12 Oct, 2017
Jeddah, Kingdom of Saudi Arabia, 12 October 2017 – A new report published by the Islamic Research and Training Institute (IRTI) of the Islamic Development Bank Group has demonstrated that Islamic social finance comprising zakah, waqf, and not-for-profit microfinance is attracting increasing interest in Central Asian countries, the Balkans, and the Russian Federation.
The ‘IRTI Islamic Social Finance Report 2017’, the first study of its kind covering this region, also traces the historical roots of Islamic social finance institutions in the region and explores their future potential in the light of legal, regulatory frameworks, customs and cultural practices unique to the region.
This issue of the report—the third in the series—analyses the resource gap and the Islamic social finance potential specifically in the Russian Federation, Kazakhstan, Kyrgyzstan, Tajikistan, Bosnia and Herzegovina, and Macedonia, and concludes that Islamic social finance could close the resource gap and end poverty in these countries.
“[The] potential resource generation [from zakah] exceeds the resource requirement to push the poor to the non-poor category,” the report says.
However, the report finds that the potential of Islamic social finance remains unrealised because of a multiplicity of factors that include weak systems of zakah collection and distribution, the limited scope of awqaf, and failure to meet rising demand for Islamic microfinance, particularly in agriculture financing.
In his comments on the release of the report, Director of Islamic Finance Capacity Development at IRTI, Dr. Ahmed Iskanderani, said, “Islamic social finance sector is fast becoming a major component of mainstream Islamic finance, and IRTI is delighted to lead the way in producing reports that have helped push this area into global reckoning. This issue of the report is in continuation of our efforts at mainstreaming the sector.”
Key recommendations of the report include enhancing the legal and regulatory frameworks for Islamic social finance; institutionalizing zakah collection and distribution; creating enabling environment for non-profit microfinance products; and expanding the scope of awqaf beyond building mosques and Islamic education schools.
In terms of Islamic microfinance, the report finds that most of the areas where Muslim populations live are agrarian but there are no Islamic financial institutions providing financing to small-holder rural farmers at competitive rates. Hence, farmers continue to approach conventional institutions for financing. The report also finds that financial literacy in the region remains very low, and therefore recommends that Islamic microfinance institutions must embark on a massive financial literacy campaign if they are to rid the society of riba (interest-based financing).
The report further recommends: