Financial Institutions to Receive Cash Waqf (LKS-PWU), BWI will Receive, evaluate, issue proof of Nazhir registration, and re-raise Nazhir who has expired, BWI must Stop and replace Nazhir if deemed necessary and finally BWI might to receive registration of the Waqf Pledge (AIW) for movable objects other than money from the Acting Deed of Waqf (PPAIW). Therefore, to carry out of its duties, BWI is supported by the Ministry of Religion, Indonesian Ulema Council, National Land Agency, Bank Indonesia, National Development Planning Agency, Islamic Development Bank, and various other institutions. To become more develop and productive, it is also might be possible that BWI would cooperate with other investors.

It is interesting to note that, in some non-Muslim country, Waqf institution has some great experiences such in Singapore, India, and Philippines.  Waqf administration in Singapore is under the Strategic Unit of Zakah and Waqf in Muis. All the administrative and management matters of Waqf development would be decided by Muis Management, while the sharia issue would be heard in the Fatwa committee. Furthermore, Zakah and Waqf strategic unit of MUIS would oversee he whole compliance with the regards of; Trustee which is the private and corporate Trustee such BMT and Warees Investment Pte Ltd who acts as the agents of MUIS. Muis has a responsible on regulatory roles, meanwhile the Trustee and Mutawallis stand on managerial role and report and seek approval in terms of selling and purchasing of assets. In this case, where there are no private Trustees, otherwise Muis becomes the Trustees^[17]. Finally, Muis has achieved the Singapore Quality Class which marks a commitment of the organization in meeting excellent standards in its processes, leadership, customers and result oriented achievement.

In India, Waqf institutions was regulated under the Waqf Act 1945 and it is amended by the waqf Act 2013. The Central Waqf Council of India, a statutory body under the administrative control by the Ministry Affairs was set up in 1964, has been empowered to advise the central government and the national waqf board in order to have well-managed waqf administration.  The Council consists of Chairperson, who is the Union Minister In charge of Waqf and such other members, not exceeding 20 in number, as may be appointed by the Government of India. Meanwhile according to Kamarubahrin & Ahmed Ayedh (2018) Philippines has regulate waqf under the Philippine Corporation Law and Philippine Civil Code and Code of Muslim Personal law and manage by the religious council.  Also, in terms of the practice of waqf management, The Islamic Trust and Developments Foundations aims to promote waqf among the Muslim.

1. ISLAMIC SOCIAL FINANCE AND ITS DEVELOPMENT

Islamic social finance is widely concern of many parties; scholars, economic observes, activist, and the government. Mainly because Islamic social finance instruments are believed to provide significant change on human life, especially on Muslim societies. As an illustration, the potential number of Zakah payer in many Muslim contries and the potential collected amount of zakah might be solution social economic problem, especially for Muslim. 

In Indonesia, the number of individual incomes zakah potential in 2010 was accounted at around 82.7 trillion rupiahs. This amount is based from 33 provinces by employing rice-zakah nisab and this is equivalent to 1.3% of Indonesia’s GDP. Moreover, the total growth of zakah, incorporated with Infaq, and alms (Zakah, Infaq and Shadaqah) funds raised has officially increased from 2010 to 2016 with 1,500 million rupiah to 5,017 million rupiah respectively. This increasing along with improved regulation, coordination, management of the organization, also increasing public awareness in paying zakah through official Zakah Manager (Puskas Baznas, 2018a). In 2016, the collection of ZIS in 2016 which amounted at around 5 million and increased of around 24% in 2017. In 2017, the majority of zakah collected is individual income zakah, which accounted 44.75% of the total collected ZIS, and the potential amount of Zakah, Infaq and Sadaqah collected was around 6.2 million Rupiah (Puskas Baznas, 2019).

Line 1

Figure 1 Number of ZIS Collection in Indonesia from 2010 – 2016

Source: (Puskas Baznas, 2018a)

Table 1.1 National Collection based on Fund Type
Source: (Puskas Baznas, 2019)

The represented table above, shows the national collection consists of the total fund collected by various types of funds in Indonesia throughout 2016 and 2017. The types of funds collected is categorized into Zakah Funds (zakah maal for individual income, zakah maal for institution, as well as zakah fitrah), Infaq/alms (Individual Alms and Institutional alms), Other Social and Religious Funds, and other funds.

Nowadays, in digitalization era, the world of Zakah is experiencing development following the advancement of technology. Several zakah institutions in Indonesia have been collaborating with e-commerce platforms to provide facility in paying zakah, infaq and Sadaqah. As an illustration, Baznas channels on Tokopedia, Blibli, BukaLapak, Kaskus, MatahariMall, and Lazada. Also, Baznas cooperate with online crowdfunding platform such as Kitabisa.com^[18] (Puskas Baznas, 2019). Apart from Baznas, Rumah Yatim, Global Zakah, Dompet Dhuafa, LazisMU, Rumah Zakah, and NU Care-LazisNU also launched the payment through kitabisa.com

The National Board of Zakah (Baznas) of Indonesia, in 2017 created innovation in order to improve its quality service to needy people. Rice Automatic Teller Machine (ATM) facility, is one of the novel innovations, which aims to ease the mustahiq to fulfill their basic needs. The mustahiq who have been verified may access rice donation from the Rice ATM in some location points by using member card. Bambang stated that the idea of Rice ATM, is considered due to the high number of poverties in Indonesia amounted to 28.01 million people^[19].

Source:https://www.atmago.com/posts/layanan-atm-beras-baznas-untuk-mustahik_post_id_d40abbdf-ebe9-47e5-9999-ce11683b4bce

Table 2 – The Total Amount of Zakah Collection
Source: (MAIWP, 2018)

Meanwhile, this is reported that PPZ (Pusat Pungutan Zakah) Malaysia has established the Zakah Report of 2018. The table shows that there are six types of zakah collected. Zakah of Income has the largest amount to compare with other types of zakah about 445,442,578.94 in 2018 and 408,848,038.25 in 2017. In contrast, Qadha Zakah has the lowest number at 777,187.41 and 1,071,490.83 in 2018 and 2017 respectively.

Chart 1

The number of Zakah payers in Malaysia

The provided chart above, shows the number of Muslim people who pay zakah in global Malaysia in 2018 and 2017. The total payer of Zakah Income was the higher number approximately 151,477 and 143,388 in 2018 and 2017 respectively. In stark contrast, Qadha Zakah was the lowest number at about 517 in 2018 and 448 in 2017. Then, in 2018 Zakah of saving stood at 16,951 and 16,977 in 2017. Following that, Zakah Mal experienced a little decrease at 5% from 4,270 in 2017 to 4,066 in 2018. Besides, Zakah of business, had an increase at 3%, 2,680 in 2017 and 2,763 in 2018. Others zakah, reached 20,815 in 2018 and 16,614 in 2017.  Finally, the total zakah payer in 2018 was 196,589 in 2018 and 184,377 in 2017.

Apart from Zakah, Waqf also has a pertinent role as an Islamic social finance instrument in socio-economic development and the alleviation of poverty for over 1,400 years. Moreover, Waqf has been reported by Raad^[20] that has great impact in reduction in the number of those living in extreme poverty, defined as under $1.90 per day, from 10.7 percent globally in 2013 to 3.0 percent by 2030 and fostering income or consumption expenditure growth among the poorest 40 percent of the population in each country(World Bank Group, et al. 2019).

Through the modern Islamic economic, Waqf is continuously considered as the powerful instruments of Islamic social finance with long-term social impact. To point out briefly, the link between Waqf and modern Islamic Economic, it is related to the Çizakca, 1998 study, whereby Waqf system may significantly contributes to the modern economist goals; massive reduction in government expenditure and consequently decrease the rate of interest by providing the most essential social services without any cost to the government, and it also may achieve a better distribution of income in the economy.

For a long time ago, Waqf has been paramount role it played in shaping the life styles of Muslim societies in different areas. One of the areas was field of education of the public foundations. Muslim societies depended essentially on waqf for the provision of education at all levels, such mektebs, medreses, libraries, and scientific research in all materials and religious science. As mentioned in (Argun, 2013), all over the Ottoman empire libraries operated as Waqf Institutions until the beginning of the twentieth century.

Urbanization was another major area where waqf played a significant role in shaping the Islamic conception of the personality of the city. These urban zones of the habitable town were composed of several public facilities and all clustered around a central mosque. As cited in (Argun, 2013), Hasan Yuksel noted that almost seventy percent of all ottoman Waqfs were urban due to the fact that until 1856 the Ottoman Empire did not have Western-style municipal administration. They provided only social and physical services in the city. Hence, Ottoman Empire was considered as a “waqf civilization”, “welfare state” or “welfare society”

In Malaysia, Syed Othman study noted that the Waqf institution in Malaysia is believed to have been for more than eight hundred years, it is when the Arab Muslim traders brought Islam in the tenth century. However, there are no record documents regarding with the first establishment of the Waqf institution except the establishment of the waqf of Capitan Kling in mosque in Penang in 1801 (Yaacob, 2013).

Nowadays, high literacy, lack of good healthcare, high unemployment rate, spread of poverty, and low level of food production are the most widely concerned among many scholars as the current problem of almost all the Muslim countries.  The adult literacy rates in OIC are not impressive and lagged well behind the global average. By 2015, there was approximately 273 million adults aged 15 and over or 16% of OIC total population, including 170 million females who was not able to read and write. Females accounted for 62% of the total illiterate adults in the OIC area, whereby in 2015 world was home to at least 750 million adults, which means that around 36% of world adult illiterate population is living in the OIC Member States (SESRIC, 2018).

Furthermore, according to the OIC 2018 data, more than a quarter of children from 13 OIC members are missed out to get immunization. Majority of these countries are also grappling with the high incidence of poverty and unemployment. Global statistics show that lowest immunization coverage is recorded in war-torn Syria and Somalia (42%) followed by Chad (46%), Nigeria (49%) and Guinea (54%). On the opposite side of the scale, 95% or more infants were immunized with at least two WHO recommended vaccines in 23 OIC countries. Most of these countries are located in MENA and Central Asia regions.

Those mentioned problems above, tends to be building block of Waqf innovation to play an instrumental role of welfare in society by financing both public. Mainly because, many contemporary Islamic economists contend the institution of waqf is still relevant to the socio-economic development of the Muslim societies that face a multitude of social issues.

In UAE, Awqaf and Minority Affairs Foundation (AMAF) registered AED11.6 million in rental income from waqf assets in 2012. AMAF earned total revenue in the same year was AED78.4 million from endowment. Malaysia, approximately 32.000 acres land has been endowed to Waqf in the country. Johor and Kedah recorded the highest number of waqf pieces, 1.843 and 1,749 respectively from a total 6.406. Also, Singapore, there are 157 waqf properties and 406.910 square feet land endowed as waqf. The total waqf assets have been valued at SGD471 million or similar with USD375 million. India, there are more than 490.000 registered waqf properties in India. The size of land under waqf is estimated at about 600.000 acres with a book value of $20 billion. Bangladesh, estimates of their waqf properties at about 150.593 which most are in the capital Dhaka, but only 15.300 have been formally registered. Indonesia, the total size of land endowed as registered Waqf is 1.400 squares kilometres. It is presently valued at $60 billion. The country’s cash waqf collected stood at $370.000 million. Finally, there are over US$ 3trillion endowment land assets worldwide (Finterra, 2017).

Furthermore, in terms of Waqf development, there are literally financial needs in order to develop the Waqf assets.  The financial needs in Waqf; (a) Capital. This fund is mandatory to raise longer-term capital, as it needed to kick start new waqf developments projects. (b) Development Finance. This is required to develop the underlying waqf assets (land, buildings, commercial properties, etc). (c) Liquidity/Cash Fund. New funds needed to expand the volume of existing waqf transactions and activities. Also, mobilities of funds for Cash Waqfs. (d) Assets Management/Trustee Service. This financial need is to manage the Waqf’s cash and asset resources in an efficient manner to generate returns.

Islamic Social Finance and SDGs

As an Islamic social finance instruments, it seems that zakah, Infaq, Shadaqah and Waqf should ensure that those help the community especially Muslim to be more prosperous and inclusive. Also, this may achieve Muslim community without poverty and creating environmentally sustainable society. Besides, Sustainable Developments Goals were launched in 2015 by the United Nations, consisting of 17 targets and indicators designed to help the countries end poverty, protect the planet and ensure prosperity for all as part of a new sustainable development agenda.

This SDGs goals has been adopted by many countries, business enterprise, civil society to achieve better goals of their life. As well as Islamic social finance, Zakah also contributes to the sustainable development. As widely known zakah institution in Indonesia, Baznas, was signed a memorandum of understanding to cooperate and assist in achieving Sustainable Development Goals in April 2017.

Notwithstanding the differences between Islamic social instrument and SDGs, especially the foundation of Islamic instrument is primarily descended from Islamic revelations while the SDGs have no religious foundation, there exists a correlation between the two. By this case, SDGs is being concerned more on alleviating poverty and hunger to solve through the wealth distributions. While, Islamic instruments has to follow their own Shariah objectives/Maqashid Shariah.

Maqasid al-Shariah is literally classified according to levels of maslahah, started with the essentials (daruriyyah), the needs (hajiyyah) and end up with the luxuries (tahsiniyyah). The needs or complementary interest (hajiyyah) might be seen as benefits which seek to remove severity and hardship that do not pose serious threats for the survival of normal life. While the luxuries or embellishment (tahsiniyyah) may be regarded as things that seek to attain refinement and perfection in the conduct of people at all levels of achievement. Al-Shatibi who is seen by scholars as the most important ‘theorist’ that systematically developed the Maqasid concepts. As cited in A. Kasri, 2016, Shatibi’s perspectives are mostly in line with the thinking of al-Juwayni and al-Ghazali. It theories can be observed in five dimensions namely religion (din), human life (nafs), progeny (nasl), material wealth (mal) and human reason (aql). The Ghazalian/Shatibian approach is relatively promising when one investigating the well- being of poor individual or household that become Zakah recipients (mustahik) due to its focus on safeguarding and promotion of the essentials, which is narrowed down to five dimensions. Protection of these essentials is highly relevant for the poor and needy (mustahik) because fulfillment of these needs is paramount to the poor and his/her family’s survival yet could hardly be (satisfactorily) fulfilled.

Source: (Noor & Pickup, 2017)

From that figure, it shows Noor and Pickup studies that linked the sustainable development goals to the five fundamental goals of Shariah. In maintaining the Hifdul Iman or belief, it is in line with the SDGs objectives of 1,2,3,6, and 10. Since Islamic social financial institutions try to alleviate poverty, water health, hunger and inequality. Then, to preserve life or hifdu nafs, it is in accordance with objectives 2, 3, 6, 8, and 11 which ensure a healthy life and promote well-being as vital in sustainable development. Apart from that, in terms of hifdu nasl, or descent, it is in harmony with 3, 5, 7, 11, 12, 13, 14, 15, and 16 goals. Whereby zakah may help people to escape from the poverty traps, encourage peace and protect the environment, consistent with human sustainability. Furthermore, hifdu aql or maintaining common sense, it is in accordance with goals no. 1, 2, and 9. Where Islamic social financial institutions may provide skills and training program as that it has a good impact on one’s intellectual abilities. Finally, hifdul mal, or managing the wealth. This maqashid shariah is completely relevant with the 1,3, 8, and 10 SDGs goals. 

Using Baznas as the study case of Indonesia, Baznas has numerous social programs that might build the community, humanitarian, and support hospitals and schools. Which, all of these programs are included in five priority areas of Baznas, namely social sectors, education, economics, health and Da’wah.  Those priorities called Grand Program Baznas. Not only that, Baznas also has Zakah Community Development, in which the aim of this program is to maintain their community in better livelihood.

• INNOVATION IN ISLAMIC SOCIAL FINANCE
  • Crowdfunding and The Value Proposition of Islamic Crowdfunding

Crowdfunding financing, nowadays, gets more Scholar’s concern, especially on Islamic crowdfunding. Since crowdfunding suits to be implemented in project initiators financing, not bankable customer and newcomer business. Crowdfunding is a type of fundraiser are sourced from many investors through participatory online-based platform intended to finance the registered businesses in the platform. Such cooperation may take the form of participation, fundraising and knowledge or expertise. The current practice of crowdfunding is the impact of commercialization of modern-day Internet. The use of these technologies is lowered transaction costs, effective and efficient (Agrawal, Catalini, & Goldfarb, 2014).

The application of crowdfunding concept is fundraising from small to moderate contributions from many people to fund a project or small and medium size businesses. Then it can be inferred that the crowdfunding is the use of the amount of money a little by the people or organizations for funding a project, individual businesses or other financing needs through online-based platform a website or application. There are three parties in crowdfunding platform i.e. project initiator, funder and platform provider (Wahjono, Marina, & Widayat, 2015a). Islamic Crowdfunding is divided into four categories: donation-based, reward-based, asset-based and equity-based crowdfunding.

An interesting phenomenon that has been explored only recently is Islamic crowdfunding that can be positioned in the more general realm of Islamic finance. Islamic finance is perceived as value oriented, where it should meet maqashid Sharia Islamic finance and crowdfunding both conceptualize customers as investors and might potentially provide investment opportunities with higher returns. In addition, they emphasis on transparency, mutual involvement, and trust. Sharia and crowdfunding have similar goals and philosophical foundation, which are aimed to build communities, encourage risk sharing, democratize wealth, and channel capital to real economic activity (Girsang, 2017).

Furthermore, there are the value proposition to distinguish Islamic crowdfunding from the conventional one; (1) investing only in halal projects, (2) the absence of interest rate, prohibition of gambling and speculation (riba, maysir, and gharar), (3) existence of sharia supervisory boards(Achsien & Purnamasari, 2016). Islamic crowdfunding is very suitable when applied to a country with a majority of the Muslim population. The appropriate form of Islamic crowdfunding is: Musharaka and Qardh. Musharaka Islamic crowdfunding is intended as an investment, donation and equality-based goal. While Islamic crowdfunding Qardh is intended to support project financing on a loan basis. (Wahjono, Marina, & Widayat, 2015b).

• Donation based crowdfunding

Recently crowdfunding platform is not only used for the financing, but also other specific purposes for social projects such as donation. They will receive the donation via website 2.0 or above or through the intermediary organization NGO.  The donation does not expect the material rewards in exchange for their contributions but social reward such acknowledgment. Hence, the individuals and organizations which donate through the donation-based crowdfunding platform should not expect the return of their donations. Yet, they might receive online recognition for a small donation or get a personalized gift or publicized recognition for large donations. Also, the relationship between the donor and project creator of crowdfunding is more than the conventional charity campaign (Rijanto, 2018).

Donation based crowdfunding, as part of social finance technology activities, individuals or groups attempt to fund their ventures by drawing on relatively small contributions from a relatively large number of individuals over the Internet without standard financial intermediaries (Mollick, 2014). Related to corporate donation activities, philanthropy tends to be means to reach the social status, impression management, and other sources of extrinsic value (Yoon, Gürhan-Canli, & Bozok, 2006).  Rijanto, 2018 he found that in the Southeast Asia region, the number of successful crowdfunding has reached more than 70% until 2016, the fundraising targeted value also varies from less than US$1 to US$66,802. This means that, the data shows the big potential to help the needy and the society as a whole.

Figure 5: Crowdfunding in Waqf Scheme. Source: (Finterra, 2017)

This depicted picture above is the crowdfunding in Waqf process. The process shows that there are three parties included in the waqf crowdfunding, (a) Waqf Founder (b) Trustee/Mutawalli (c) beneficiaries.  Individuals, organizations and Institutions might contribute along the donations (Waqf) through the Waqf organization. Then Waqf organization would benefit that Waqf donation into Education sector, Health sector and other properties such School, Hospital and Mosque.

Global Sadaqah

Global Sadaqah is Islamic charity crowdfunding platform or marketplace which matches corporate donations and CSR, as well as Sadaqah, Zakah and Waqf from the public to programs and campaigns by our trusted charity partners. This Global Sadaqah brings together a multitude of stakeholders in the Islamic social finance sector including individual and institutional donors, corporates, international humanitarian and development agencies, religious authorities, and governments. This is the first digital initiative that focuses on bringing together these stakeholders at a global scale (Shadaqah, 2018).

Global Sadaqah is also the first charity Islamic crowdfunding which works with the Islamic banks to create the social Impact, such as Bank Islam Malaysia, Islamic Development Bank Group, and also Charity organization such as National Heart Institute Malaysia and Islamic Solidarity Fund for Development and Islamic Relief (Shadaqah, 2018).

Their GlobalSadaqah.com is the potential website of Islamic social finance which aims to be efficient and effective with innovative approach to collect and distribute the Sadaqah, Zakah and Waqf. In 2018, they were nominated as the World Islamic Fintech Awards for Best Social Impact Fintech Firm of 2018. Since, they raised the funds through via online crowd at about $65.220, $185.000 by corporate sponsorship and $1.5 million came from supported programmes. Then, they reached 166 countries, 1204 unique donors, and donation received at approximately 2525^[21]. From the mentioned data, it is clearly seen that Global Sadaqah has brought significant impact on all aspects of society including economic, social and environmental.

LaunchGood

LaunchGood is a global crowdfunding platform to support Muslims Launching good all across the world by helping them raise funds for their campaigns. In 2016, LaunchGood hosted the 3rd year of its Fellowship program, and two major crowdfunding community challenges, with 1300 projects funded and USD 9 Millions raised. Ended off the year at a high note winning the Ethical Finance and Innovation Challenge Awards, receiving the $100 000 USD grand prize by the Abu Dhabi Islamic Bank (IFT Alliance, 2016)

SkolaFund

Skolafund is a web platform for students especially the ones in need, to crowdfund their scholarships for higher education. This platform aims to make higher education by giving all undergraduates students who qualify the access to various sources of funding available out there. In 2015, they raised at about RM 25,000 for 6 students, funded by 125 members of the community and in 2016 they has 25 projects funded with RM 214,200 raised (IFT Alliance, 2016). Moving forward, SkolaFund aims to introduce more solutions for students to benefit from to fund their higher education^[22]

GoFundMe

GoFundMe is the world’s largest crowdfunding website that brings together friends, families and communities to help one another in their time of need. In 2014, they raised $45.7 million, more than triple the 2012 amount, and more than a ten-fold increase in Twitter impressions. Their top categories of donation is going to be Medical, Memorials, Emergency Relief, Education, Community and Sport Teams respectively. Also, Crowdfunded giving puts GoFundMe alongside the top 10 largest charities (GoFundMe, 2015)

Crwodfunder

Crwodfunder.co.uk is a crowdfunding platform to raise fund millions of pounds with the power of crowd for community group, a business, a charity, a social enterprise, a sports club or a person with the spark of an idea (Crwodfunder, 2019). They also reported in the early 2019 they raised 60Million Euros through crowdfunding, 1,100K pledges made, 175K project added (World Bank Group, Incief, 2019) 4Million euros of extra funding available and 35 local authority partners^[23]

• Blockchain

Historically, blockchain technology was first introduced in 2009 with bitcoin, a cryptocurrency-based distributed payment protocol. The word “block” stores information of all the transaction that have taken places in chain, thus “blockchain” is a database of immutable time-stamped information of every transaction in that chain that is replicated on serves across the globe.  In another words Blockchain is a P2P public ledger maintained by a distributed network of computers that requires no central authority or third-party intermediaries (Mohamed & Ali, Blockchain, Fintech, and Islamic Finance, 2009). Blockchain, is also considered as a public ledger that records transaction, is a technology that recently begun to make a significant impact on the financial system. It is also predicted that blockchain will significantly increase in the future (World Bank Group, et al. 2019). A brave definition is given by Knight, 2019, that blockchain is a single record of transactions and/or data that is shared by multiple different parties and is very hard to change and technically an append-only distributed database that is transparent and decentralized.

In the rapid pace of technology’s evolution, the latest development of technology, blockchain, has attract a lot of people’s attention and is widely discussed as its extraordinary potential. It has to be noted that, blockchains are different from the traditional solutions that extraordinarily inefficient, expensive, or unsecure, but blockchain technology will open up opportunities that were previously impossible, provide the trust and coordination without the third party such financial institution. However, despite the benefits, there are some drawbacks of blockchain, that are lower scalability, higher latency and storage requirements, reduced privacy, protocol inflexibility, and complex governance (Knight, 2019).

Furthermore, with the digitalization and technological revolution, several Islamic social finance platforms take a step forward to develop the social finance using the blockchain to support the Islamic social finance. Some of those social finance instruments are shadaqah, zakah and Waqf. As reported by Forbes, that nowadays, non-profit organizations are now accepting donations in bitcoin, ethereum, bitcoin cash, litecoin and other crypto assets. Some of these include UNICEF, Save the Children, Houston Area Women’s Center (HAWC), a non-profit organization that helps survivors of domestic and sexual violence build safe and healthy lives, Sea Shepherd, the Water Project and the Against Malaria Foundation^[24].

Pineapple Fund

Pineapple Fund was an experiment in philanthropy with cryptocurrency wealth. A philanthropic project created by an anonymous individual, donated 5,104 bitcoins to 60 charities supported, amounting to nearly $55 million during the crypto bull run last December. Through this platform, anyone can donate of their cryptocurrency to charities around the world, with an open application process and funding charities big and small^[25].

UNICEF New Zealand

UNICEF New Zealand is one of 33 UNICEF National Committees, which raise funds for UNICEF’s worldwide emergency and development work. For over 70 years, UNICEF has been working to protect the rights of children in over 190 countries and territories around the world. This organization started accepting crypto in March. It accepts virtual coins; Bitcoin, Ethereum, Bitcoin Cash and Litecoin. This donation helped the children in the Syrian to pursue their education, to freeing child soldiers in South Sudan, to delivering emergency supplies to Pacific citizens affected by Cyclone Gita^[26].

Blossom

In 2014, Blossom Finance was founded in order to increase the availability of halal financial products using technology. Since 2015, Blossom has been helping microfinance institutions in Indonesia raise funds from international investors to fund micro-businesses aimed at reducing regional poverty. Blossom finance announces Smart-Sukuk^TM platform for issuing blockchain-powered Islamic financing instruments using Ethereum smart contracts to increase the efficiency and reach of sukuk issuance globally. This Sukuk helps institutions to raise cost-effective, Shariah-compliant financing from global investors using blockchain technology^[27]. 

i-Zakah Blockchain

In terms of Zakah management, the application of blockchain technology is put into use to improve the transparency of zakah institution alongside the muzakki’s trust in channeling to zakah institutions. For Example, Indonesian Zakah Institution, Baznas utilized blockchain technology by collaborating with Desto Blockchain LLC in the iZakah application (Puskas Baznas, 2019).

Nonetheless, with the upcoming platform on charities, it seems that there are issues on today’s endowment.  Those are Assets Utilization, Endowment Management, Financing and Innovation (Finterra, 2017).  Assets utilization remains to be the main issue due to the inability and inefficient to utilize the waqf assets. Then, it is also lack of good governance, transparency and accountability. Not only that, waqf assets also need more financing in order to maintain the waqf assets and develop it. Lastly, endowment management should look at innovative methods and invest in Syariah compliant businesses high returns for.

Nowadays, integrating blockchain with waqf could go a long way to addressing the problems of transparency and trust that currently hamper broad-based public participation in waqf. Blockchain is still a developing technology, however, and there are Shariah issues that need to be resolved before applying it to waqf and other venues of Islamic finance. Although many issues and problems must still be solved in order to unlock the potential of waqf, great advances have been made in the last fifty years or so (World Bank Group, et al. 2019). Hence, it is crucial to improve the management approaches, enabling legislation and regulatory frameworks, the willingness to re-examine inherited juristic opinions, creative thinking and new technology are all converging to provide good reasons to be optimistic about the future of waqf. 

The Initial processes of Waqf Crowdfunding without Blockchain
Source: (Finterra, 2017)

The depicted picture above shows the initial process of crowdfunding endowment without the blockchain. It is clearly seen that it takes a long process and required many parties to be involved. It would need amount of budget to spend in terms of the transaction fees. However, nowadays, there is the Waqf fund management using the blockchain.

Finterra

With the rise of innovation and disruption happening in the financial and technological terrains, Islamic finance including Waqf are being forced to manoeuvre and reinvent themselves. Finterra is the most awaited organization in the Fourth Industrial Revolution (IR 4.0), in which dedicated to developing the next generation of Blockchain. Headquartered in Singapore, it has a strong presence in Malaysia, Hong Kong and is on course for further expansion into Africa and the rest of the Middle East. Finterra is also providing Social Economic Solution for Blockchain through the social financing platform named The Finterra Endowment/ Waqf Chain. Whereby the endower will then be able to select, set up, visualize and assess those properties before deciding on their contributions to their development^[28]

Finterra Waqf Chain Scheme
Source: https://mywaqf.com/how-it-works/

Finterra works on a smart contract ecosystem and accompanying blockchain. This allows the Waqf boards and stakeholders to submit the project plans to fund and develop projects on top of Waqf properties for various purposes and interests depending on funders’ expectations^[29].

The features and the benefits of this scheme, (1) each of the Waqf projects documentation is stored immutably and publicly for all stakeholders to see and review, (2) simple interface for creating project proposals, managing projects and project contributions, (3) also contribution and stakeholder voting and special terms cannot be tampered with since they are enforced by blockchain consensus vis smart contract.

• Islamic Fintech and Islamic Financial System

With the advancements in the digital era, Muslim millennials are increasingly becoming more tech-savvy. While Islamic finance has made significant progress globally, the next growth phase it requires the industry to ride the fintech wave. Hence, Islamic finance must adapt and utilize more technology so it can be practiced by more people, especially Muslims. In this respect, the role of Islamic FinTech should not be under-estimated. Its applications in the waqf sector and related areas – zakah, infaq, sadaqah and even simple financing – have huge implications for the future of Islamic finance.

“Islamic fintech as the technologies that are deployed in Islamic finance to uphold and entrench Islamic rules and values in order to build a just, resilient and sustainable economy. It utilizes all the necessary elements of technology, which will disrupt cumbersome processes, bottlenecks, and inaccessibility of funds by the underserved segments of society”

(Mohamed & Ali, Blockchain, Fintech, and Islamic Finance, 2009)

Omar reported that, the total number of digital-banking consumers stood at 670 million in Asia alone and are expected up to 1.7 billion by 2020. Within 31 millions of population in Malaysia, there is high mobile and internet penetration rate at about 141% and 81% respectively and Malaysia considered as an ideal test bed for developing and commercialising fintech solutions (Omar, 2017).

The emergence of financial technology tends to be a golden opportunity which may be merits for the financial industry. It has been proven, nowadays there are a lot of new upcoming various financial platforms that could help the financial transaction.

Investment Account Platform

Malaysia has first multi-bank online platform that credit evaluation expertise of Islamic banks and the power of technology to channel funds from investors to economic ventures. IAP is backed by Islamic banking institutions via the offering of Investment Account (IA) to the investors. Through this platform, Islamic banking institutions will facilitate matching of investments with the identified ventures or projects that are in need of funding^[30].

IAP Mechanism
Source: https://iaplatform.com/findInvestment

Apart from Investment platform, financial technology become the new source of funds for entrepreneurs. Crowdfunding and Peer to peer lending platform as the illustration have emerged as the efficient means between the investors and the businessman.

PT Ammana Fintek Syariah

PT Ammana Fintek Syariah is first peer to peer Lending established in Indonesia. The aims of Ammana is to support and enhance the SMEs development by funding them through their digital funding of Islamic crowdfunding platform^[31].

Ammana Fintech Mechanism
Source: https://ammana.id

Furthermore, fintech also has great application within the social financing space. It is clearly seen that the potential of digitising the collection and utilisation of Islamic social finance such as Zakah, Waqf and Sadaqah is holding great promise.  Since the efficiency and transparency provided by the technology, it would lead to greater convenience to customer, build public trust and confidence in the system (Omar, 2017).

Kapital Boost

Kapital Boost is created to help small businesses grow big or protecting the social welfare of less-privileged communities. Kapital boost is a hybrid crowdfunding platform located in Singapore. Also, this platform allows their members to invest or donate in a way that is ethical and Sharia-focused. Generally, Kapitalboost offers SME, Private and Donation crowdfunding. SME crowdfunding offers small businesses short-term financing alternatives with fast and friendly approval process and at competitive rates. This financing use Murabahah (Cost plus Profit) contract, whereby SMEs can raise financing for asset purchases. They may also raise financing through the Qard and Wakalah structure, or invoice financing, to seek cash advance on unpaid invoices to meet immediate working capital needs. In addition, Private crowdfunding offers only to who are not eligible for crowdfunding based on their minimum requirements. This could be a golden opportunity to raise financing by targeting their own group of Investors and professionally market their funding needs to their network of friends and families. Finally, the Donation Crowdfunding platform allows members to support non-profit, social-based projects in less-privileged communities within the region. While financial returns are not expected, the reward for helping those in need will be multi fold in the hereafter. Improving the social welfare is also a means of accelerating community growth in future^[32].

Ethis Crowd

Ethis Crowd is the world’s first Real Estate Islamic Crowdfunding Platform and one of the first investment Islamic Crowdfunding platforms in the world.Ethis is an early leader in Islamic Crowdfunding. They operate in 3 countries: Singapore, Indonesia, and Malaysia. They are also at the same time setting up and processing regulatory approvals in 2 other countries.  Ethis is one of the few platforms globally that have actively implemented Islamic Finance models and structures for CF. They invest directly in real estate development and construction projects, focused on social housing in Indonesia. We have also on two occasions run campaigns investing in construction and infrastructure.

Ethis crowd uses risk-sharing financing in the form of Mudarabah (non-equity) profit-sharing, where investors and project owners take up performance and default risk together and share project profits. They also use Murabaha, which is a direct sale and purchase of real estate assets or construction materials. Ethis crowd started recently an advanced variation of Murabahah which is the Istisna’ and Murabahah model, where the crowd orders house and assets from the developer and make progressive payments to contractors as these houses are built before selling them to Islamic Banks at a profit.  Ethis crowd funding most of their projects are affordable housing campaigns. The performance of these campaigns was different, the blew graph shows the performance of each campaign. (Ethiscrowdfunding, 2019)

In conclusion we can see the potential of Islamic Social Finance to be great and growing. The numbers are still unclear as to waqf zakat collection from Muslim countries and data is not revised. There is a need for a global survey to estimate the collection amount to be able to use to good cause. These funds when used on technology platform will bring traceability and accountability encouraging more people to give to charity. The results will be visible at community and multilevel with the building of new educational institutions, business enterprise, sustainable lifestyle to reduce consumerism and wastage. The start up are mushrooming in these sectors and more players are expected to come in and provide competition for better services and new business products and models. A consolidated effort need to be made to improve the existing and where none exist develop Islamic Social Financial sector as the potential is huge.

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[1] Adam Abdullah et al, Islamic Economics Principles and Analysis, ISRA, Malaysia 2018.

[2] Social Finance Inc, 2018.

[3] https://www.gatesfoundation.org/Who-We-Are/Resources-and-Media/Annual-Reports/Annual-Report-2017

[4] Adam Abdullah et al, Islamic Economics Principles and Analysis, ISRA, Malaysia 2018.

[5] S.Htay, et al., Integrating Zakah, Waqf and Sadaqah : Myint Myat Phu Zin Clinic Model in Myanmar, Tazkia Islamic Finance and Business Review, 2014.

[6] Emanuel Schaeublin, Zakah practice in the Islamic tradition and its recent history in the context of Palestine, research gate, 2014.

[7]  Adam Abdullah et al, Islamic Economics Principles and Analysis, ISRA, Malaysia 2018, Pages 700

[8] Habs is mostly used in North Africa and the Francophone world. (Selim Argun. The Ulema, Waqf, and Ottoman State. Gravity International. South Africa. 2013.

[9] Retrieved from https://www.globalsadaqah.com/how-it-works/ accessed on 10th August 2019

[10] Retrieved from  https://www.quranindex.net/sureler.php accessed on 10th August 2019

[11] Retrieved from https://www.islamicaid.com/sadaqah/ accessed on 11th August 2019

[12] Retrieved from https://quran.com/2/271-281 accessed on 11th August 2019

[13] Retrieved from https://www.nzf.org.uk/About/WhoAreNZF accessed on 12th August 2019

[14] Ibid

[15] Department for Zakah, Waqf and Hajj for each states of Malaysia

[16] Malaysia Waqf Foundation

[17]  Retrived from https://www.muis.gov.sg/wakaf/About/Administration-of-Wakaf  on 14th August 2019

[18] Kitabisa.com is the most widely known social finance platform in Indonesia

[19]  Retrived from https://puskasbaznas.com/news/85-baznas-develops-rice-atm  accessed on 14th august 2019

[20] Country Manager for Malaysia, East Asia and Pacific The World Bank Group.

[21] Retrieved from https://www.globalsadaqah.com accessed on 17th august 2019

[22] Retrieved from https://skolafund.com/about-us accessed on 17th August 2019

[23]Retrieved from  https://www.crowdfunder.co.uk/about-us accessed on 20th august 2019

[24] Retrived from https://www.forbes.com/sites/rebeccacampbell1/2018/11/27/its-givingtuesday-charities-accepting-crypto-donations-on-the-rise/#5535cf1f59b4 accessed on 20th august 2019

[25]Retrieved from  https://pineapplefund.org accessed on 20th august 2019

[26]  Retrieved from https://www.unicef.org.nz/about accessed on 24th august 2019

[27] Retrived from https://blossomfinance.com/press/islamic-finance-upgraded-smarter-sukuk-using-blockchain accessed on 24th august 2019

[28] Retrieved from  https://finterra.org/waqf_chain/ accessed on 24th august 2019

[29] Retrieved from https://finterra.org/waqf_chain/ accessed on 24th august 2019

[30] Retrieved from  https://iaplatform.com/showIapInfo accessed on 26th August 2019

[31]Retrieved from  https://ammana.id accessed on 26th August 2019

[32] Retrieved from https://kapitalboost.com accessed on 26th august 2019

Dr. Amnah Khalid
(Head, Research Unit)
amnah.khalid@finterra.org