From the glitz of Davos to the bureaucratic corridors of Brussels, the harsh reality is that overseas development aid is declining, inequality is growing, and there’s ever more uncertainty around climate change.
This all means the funding gap in humanitarian need requires increased creativity, new tech solutions, and collaborating in new partnerships. Islamic social finance looks set to become a key collaboration.
Islamic social finance has demonstrated its huge potential as an effective financial tool and is growing rapidly, now rivalling conventional banking.
Economic justice, shared prosperity and inclusive participation are the principles behind Islamic social finance. They come from the principles of Islamic philanthropy and include standard giving behaviours to meet the needs of the poor, including:
- Zakat: a compulsory tax on wealth or almsgiving
- Sadaqah: charitable acts
- Waqf: endowments
In 2018, British Muslims offered an estimated £300 million through Zakat alone. With around 1.6 billion Muslims globally, the Islamic Development Bank estimates the potential of Zakat to be as much as $1 trillion.
In the Red Cross Red Crescent Movement, we are exploring how this innovative finance can complement our existing resource mobilisation. The British Red Cross, with other parts of the movement led by the International Federation of the Red Cross and Red Crescent societies (IFRC), has established its Global Innovative Finance Team (GIFT) to distribute knowledge and skills around the world. Pilots underway are assessing viability and demand. The data we gather from these projects will visualise what we believe to be significant impact.
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We have teamed up with leading Islamic financial experts to deliver this work. Their experience shows that Muslim donors want greater transparency and accountability. That with this they can ensure more effective management and greater distribution of the Muslim community’s charitable contributions. And that with this we could revolutionise development not only for Muslims but for people around the world.
Delving further, the next step is to understand more fully the potential of a Fintech-enhanced digital platform to increase donations and maximise the effective use of Islamic social finance. This could represent an important breakthrough for improving transparency and donor trust, enabling people to track their contributions even in the most complex humanitarian settings.
Building innovative financing alongside traditional approaches is enabling us to explore a range of private finance tools. And as attaining the Sustainable Development Goals by 2030 will require $2.5 trillion per year, the results of this exploration are widely anticipated.
While Islamic financing may not address the gap in humanitarian needs singlehandedly, it is clear that the scale of the SDG challenge requires creativity, a wider set of partnerships as well as the adoption of new technology.