Islamic Social Financing Institutions

A Proposal for Achieving the Poverty Alleviation and other Objectives of Shari’ah

Abstract

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Majority of Muslims expressed unprecedented interest in Islamic Banking and Financial Institutions (IBFIs) believing that IBFIs, having the holistic approach of social-welfare behind their establishment, will harbor the rights of the poor and underserved people of the society, and will cater needs of poor on priority basis. But, the situation of poverty is so complex and distressing that no major change has come yet; a large segment of society is still unbanked and living under the poverty line. Poverty and underdevelopment are co-related issues are coping with these two issues is the prime objective in policies of all the developing and developed countries. Using a social welfare approach, this study theoretically demonstrates that, in today’s challenging environment, where the government is confronting on geo-political conflicts, globalization, disruptions, human deprivation and poverty, the importance of establishment and promotion of Islamic social financing institutions have become more significant than the past. A financing institution with non-commercial approach can effectively address the socio-economic problems of individuals, communities and societies and can contribute to the achieving of poverty alleviation, socio-economic justice and human development better than the formal financing institutions. Islamic social financing institution operate with the holistic spirit of human dignity and socio-economic development approach for ending the hunger, economic inequality, illiteracy, unemployment, poor healthcare, financial inclusion and sustainable economic growth. It also provides the opportunity to the poor to employ their full capacity in economic productive projects and bring a substantial change in the state of economic and social conditions. This paper highlights the socio-economic problems of Pakistan, and proposes for expanding the horizons of Islamic economics by establishing Islamic social financing institutions.