What you need to know about Islamic social finance

Finance for social good

Islamic finance was designed at the birth of Islam to balance the wealth in society and to stop economic exploitation. Also known as shariah-compliant finance and economics, the extensive, sophisticated system only exists in Islam.

Islamic finance aims to improve social justice through wealth redistribution and fair financial dealings.

Focused on achieving common good, Islamic social finance bans exploitative practices like:

  • financial speculation, known in Arabic as maysir (investing at great risk in the hope that it will gain value)
  • interest, riba (mainly selling money but also goods at a higher price than their worth)
  • contractual ambiguity, gharar (financial deals with small print that could mean weaker parties are exploited).

Islamic finance is rooted equally in commercial and social dimensions.

Worldwide the Islamic banking and finance sector is massive. It was worth more than $2.4 trillion at the end of 2018, whilst zakat contributions are estimated to be between $200 billion and $1 trillion a year.

The Islamic social finance sector includes Islamic institutions based on:

It also includes social investments through sukuk (bonds), and non-profit Islamic microfinance organisations that aim to reduce poverty by giving out qard hassan (interest-free loans).