Keywords

1 Introduction

According to the Global Humanitarian Assistance Report (2021), total humanitarian assistance, including government and private sources, has reached USD 30.9 billion in 2020. Government donors and EU institutions had contributed USD 24.15 billion, while private donors contributed only USD 6.75 billion.

Due to the economic downturn following COVID-19 and the massive deployment of funds for fighting the health emergency instigated by COVID-19, most of the rich donor countries have themselves faced an economic crisis. Moreover, the ongoing conflict between Russia and Ukraine has created a massive increase in energy and food prices. Several small economies are unable to cope up with their balance of payments situation due to heavy reliance on imports of energy and food products. For example, Sri Lanka has defaulted, and some other countries are on the verge.

The humanitarian crisis requires not only sound policy and incentives but a strong sense of social responsibility for affirmative action. Institutions as organizations and institutions as values and norms are both vital to manage and sail through socio-economic crises. A value system that extolls affirmative action, pro-social responsibility, and environmental sustainability should be promoted more urgently now than ever before. Mobilization of funds through the private sector and beyond markets is necessary to arrest humanitarian crises when economies stagnate.

When it comes to policy incentives for market-driven industrialization, well-directed incentives are required to support industries to avert massive layoffs and poverty. Functional inequality is a term introduced by Haq (1963). The argument is that if a small industrial class is patronized with incentives, industrialization can be instigated, providing private profits to the industrialists and employment at a large scale to the masses. Economic growth through industrialization can trickle down to the masses eventually. However, the promised dip in inequality in the Lorenz curve (1905) after the initial burst of economic growth leading to higher inequality is not necessarily confirmed in real-world economic growth stories.

Eventually, Haq (1995) learned that human beings are ‘means’ as well as ‘ends’ of any social and development process. They are not merely inanimate inputs to the production process or greedy and self-centered utility maximizing machines. They can be responsible and compassionate if the correct values are promoted and if policies encourage pro-social behavior and abhor abuses of wrong private choices.

In fostering sustainable and inclusive development, this chapter discusses the solutions offered by Islamic finance through its underpinning value system and worldview and through its set of commercial and social finance institutions to intervene in development assistance through and beyond markets. The chapter also takes note of the ground realities of poverty and underdevelopment in Muslim majority countries in Sect. 2. Section 3 looks at the state of development assistance and debt servicing in selected Organization of Islamic Cooperation (OIC) countries. Section 4 discusses the Islamic injunctions of pure altruism, which reinforce the need for sharing and giving to poor people and social causes. Section 5 discusses the role of Islamic capital markets to help in mobilizing development funds for financing development infrastructure. Section 6 explains how Islamic redistributive institutions can mobilize and institutionalize funds in the social sector and causes. Finally, Sect. 7 looks at the potential of FinTech in Islamic finance to confront the challenges and harness the opportunities in the age of Industrial Revolution 4.0.

2 State of Underdevelopment in the Muslim World

A number of Muslim majority countries face a very high incidence of poverty. In particular, Muslim countries in the African continent have a high incidence of poverty. In at least four Muslim majority countries in Africa, the poverty headcount ratio at national poverty lines exceeds half of the total population. These countries include Guinea-Bissau (69.3%), Togo (58.7%), Sierra Leone (56.8%), and Mozambique (54.7%), as can be seen in Table 1. Muslim countries in South Asia like Afghanistan (54.5), Bangladesh (24.3%), and Pakistan (22.3%) also face a high incidence of poverty. Muslim countries with the lowest poverty headcount ratio include Kazakhstan (2.5%) and Malaysia (5.6%). Table 1 illustrates that at least 26 OIC countries have a poverty headcount ratio of over 20%, and 14 such countries have a poverty headcount ratio of over 40%.

Table 1 Poverty Head Count Ratio (PHCR) in selected OIC countries
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Poverty is not a single problem in isolation. It is the mother of many problems, and it creates a vicious cycle of poverty trap that may go beyond a poor person’s own life and transcend to future generations. Malnutrition, stunting, low skill levels, and lack of access to drinking water, sanitation, education, and health facilities all come as a bundle in a poor person’s life. Income poverty hampers socio-economic mobility. Investing in education and business is not possible for poor people since they lack funds and are unserved by commercial banks.

Table 2 shows the standing of OIC countries on the Human Development Index (HDI), both within themselves and as compared to the world at large. Ironically, no OIC country features in the top 30 countries on the HDI ranking, and as many as 24 OIC countries are listed in the bottom 39 countries. High levels of poverty are associated with a lower level of human development in OIC countries.

Table 2 Overall and relative ranking of selected OIC countries on HDI
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Also, it is worth noting that the recent geopolitical conflicts and natural calamities have resulted in an increased number of internally displaced people. For Syria, Yemen, Afghanistan, Nigeria, Sudan, Iraq, and Turkey, the number of internally displaced people due to conflicts and violence stands at 6.57 million, 3.64 million, 3.55 million, 2.73 million, 2.23 million, 1.22 million, and 1.1 million, respectively, in 2020 (Internal Displacement Monitoring Centre, 2021).

3 State of Development Assistance in OIC Countries

State of development assistance does not show a promising picture in OIC countries. Table 3 illustrates the net Official Development Assistance (ODA) obtained by OIC countries as a percentage of Gross Fixed Capital Formation (GFCF) and Gross National Income (GNI). Conflict-hit and poorer countries like Afghanistan, Syria and Yemen significantly depend on ODA. Countries with the greatest number of poor people like Bangladesh, Nigeria and Pakistan only receive 1.42%, 0.81% and 0.79% net ODA as a % of GNI, respectively.

Table 3 Official Development Assistance (ODA) received in selected OIC countries
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Table 4 shows the enormous debt problem in Muslim majority countries. In populous countries like Pakistan, Indonesia and Bangladesh, as much as 32.38%, 36.74% and 9.91% of exports proceeds are paid in debt servicing. Among the 41 countries for which these statistics are available, there are 14 OIC countries whose debt service payments are more than 5% of GNI. In addition to that, Table 3 illustrates that there are at least 14 OIC countries that receive net ODA lower than 1% of their GNI. This suggests that in some OIC countries, the inflows received in the form of development assistance would be lower than the net outflow of resources in the form of interest payments.

Table 4 Total debt service (% of exports and GNI) for selected OIC countries
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Table 5 reveals that out of 41 countries for which this data is available, 21 countries have a negative difference between Net ODA as a % of GNI and debt servicing payment as a % of GNI. The remaining 20 countries have a positive difference.

Table 5 Debt service (% of GNI) and net ODA (% of GNI) for selected OIC countries
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Countries with a negative difference are relatively less poor and have a better capacity to source development finance through capital markets by issuing Sukuk. In contrast, countries with a positive difference would require support from Islamic social finance and non-commercial development assistance.

In light of this, Sect. 5 explicates the use of sovereign Sukuk in sourcing development finance from the capital markets. On the other hand, Sect. 6 discusses the role of Islamic social finance in regions where governments have less capacity to undertake debt commitments and where the role of third-sector institutions is vital to complement the government in meeting development needs through non-market-based non-commercial assistance.

4 Role of Islamic Worldview in Fostering Responsibility and Cooperation

Faith in the single source of creation defies any genetic, racial, ethnic, or gender basis of discrimination. Islamic worldview holds that all living and non-living things are created by Allah. The Islamic principles promote the sense and feeling of stewardship in human beings regarding the use and ownership of economic and environmental resources. If this sense strengthens preferences, it can affect choices.

Islamic principles and teachings provide guidelines for morally acceptable behavior, be it in social relations with people, ecological relations with environment and biodiversity, or economic matters. From earning incomes to spending these incomes, Islamic teachings introduce moral filters in economic activities to avoid exploitation, injustice, fraud, deceit, miserliness, conspicuous consumption, and wastage.

In economics, Andreoni (1989, 1990) explains altruism in a self-interested framework. He regards altruism as an activity that is done to promote private self-interest. The private motives could be to get fame, build a reputation, and satisfy the ego. Corporate spending on social causes, as in corporate social responsibility, is looked at as a way to do indirect marketing and advertising. In contrast, Islamic teachings urge pure altruism, which is not influenced by pleasure-pain calculus (Naqvi & Qadir, 1997).

Islamic principles do not promote impure altruism to satisfy the ego and achieve fame and recognition (Al-Baqarah: 264; Al-Ma’oon: 6). Prophet Muhammad (PBUH) encouraged secrecy in charity.Footnote 1 Allah says of the ideal believers in Quran: “And they give food, despite their love for it to Miskin (poor), the orphan, and the captive. (Saying): ‘We feed you seeking Allah’s countenance only. We wish for no reward, nor thanks from you’” (Al-Insān: 8–9). Quran recommends Muslims to spend what they love to achieve righteousness (Al-Imran: 92), spend throughout their lives (Al-Munāfiqūn: 10) and it is considered best to spend in charity whatever is beyond needs (Al-Baqarah: 219).

Quran urges Muslims to show generosity, kindness, and benevolence to their fellow human beings. Allah says in Quran: “… Do good to parents, kinsfolk, orphans, Al-Masākin (the poor), the neighbor who is near to kin, the neighbor who is a stranger, the companion by your side, and the wayfarer (you meet) …” (Al-Nisa’: 36). Quran says in another place: “So give to the kindred his due, and Al-Miskin (the poor) and the wayfarer…” (Ar-Rum: 38). Feeding the poor and orphans are considered a highly virtuous act (Al-Balad: 12–16). Furthermore, Quran insists Muslim to look after orphans and treat them with generosity and kindness (Al-Fajr: 17–20), spend honestly in their property for their needs (Al-Baqarah: 220) and avoid harsh treatment (Al-Dhuha: 9) as well as harsh behavior (Al-Ma’oon: 2). In addition, Quran strictly prohibits appropriating the wealth of orphans (Al-Nisa’: 2).

Prophet Muhammad (PBUH) professed that the best charity is to spend in charity while you are healthy, aspiring, hoping to survive, fearing poverty, and not delaying until death comes.Footnote 2 Quran recommends avoiding miserliness (Al-Nisa’: 37). Instead, Islam urges Muslims to help one another in good acts and endeavors (Al-Maida: 2). Indeed, mutual cooperation and collective affirmative actions are needed to tackle enormous development and humanitarian challenges.

Since Islam only recognizes pure altruism, it promises due reward for pure altruism (Al-Tauba: 121; Al-Fātir: 29; Al-Hadīd: 7). Spending in charitable ways is compared to a good loan, which Allah will repay with a manifold increase (Al-Hadīd: 11; Al-Hadīd 18; Al-Taghabun: 17; Al-Muzammil: 20). In Ahadith, Muslims are urged to spend so that Allah also spends on them with His blessings.Footnote 3

Thus, we observe that the Islamic moral principles emphasize moral choices in the socio-economic sphere of life, and the Islamic view of life encourages empathy, commitment, and responsibility in human behavior.

5 Role of Sovereign Sukuk in Sourcing Development Funds

In what follows, the widely used Sukuk structures in practice are briefly explained and illustrated for use by the government to mobilize development funds through Islamic capital markets.

5.1 Ijārah Sukuk

A typical Ijarāh Sukuk would be structured like this. For example, if the government needs to build industrial zones on industrial real estate, it will use Sukuk that institutional and/or retail investors can purchase. A Special Purpose Vehicle (SPV) is usually established to issue Sukuk certificates. The government will sell industrial real estate to the SPV. The SPV will issue Sukuk to the investors. The Sukuk represents the part ownership of the Sukuk holder in industrial real estate. By purchasing the Sukuk certificates, the Sukuk holders would become part owners of the industrial real estate. The SPV will use the Sukuk proceeds to pay for the price of industrial real estate purchased from the government. Then, the SPV would provide the industrial real estate on a lease basis to the government by using the Ijarah mode of financing. The rent received by the SPV from the lease of industrial real estate will be distributed among the Sukuk holders who own the industrial real estate. The maturity of the Sukuk and the lease term would usually coincide. At the end of the lease period, the SPV will sell the industrial real estate to the government on behalf of the Sukuk holders, and the sale proceeds will be distributed among the Sukuk holders. The cash flows at the end would usually enable the Sukuk holders to recoup their original investments with income arising as rents during the lease period. Figure 1 shows the structure of the Ijarah Sukuk.

Fig. 1
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Ijārah Sukuk structure

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5.2 Mudhārabah Sukuk

This Sukuk structure is used when there is a need to obtain financing on an equity basis rather than debt. This is suitable for countries where governments cannot meet commercial debt commitments. In this Sukuk structure, the Originator (Government in this case) requiring financing does not invest capital of its own. The structure of Mudhārabah Sukuk involves these steps. The SPV issues Sukuk, to which the investors subscribe and pay the proceeds to the SPV. Then, the Originator and the SPV get into a mudhārabah (partnership) agreement. The SPV acts as Rabb-al-Mal (principal owner), and the Originator acts as mudhārib (working partner). Originator agrees to contribute its management skills to the mudhārabah enterprise. Profits generated by the mudhārabah enterprise are distributed between the SPV and the Originator as per the pre-agreed profit-sharing ratios stipulated in the Mudhārabah Agreement.

Profits earned in mudhārabah are distributed to the Sukuk investors by the SPV. When the Mudhārabah Sukuk matures, the mudhārabah enterprise is liquidated. The equity capital is bought by the Originator. The proceeds received by the SPV are used to redeem the investments of Sukuk holders. Figure 2 gives the structure of Mudhārabah Sukuk.

Fig. 2
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Mudhārabah Sukuk structure

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This Sukuk is suitable in cases where global development finance institutions like the Islamic Development Bank, Asian Development Bank, and World Bank want to provide finance for energy and transportation projects that have the potential to generate revenues from services. Such revenues can provide returns to the Sukuk holders and also achieve social impact through funding these development projects.

5.3 Mushārakah Sukuk

Like Mudhārabah Sukuk, the Mushārakah Sukuk structure is used when there is a need to obtain equity financing rather than debt. In this Sukuk structure, the Originator (Government in this case) requiring financing also needs capital of its own to invest in mushārakah (joint-partnership). This is suitable for financing development projects in the energy, transport, and communications sector with a public–private partnership. The structure of Mushārakah Sukuk involves these steps.

The SPV issues Sukuk, which the investors subscribe to and pay the price to the SPV to purchase Mushārakah Sukuk certificates. Then, the SPV enters into a mushārakah agreement with the Originator.

The SPV uses the proceeds from Sukuk issuance to contribute capital to the mushārakah enterprise and is allocated Musharakah units in proportion to capital investment.

On each periodic profit distribution date, the SPV receives a percentage share of the expected profits generated by the mushārakah enterprise. The loss, if any, is shared in proportion to the capital contributed by the Originator and the SPV. After receiving profits, the SPV distributes profits to the Sukuk holders.

In case, the mushārakah assets generate a loss, the SPV shall share that loss in proportion with its capital contribution to the mushārakah. Upon receiving its profit share, the SPV will share the profits with the Sukuk holders. When the Mushārakah Sukuk matures, the mushārakah enterprise is liquidated. The equity capital is bought by the Originator. The proceeds received by the SPV are used to redeem the investment of Sukuk holders. Figure 3 gives the structure of Mushārakah Sukuk.

Fig. 3
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Mushārakah Sukuk structure

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6 Role of Islamic Social Finance in Sustainable Development

Islamic commercial finance involves products and services that are marketed to the clients with overall objective of profit maximization. Those clients are served in Islamic commercial finance since they have the capacity to afford the cost of financial services. For instance, if a client is not able to meet acceptable creditworthiness checks, then an Islamic bank is not compelled to provide finance to each and every client. At the end of the day, Islamic banks are intermediaries who are serving shareholders and depositors to provide asset backed financing and other financial products and services in a way so as to earn Halal returns for the shareholders and the depositors. Thus, market-based Islamic commercial finance solutions are restricted in their scope and capacity to service social ends.

For financing socially important projects, it is important to capitalize on beyond market mobilization and allocation of funds. Islamic social finance is a set of institutions which cater to the funding needs of social sector projects and enable cash transfers to poor beneficiaries without the tag of pricing. They chip in where the market fails to serve needs which are not ‘demands’ in the market sense of having backing of purchasing power.

6.1 Role of Zakat in Development Assistance

Zakat is an obligatory payment that every Muslim has to pay who owns wealth equivalent to the value of 612 g of silver beyond needs. The rate of zakat is 2.5% on the value of wealth subject to zakat. There is an inbuilt mechanism in the institution of zakat that the money has to flow as a direct transfer to the beneficiary who is deserving and lacking in funds. This ensures effective and systematic redistribution.

Zakat is an important institution in an Islamic economics framework for poverty alleviation and economic welfare. However, the institutionalization of zakat in contemporary economic framework and policy poses certain challenges. The challenges can be summarized from the perspective of three major stakeholders in the zakat administration, namely the Muzakki (Zakat Payer), Mustahiq (Zakat Beneficiary), and the Āmil (Government Zakat Agency).

From the perspective of Muzakki, the following are the important challenges identified in the current administration and system:

  • Trust deficit in a centralized government run system.

  • Inexact incidence in deduction at source.

  • Complexity in adjustments/refunds if people wish to claim adjustment or refund in lieu of private zakat payment or in case zakat was deducted at source by deducting agency, such as banks while people were not Sāhib al-Nisāb (having minimum wealth holding which makes zakat obligatory).

  • Dual burden increases tax evasion and the tendency to hide zakat payments.

    From the perspective of Mustahiq, following are the important challenges identified in the current administration and system:

  • Lack of impactful donation hinders socio-economic mobility. If people are paid very small and insignificant amounts, then they can at best afford consumption for a short period of time rather than using the funds more productively.

  • Low autonomy in using received benefits in institutions. For example, when zakat is paid to religious schools, the recipients do not have enough autonomy in the use of funds.

  • Access is hindered by ineffective targeting which results in disbursement of zakat funds even to those people who do not deserve it.

  • Temporary cash assistance leads to consumption while skills and capacity remain unchanged. When there is prime focus on payment of cash to the recipients instead of looking to make them skillful and productive, then people fail to graduate to the non-poverty state in most cases.

From the perspective of government as collecting agent and regulator, following are the important challenges identified in the current administration and system:

  • Low voluntary collection out of the potential zakat which can be collected. Allowing voluntary payment to accommodate juristic differences along with trust deficit and inadequate administrative capacity on the part of government result in very meager voluntary payment to the government.

  • Complexity in assessment with juristic differences.

  • Inadequate as well as inefficient administration for involuntary and compulsory collection.

  • Unequal incidence on different forms of wealth and production.

Overcoming these challenges is vital to generating indigenous economic activity, employment, and spending. Effective mobilization and productive utilization of zakat can, directly and indirectly, support small and cottage industries by enhancing spending power in the marginalized segments and providing seed capital to engage in entrepreneurship.

To overcome these challenges, certain steps are necessary. It is important to utilize documented channels, such as ATMs, cross checks, or direct transfers, if the target beneficiary has a basic banking account or any digital wallet account. It is important that the whole process, from identification of the beneficiary to disbursement, remains free of political influence and intervention. On the top of that, using scoring-based screening can make the process of finding targets more open and objective.

In identifying beneficiaries, local zakat committees can utilize the mosque institution, which is an important community center in Muslim society. They can effectively ensure screening, enhance outreach, enable meeting points, and even help in monitoring. Mosque institutions are among the most vital community engagement institutions in a Muslim society, and Akhuwat has used mosques as a point of meeting and disbursing interest-free loans. Informally, people in need gather around mosques to seek cash assistance in our social milieu. If this informal engagement of donors and beneficiaries can be formalized under a governance framework, then it can be a valuable vehicle for community-based welfare assistance. People regularly coming to mosques are aware of people’s local needs and whereabouts in their local community. Thus, they can help identify and screen deserving beneficiaries and channel charitable funds in a well-governed, impersonal, and institutionalized way.

Many people are not aware of the rulings of zakat related to contemporary forms of wealth and assets. A great majority of people are not aware of the treatment of real estate, financial assets, receivables, and debts in zakat calculation. It is important to raise awareness and urgency about zakat. It is a religious obligation, and its effective mobilization and disbursement can improve the social welfare of the masses. Hence, it is critical to raise awareness using public broadcast media, awareness seminars, mosque sermons, and other ways of engagement.

The trust deficit is the biggest hurdle in the central collection of zakat at the level of government. Periodic reporting about programs and allocation schemes and independent auditing are necessary to build trust in the system. Therefore, tax reforms and incentives related to tax liability adjustment in lieu of zakat payment can encourage people. Currently, in some countries, income tax laws allow deducting zakat as an expense to reduce taxable income rather than adjusting the tax liability itself. When zakat has been paid, like other expenses, it can be deducted against one’s income. However, it would be a significant incentive to allow adjustment of tax assessed against payment of zakat.

Furthermore, under the guidance of scholars having the expertise to interpret primary Islamic sources of knowledge, it is also important to carry out Ijtihād (independent reasoning) in the estimation, collection, and disbursement mechanisms of zakat and ushr in contemporary times where possible in order to enhance the effectiveness and impact of these social finance institutions.

In addition to that, technology can aid in bringing efficiency to operations and administration. It can also help in avoiding adverse selection as well as help in generating impact assessment reports with valuable data about the beneficiaries in the database. In social crowdfunding, technology plays an important enabler in capitalizing on seasonal and impulsive charitable giving at important events. Not only can ATMs be used to disburse payments to deserving beneficiaries, but they should be utilized for mobilizing charitable giving. Likewise, banks that provide discounts and reward points should engage with institutions providing welfare services to offer point redeeming mechanisms for the provision of social services. For instance, Careem offers redemption of points for providing school books, meals, patient services, and planting trees. Likewise, Facebook offers matching incentives on “Giving Tuesday” for fundraisers. Such initiatives can enhance the effectiveness of mobilizing social crowdfunding.

It is expected that the private sector can mitigate the trust deficit and bring operational efficiencies and competencies. Public–private partnerships can scale the provision of social finance networks and services. In this regard, if the private sector shows commitment, resolve, competence, and efficiency, then this can push the government to engage in a public–private partnership.

The financial sustainability of social finance programs is also vital. The institution and infrastructure of mosque are important in Muslim society. Mosque-centered markets can help with the financial sustainability of mosques and religious schools. The infrastructure and human resources can also be employed to offer community health centers and vocational institutes. If there is more trust capital in the community about mosques, then mosques can be utilized as a vehicle to offer an extension of social services.

6.2 Role of Waqf in Mobilizing and Institutionalizing Philanthropy

Waqf is an important social institution in the Islamic framework. In a waqf institution, an owner donates and dedicates a movable or immovable asset for perpetual societal benefit, and the beneficiaries enjoy its usufruct and/or income perpetually. Waqf can be established by dedicated real estate, furniture or fixtures, other movable assets, and liquid forms of money and wealth like cash and shares.

Deaton (1991) shows that in the absence of credit markets for households, people may be able to achieve a high degree of consumption-smoothing using buffer stocks. In this regard, waqf provides an opportunity to institutionally share the buffer stock of resources in society for both contemporaneous and intertemporal needs.

Khan (2019) thinks that since the waqf funding base primarily comes from donors who are not driven by profits, the waqf institution can prioritize access to finance for small businesses promoting environmental friendly practices in production, packaging, logistics, warehousing, and using natural resources responsibly. In this way, waqf will also complement maqasid al-shariah (the higher objectives of shariah) as well as Sustainable Development Goals (Abdullah, 2018).

Not everyone has the resources to dedicate non-divisible property resources beyond their needs and use. However, many people would welcome the idea of donating liquid resources that are divisible, such as cash. Such funding can be used to mobilize funds for hospitals, educational institutes, and orphanages (Aziz et al., 2013; Sadeq, 2002). As compared to the specific heads in which zakat funds can be allocated, waqf has more flexibility in fund utilization for diverse social causes. Thus, the funds can directly flow to individuals or pool resources for establishing organizations and institutions, including financial institutions, such as waqf-based microfinance (Ahmed, 2007) and socially driven banks (Mohammad, 2011).

Mukhlisin and Mustafida (2019), Musari (2019), and Fauziah et al. (2021) discuss the potential of Cash Waqf Linked Sukuk by blending altruistic and investment motives to mobilize funds for commercial or quasi-commercial projects and undertakings. From an economics perspective, there are three issues with that innovation: (i) the cost of double intermediation against the marginal benefit; (ii) loss of flexibility in fund allocation when the dual motive is involved; and (iii) increased burden on the fiscal side if the government issues it and if it is expected to fund the returns gap.

In addition to that, Shirazi (2014) suggests a global trans-national waqf spearheaded by the Islamic Development Bank to cater to the socio-economic needs of the Muslim Ummah through effective distribution, especially during the time of the COVID-19 pandemic.

Non-financial support in the form of skills development, better education, and nutrition are also vital (Haneef et al., 2014; Obaidullah, 2008). The institution of waqf has the potential to fund infrastructure or resources for infrastructure in providing these services. Such non-financial support can help social inclusion and to meet the missed targets and activities in market-based Islamic commercial finance. Socio-economic mobility through the successful provision of non-financial support can also eventually increase the demand for Islamic commercial finance.

However, there are certain challenges in Waqf administration that need to be overcome, such as:

  • Cash waqf is riskier given the governance issues. When even land is appropriated, it is hard to ensure that there is no misappropriation and mis-utilization of cash waqf capital.

  • Waqf property is not managed and invested properly. Apart from below-market value rents, property is sometimes sold at throwaway prices. There is a possibility of involvement of kickbacks in such cases.

  • Properties are usurped as well by private land grabbers, with or without the connivance of officials.

  • No periodic reporting of revenues and assets in some jurisdictions.

  • No periodic audits on standardized parameters in some jurisdictions.

  • Only the hold and rent dormant model is used with no active management. There are no specific governance and operational standards in many jurisdictions if a waqf is to be actively managed.

7 The Budding Industry of FinTech and Industrial Revolution 4.0

Technology provides solutions for reaching new markets, customer bases, and opportunities to cross sell as well as economize outreach and delivery of financial services. Nowadays, there are companies that specialize in doing shariah compliance checks and providing shariah advisory digitally. For example, Wahed Invest is an American-based and halal-focused investment firm, and it is the first robo-advisor tailored for Muslim investors with a shariah-compliant platform. Algebra by Farringdon Group also offers shariah-compliant robo-advisory investment services. In addition to that, Blossom Finance provides an impact investment platform.

Furthermore, there are platforms that aim to take up the financial intermediation function through peer-to-peer (P2P) lending. Based in Dubai, Beehive is the first P2P lending platform in MENA. Using innovative technology, it directly connects businesses seeking fast and affordable financing with investors who can help fund their growth. Beehive is certified as a shariah-compliant P2P finance platform by the Shariah Review Bureau (SRB). Beehive has worked with prominent Islamic legal advisors and Islamic finance industry experts to develop a structure that allows them to process investments in a shariah-compliant way. There are other players like Maliyya, which provide a global shariah-compliant P2P financing platform as well.

Even for consumers, InsureTech companies provide insurance services. StrideUp is another FinTech app that assists consumers in purchasing property in a shariah-compliant manner.

On the top of that, in the social financial intermediation domain, there are FinTech companies providing crowdfunding platforms and the opportunity to make impact investments. Ethis Crowd platform features high-impact investments in property projects to build affordable houses supported by local government programs. On the other hand, Kapital Boost is a crowdfunding platform based in Singapore that matches SMEs in need of financing with impact investors globally looking for attractive investment opportunities that support community growth.

FinTech players in Islamic finance are also leveraging artificial intelligence and big data. MyFinB is a Big Data & Analytics company that helps banks and consultants evaluate a high volume of financial data to generate strategic insights using Artificial Intelligence. MyFinB incorporates shariah modules onto its engine to evaluate listed and unlisted companies for compliance and quality assurance. Using a RoboBanker makes bankers’ jobs easier by generating sales leads, shortening processing time to evaluate credit risks, monitoring their exposure seamlessly, and detecting red flags. Banks have the potential to manage their risks effectively, which can improve their asset quality and profitability.

Also, traditional Islamic financial institutions are adopting FinTech solutions. Kuwait Finance House, Dubai Islamic Bank, and Bank Syariah Mandiri are some of the Islamic banks that have adopted the Chatbot solution. Al-Rajhi Bank and Kuwait Finance House have adopted Robotic Process Automation (RPA) to automate the workflow system for retail financing and conduct customer due diligence.

These are some of the many examples of FinTech companies starting to play an active role in facilitating the use of financial services by embedding technology to provide convenience to both consumers as well as financial service providers. They also provide innovation, cost efficiency, and the opportunity to leverage technology to reach digitally savvy customers. Apparently, FinTech may seem to challenge traditional financial service providers. However, if the traditional financial service providers decide to join the FinTech wave, then they too can benefit from technology and achieve bigger gains with a large existing customer base, greater outreach, infrastructure, investment, and economies of scale.

8 Conclusion

Industrial Revolution 4.0 has to be welcomed, but without giving rise to environmental challenges and income inequality. The role of Islamic commercial finance and Islamic social finance is vital to support the large-scale and small-scale mobilization of funds with and without a price tag to ensure social inclusion. The state of development assistance and debt servicing in selected OIC countries shows that some countries have the capacity to source development finance by issuing sovereign Sukuk, whereas other countries require more focus on social finance institutions. Islamic principles of pure altruism and charitable giving can aid in the effective mobilization, institutionalization, and utilization of social savings as well as philanthropic and humanitarian assistance. The chapter explained that Islamic finance, through its commercial and social finance options, has both market and non-market-based solutions to mobilize development funds for effective and impactful utilization in socio-economic development needs.