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 zakat, waqf and not-for-profit microfinance is attracting increasing interest in the Central Asian countries, the Balkans and the Russian Federation.
The ‘IRTI Islamic Social Finance Report 2017’ is the maiden study of its kind that also traces the historical roots of Islamic social finance institutions in this region, while exploring their future potential in the light of legal, regulatory frameworks, customs and cultural practices that are unique to this region. This issue of the report—the third in the series—analyses the resource gap and the Islamic social finance pontential 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.
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 reports 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).
Other recommendations of the report include:
· Legal and regulatory steps should be taken to institutionalise zakah collection and distribution, recover lost awqaf properties, and facilitate ease of business for Islamic microfinance instituions.
· Muslim organizations should maintain database of the needy and share it with Islamic charity organizations to make it more effective to distribute Islamic social finance proceeds to the needy.
· Regional Muslim organizations should work out general rules on accounting, distributing and reporting on the funds collected in the form of zakah or other contributions of the Muslims.
· Public enlightment of Muslims on the waqf concept to widen the scope of attention given to the sector, beyond building mosques and religious education schools, to cover also constructing educational and scientific institutions, hospitals and rehabilitation centers, the development of infrastructures, and the support of entrepreneurship among the Muslims.
· Development of the Islamic capital market in CIS countries is of high importance, given that further development of monetary waqf would have to be supported by liquid Islamic financial instruments.
· To make Islamic microfinance more competitive, amendments in civil and tax legislation should be made, for example, to address the issue of double taxation in murabaha (mark-up sales).