Islamic Finance Workshop - Dr. Mohammed Obaidullah - Monash University Islamic Society

everyone I welcome you all to the special event organized by man Islamic Society we are truly honored and grateful that you have been taking your time to join us in this evening my name is Ed Khan and I am the privilege of serving as president of Mo and for those who may be new to this Society uh MO is dedicated to fostering strong and Muslim Community on campus our mission is to provide a platform for Islamic learning for all Muslims on campus and also non Muslims as well for spiritual growth and promotion of unity and understanding among all the students we provide we organize a variety of uh events and activities throughout the year from educational workshops and lectures to social Gatherings Etc you can find us more about Mo on our Instagram page mo. Malaysia as well as our website m.m tonight's event is a part of our ongoing commitment to bring you a valuable insight and knowledge that can benefit us all in uh proc personal and professional lives we are incredibly fortunate to have with us in the evening Dr Muhammad a distinguished scholar and a leading expert in Islamic economics and finance dred's work had a profound impact on understanding and application of Islamic financial principles around the world his expertise in the field particularly in Islamic social Finance is a wiely recognized and we are honored to have him share his insights with us tonight inshallah as we all know the topic of tonight's Workshop is uh the role of uh Islamic social finance and sustainable development in a world where economic challenges and social inequalities are becoming increasingly pronounced understanding how Islamic Finance can contribute to creating a more just and Equitable Society is not only important but essential Dr redah will explore how the principles of Islamic Finance can be applied to address these Global challenges and promote inclusive growth inshallah before we begin uh I'd like to remind everyone to please keep your microphones muted during the presentation to avoid any disruptions as well as we'll also have the Q&A session at the end of the talk inshallah through slider we'll be providing the slider code in the group chat box as well so you guys can uh log in like just put in the code in slider website and uh put in your questions and uh submit like just submit your questions there inshallah and we'll address as many as possible without any further delay it's my great pleasure to introduce our team speaker for the evening Dr Muhammad sir you can carry on with the presentation brother for the introduction brothers and sisters and a very good evening to all of you uh today's presentation today's discussion as you know is on the topic of uh Islamic Finance and its role in uh achieving sustainable development goals uh as you know these are the United Nations mandated goals for all countries all members of the United Nations and these are commonly agreed objectives that need to be achieved that is what all uh policy makers across all countries they seek to achieve and these are 17 sustainable development goals starting with poverty alleviation as we know zero poverty is a first objective there are other objectives like freedom from hunger and uh right uh provision of good education health care and so on so forth part of these objectives they relate to welfare of the human being or as we say uh the people the welfare of the people and uh uh other half or other uh the remaining ones are related to the welfare of the planet so this is the balance between the people and the planet that the sustainable development goals they try to achieve and that is the common goal that needs to be achieved and uh as observers of the Islamic Finance scene they they believe and I one of them that there is that this is something uh uh you can call it the second opportunity of Islamic Finance to prove its strength and uh the first opportunity you might ask what was the first opportunity uh the first opportunity was perhaps when the global financial crisis hit the global economy that was a time when there was an opportunity for Islamic Finance to to to prove sort of both academically and also empirically that Islamic Finance principles are something something that can provide a permanent cure against this kind of recurring crisis financial crisis but again many of uh The Observers they believe that this was perhaps a an opportunity that was not fully utilized the second opportunity came came when uh with the Mandate with the Mandate from the United Nations that these are the here are the 17 goals that all countries need to achieve by the end of 2030 and uh starting with the turn of the century we had this mdgs called Millennium development goals and uh these goals were uh subsequently enhanced and they were they came to be known as sustainable development goals or sdgs which are very detailed frame and I invite all of you to uh you know develop your understanding of all these goals and the targets and how all the countries together are the inhabitants of this planet they are trying to achieve these goals now on the one hand we have the sustainable development goals the other hand we Believers we Muslims have the Mas Shar the goals of the Sharia and we have you know there's a huge literature available for you as students to learn about masar I'll just restrict my discussion to those aspects of masas Shar which are relevant for today's discussion and uh uh many of you might be uh you know knowing well aware of the five-fold classification of of the Mak which basically relate to preservation and protection of thean of intellect and of uh uh progen or posterity of property these are the five uh you know uh goals that are broadly uh seen to be the goals of the Shar and why we say this is the second opportunity for Islamic Finance which is supposed to be governed by these five maid or by the maid whichever way you see it we can see you can use the five-fold framework or you can look at the literature and there are other authors or Scholars which have come up with alternative Frameworks uh what the lawgiver the ultimate lawgiver Allah subhana tala wants us to achieve and that certainly includes the welfare of the people and the welfare of the planet which is what sustainable development goals they try to achieve and then we can move on to map the various sustainable de velopment goals whether it is about poverty alleviation whether it is about freedom from Hunger or whether it is about provision of good education or it is good health care or environmental custodi you know uh protection or preservation all these are ultimately related you know to to the welfare of the human beings and also the planet on the posterity so this is us this is the second opportunity which is where we see see a lot of work is being done uh among the in the among the Academia as well as among the practitioners so to today's discussion let me start with sharing a presentation with you uh which is uh tries to concisely put things together for uh you to follow it better perhaps so allow me to share you can share inshallah there okay so now we start with a few with this brief introduction to the sustainable development goals and of course as Muslims we have the Mak as our permanent goals to achieve uh we have here a you know a kind of compartmentalization though it's not necessarily required of Islamic Finance into Islamic commercial finance and Islamic social Finance so when we say Islamic social Finance it doesn't mean that they have different goals but the take the tool of the mechanisms could be slightly different when we talk about Islamic commercial Finance we talk about Islamic Commercial Banking we could talk about Islamic uh commercial insurance or Investment Banking or Islamic stock markets or Capital Market or sukuk and so on so forth when we talk about social Finance we are essentially talking about Islamic philanthrophy which is zakat and a Sak and also the Islamic nonprofit sector which includes perhaps K or kafala which are essentially by definition non-commercial mechanisms so that's how we classify broadly Islamic social Finance uh into these two uh Islamic Finance into these two streams one is the social finance and other is the commercial Finance now uh if you have those of you are little bit of little bit uh interested in the history and evolution of Islamic Finance uh as a perhaps somebody from uh your uh one generation ahead uh perhaps I can share share with you a few things uh how this Islamic Finance the Contemporary version of Islamic Finance it came about and uh then uh eventually uh we had Islamic social Finance in the uh after the turn of the century Islamic commercial Finance as we know uh originally or Islamic Finance mainstream Finance as we know uh it had a very interesting coincidence with the birth of another uh uh uh another component of mainstream Islamic Finance mainstream Islam mainstream Finance which had a lot to do with poverty alleviation this is called micro finance and it got popularized and uh with the uh you know it came to the mainstream and people got to know about it with the award of the Nobel Peace Prize to Dr Muhammad yunos you might be knowing about the gamine bank and currently once again it is back in the news because of political factors but he started this experiment or the gramine experiment started in the mid almost at the same time when the Contemporary Islamic Finance it started taking roots with the establishment of the Islamic Development Bank in jeda Saudi Arabia and the Dubai Islamic Bank in Dubai this was the beginning of mainstream Islamic Banking and development banking that is also the time when uh commercial Finance they they they sort of sought to achieve the very same similar goals of poverty alleviation through their own models which uh certainly were not Islamic they were they used they involved the use of RBA and uh other components Elements which were of course not very well known at the time Islamic Finance again was newly born and then these two uh I would call move movements uh starting from 1975 75 onwards or late 60s onwards uh they started uh taking route and uh they moved in different directions and the those were observing the things very closely uh the common uh view was that both the movements kind of failed to achieve their original objectives or there were big question marks on whether at all they addressing the very mission for which they were uh you know introduced and they were being implemented for example micro Finance faced this solid criticism that it was leading to a huge amount of uh uh you know debt overburdening of debt on the part of the recipients the poor the poorest of the poor it failed to address or it failed to consider the poorest of the poor as its client because of against very similar reasons they were not bankable and uh the risk credit risk was obviously very high with the poor and the interest rates were when they were required to cover this high risk of default the interest is turned out to be very high so conventional micr Finance has been charging a rate and there are justifications for it the justification is that there is the operational cost of offering uh credit to the poorest of the poor at their doorstep obviously it is much higher than what a commercial bank would charge and this this this thing this problem continues because of which uh it was generally believed that this was going through a mission drift it had drifted away from its mission of helping the poor what was happening on the Islamic Finance side Islamic Finance was also born with very very Noble objectives of helping the poorest of the poor uh though Financial inclusion was not a term that time was used it came to be used uh be became popular much later but that was also the objective poverty alleviation by you know uh helping the poor the maximum number of people who are below the poverty line and so on and so forth even the Islamic Development Bank which was born in you know 75 it had these three broad objectives in addition to cooperation between the Y member countries or the the or popularization of Islamic Finance as a mode it had poverty elevation as one of the objectives so these were all policy objectives poverty elevation actually as you know is the biggest challenge of the century uh before policy makers so off and on that uh you find different models different uh policies different ways of uh intervention uh people try to experiment and learn from their mistakes uh change bring about modifications in the tools but the challenge continues Islamic Finance was again facing these challenges of large scale poverty in the especially in the Muslim countries if you look into the statistics they they present a very very dismal picture uh when it comes to the OIC member countries except perhaps the top few uh you know members of GCC and a few other countries most of the countries they they in terms of development in terms of poverty their performance is almost at the bottom so there's large scale and grinding poverty in many many Muslim countries and this so that's that's a challenge which is perhaps uh much greater for an Islamic Economist who try to find a solution within the Islamic domain now Islamic Finance the mainstream Islamic Finance as we know Islamic Banking and Islamic Insurance you had all the developments taking place in Malaysia and in in in the Middle East Middle Eastern countries and uh but the uh the initial experiment or the Commercial Banking as we know they kind of again suffer from the same uh challenge they face the same challenge of mission drift because they were established with the explicit objective of uh shareholder wealth maximization like any other uh commercial company know the Islamic banks that were set up uh they were supposed to to uh be be truthful be honest to their own shareholders and maximize their wealth and because of that naturally they would also drift away from the highrisk poor or from you know uh doing things which might not be very much in the interest of their own shareholders therefore in the mainstream Islamic Finance also we witnessed a mission drift a drift from the original uh you can see the the writings of the Academia who went on to prove that Islamic economics kind of brings in Superior methodology of uh addressing poverty and it is more inclusive and so on so forth but the Islamic banks failed to kind of come up to the expectations therefore uh there was something else was missing in the equation which was uh you know kind of identified and the realization came much later uh and Islamic Development Bank where I I'm privileged to be a part of the team uh till last year when I retired of course uh it was always on the Forefront to in in in financial matters uh seeking to find the best way of uh you know addressing the challenges faced by the YC member countries so poverty elevation of course was one of the biggest challenges you know and uh since the mainstream Islamic Finance of course that was also a specific explicit mandate before institutions like idb or isdb as it is known now uh isdb uh included that as one objective and one Mission related objective another was poverty elevation explicitly it was another objective but for uh some reason it did not include uh it not consider zakat and and Islamic social Finance tools during those years as possible solutions it was much later that uh when it the realization came that the for-profit or the commercial mechanisms of Islamic Financial Services industry they were not addressing this challenge of poverty as they should have been and and uh they this this idea of mission drift also haunted many of these institutions many scholars that you have to find a solution and uh this was one good project good initiative of Islamic Development Bank in the year 2012 and I must say I was privileged to lead this project called Islamic social Finance report we were supposed to produce a prod produce an annual report report on the zakat Sak and not for-profit sectors because this was the realization you know at the time the Islamic Development Bank Institute was known as Islamic Research and Training Institute or ITI so II was actually the researchers are giving attention to the problems within the entire Islamic economics Paradigm imbalance in the way uh things were being implemented the zakat Sak and nonprofit sector like they were kind of pushed to the background and not much data was available which country is doing what in in this field compared to the commercial sector the Islamic commercial Finance sector so this was the beginning of this project called Islamic social Finance report and uh the team went on to produce four reports over the next seven years and covering almost the entire uh the Islamic World starting with the uh the first report in 2014 was dedicated to uh Malaysia Indonesia and the entire southeast Asia Singapore uh and also South Asian countries like India Pakistan and Bangladesh and this report was an eye opener in many ways for the and also uh you know it uh kind of you can give the credit to this publication that for the first time used the term Islamic social Finance because when we tried to put a level on this report we were finding it difficult that whether to call it zakat report or Saka report or work for K is something very different and so clubbing them all together philanthrophy and not for profit was being bit difficult for us so initially we thought that maybe Islamic solidarity Finance is a better term but then you know there were other reasons why this was dropped which uh eventually we said that okay this is all about you know poverty alleviation and uh uh again social Finance would perhaps capture the essence of nonprofit and philanthropic nature of this discipline so this was you can say you can do your research and you'll find that this was the maen the first time it used in any publication or in any uh documentation this term social Finance but since then we have seen this term being used and being popularized and you have now faculties or centers of Islamic social finance and uh this was because of a few Revelations from this first report Malaysia and Indonesia were taking rapid strides in the field of zakat and a there's a lot of thinkers here who are very seriously uh you know applying their minds to how to mainstream this sector and data was not available or if it was available it was very scarce and Scattered and so so forth but here we could we dedicated some resources to produce this report and which kind of uh uh uh I mean we came to realize and this report kind of underlined the fact that with a little bit of effort at uh reforming the system you can achieve huge growth rates in the zakat mobilized in the uh in the field of a and so on so forth especially in the field of zakath uh you know the there were many uh exercises in IES taken up at an intellectual level uh targeted at for example uh arriving at kind of consensus uh on many intricate issues relating to zakat Zak as you know is a very uh can be very sensitive issue for Muslims because it's the third pillar of Islam so you cannot take it at par you cannot consider it at par with a commercial transaction in a commercial world we just want that this to be Halal you know that's good enough it should be freed free from R free from and so on so forth but with zakat we have to be doubly careful we have to ensure uh the uh compliance with the Sharia principles not only in the mobilization of zakat but also while we spend the zakat resources we have to spend it in accordance with the Sharia Norms Sharia requirements similarly Sak or W or you know W had its own uh you know set of rules and uh the simplest rule being that the uh requirement of the wakif or the stipulation of the wakif you know takes the form of the law itself so uh and we had countries diverse uh with diverse uh Frameworks of Regulation diverse histories for example India Pakistan and Bangladesh were ruled by the British and they had the britishers had implemented the or created and implemented the work flaws uh hundreds of years ago so and they were going through you know changes modifications reforms and so and so forth so the work laws in many countries are were archai Claws and which did not capture or did not comply with the Sharia Norms in many ways there was a need to to to study the the departure of many of these uh National work flaws from what Shia wants and also how they were different and what will be an optimal kind of regulatory framework for zakat and aaf and also for nonprofit sector that will provide an enabling environment for these institutions for these actors in The sector to Survive and Thrive and grow so there's a lot of work being done here and uh it was observed that you know they were growing at a very fast rate uh within a very short period of time when these reforms were implemented uh that was a very encouraging thing and the world also took notice of the fact that the zakat resources were not only substantial but also SU sustainable by their very nature because their annual inflows you know it's not that it's going to suddenly dry up one year after and after going in another year so you can you can expect to see sustainable growth rate if you continue with your reforms and continue with uh creating the right kind of infrastructure right kind of Institutions right kind of education of the actors you do the right things and you get the results and you get the results in a pure fairly sustainable way coming to w Again by definition this is sustainable entity because you cannot dispose of the properties you cannot you're supposed to develop it and expand the uh the the gamut the the basket of of benefits that were supposed to come and they were supposed to be utilized for religious as purposes so work was very much a social social economic institution which was largely uh underutilized sometimes abused because of the wrong kind of laws in place the wrong kinds of regulations in place but then wherever in whichever country tried to do a first in bringing some reforms they got some very exciting results so this is what the world took notice of and also this for the first time this report actually produced uh good estimates of the actual mobilization which kind of underlined these observations that here is a sustainable source of funding now let's continue with some numbers interesting ons which will give you an idea of uh the the size of the pi uh again uh Islamic Development Bank took a very big initiative in this regard and uh uh though in its own operations it was still uh short of using them for uh providing development Finance uh but uh in terms of research in terms of capacity building idb was really doing a lot of contribution by you know providing the resources for such research now one of the studies by idb again if uh was that it could estimate the potential Global zakat collection in fact when we added up these countries these regions we had the numb staring at us and uh excluding a few countries we could make a rough estimate of the global global zakat collection based on hard data in the range of 550 to 600 billion that was 2012 and 2013 which was of course published finally 2014 and the next was 2015 2017 the last uh version of the report was published in 2020 if you look at these four issues you'll find the data for more or less the entire OIC except perhaps the Western world is not covered here against this potential based on the actual collection figures as important we could estimate that you know uh the actual collection was just about 10 to 15 billion US which was about 2 to 3% of the potential the potential is about 550 to 600 again these are very very crude estimates because again based on certain assumptions by the researchers but then they did their best in at least providing few numbers to work with so against these numbers which tell you the potential of global zakat global zakat collection just considering the YC countries and you had this just about 10 to 15 billion US dollar which was actually being collected going going by the hard data so you had a huge gap and you were wondering uh at a policy level what was going wrong or what could be an enabling environment that would help us Bridge the but then uh what are the big things that we are going to achieve there are again some few interesting studies uh just to underline the potential in terms of the development goals in terms of poverty alleviation what could we achieve again there are two interesting studies uh one by idb followed by world ma study now they demonstrated that under certain assumptions that if you you have on the one hand you have the potential zakat and on the other hand you have the numbers for uh the head counts are there the number of poor who are below the poverty line in in in in countries across the globe now crude estimates again they they they showed that if you can just give away your zakat whatever is a potential you are able to collect it and uh we not talking talk about any other public expenditure or government budgets or anything just the zakat alone uh if it is transferred into the hands of the poor Bel people who are below the poverty line then you can push every single poor above the poverty line by a simple cash transfer this was a hypothetical situation of course because neither uh uh pushing the actual or Bridging the Gap between actual and potential was that easy nor was it easy to transfer every single dollar collected or single dinar collected to the hands of the poor there would be operational there would be infrastructural issues and so on so forth challenges this were but this was hypothetical scenario that showed the potential of zakat Islamic social finance and zakat is a major tool of social Finance there are two other interesting studies again for aaf in India and Indonesia that time nobody knew what how much of properties are there under AA in India or in Indonesia these are huge countries that time they used to be the number one and the number two in terms of Muslim population having huge amounts of zaka a properties nobody knew what is the potential know what's the value the study I'm referring to for India is 2005 that's a pretty old study since then no other study has been done but again that can give you some indications for Indonesia we got the numbers from the badan zakat in the year 2012 in both the studies they they were telling us the same story that okay you have these uh uh 600 million worth of zakat or $1,200 Million worth of zakat and so sorry A Properties if you can put these properties into commercial use into good use and generate a rate of return is of leaving them idle which will be a realistic rate of return for many properties where Prime properties in India at least I'm very aware of the situation better that also in Indonesia many properties were not necessarily farm land but they were Prime properties so they could be easily developed and put into commercial use and if you if you can even earn a comparable rate of return which the market is generating like say 10% or 12% on your leases or other forms of uh return generating mechanisms then again the this money will be more than adequate to push every single poor uh Muslim Indian uh beyond the poverty line again the study showed that so these were interesting Revelations we're actually trying to you know raise uh the attraction for social Finance uh tools and mechanisms and and I think the impact was there uh the social Finance reports had a significant report because impact because they underlined two major facts one Islamic social funds were recurring and sustainable by definition zakat and AA both and second is addressing the challenges and attempts to mainstream these sectors can yield very quick results in fact if you draw the graph of zakat mobilization I don't have it now for you uh you you you would be looking at two steeply Rising exponentially growing curves zakat mobilization for uh Indonesia as well as Malaysia they are something to watch the they are steeply rising curves so this this drove was enough to drive home the point that you do little bit of treaking reforms and modernize the sector introduce it in terms of collection in terms of uh allocation then you are going to get very very fast results so this is this is something that the first report itself underlined now here was another development taking place in a parallel way in a parallel fashion this was the United Nations sdg targets you know year after year uh after 2015 these sdgs were introduced with the measurable targets and in the subsequent years uh the discussion was focusing on meeting the Gap because if you look at the Millennium development goals which were the precursors to the sustainable development goals now Millennium development goals the funding was primarily to be done in the public sector by the governments sdgs looked at the role of private sector they consider the role of alternative funding sources because the public uh sources were just not enough even after you know considering the sources uh this is a very broad estimate that the targets uh the finding a deficit or finding uh a requirement of 7 trillion US dollar every year in terms of infrastructure Investments so that you know you'll be anywhere near the Str Targets this of course the the the the initially 2015 2016 the conferences the discussions the deliberations they all underline the need for alternative funding sources and that is where Islamic social Finance its importance was recognized the result was again now was seen both in the in the industry and also in the among the Academia among the Academia you have find uh if you uh do a bit of own research you'll find uh studies we undertaken which sought to underline the areas of alignment between the sdgs and the Mak and also the mission drift I was talking about earlier that was criticized perhaps rightly by many observers that Islamic Banks cannot move away from their original goals that is human welfare social welfare and so uh after the initial Euphoria about the success of Commercial Banking so this realization LED them to uh to to follow a slightly different approach and this was born out of uh solid work which underlined the areas of alignment between the sdgs and the Mak Shar here you have a picture which shows you have the five Mas sh the protection the enrichment the enhancement of NS on the self which goes with many sdgs of ending poverty social protection micr Finance food security Fair incomes to uh you know small holder farmers and so on so forth provision of affordable healthare sanitation shelters and so forth then you have similarly uh for other uh the the uh classes of maset uh it was not difficult to map the sustainable development goals and the targets going along with this of course there had to be a difference uh in the Islamic worldview and uh uh the way United Nation mandated these goals uh which was Faith neutral whereas the Mas Sharia is uh fully focused on protection and preservation and enrichment enhancement of Dean there were these differences of course like marriage and family wellbeing Islam has a different approach towards marriage sees marriage as a significant or the most important uh requirement for to achieve the protection of posterity or the nusle perhaps not so when it comes to the sustainable development goals uh so there are these subtle differences but there are many areas where they would kind of merge converge so this lad to again uh uh renewed call for uh Islamic social Finance being uh more seriously considered for sustainable Finance sustainable Finance I mean that Finance which is concerned with achieving the sustainable development goals so it uh so uh the result was again uh you can see it in in the writings in the literature as also in the case studies of many uh mechanisms that were put in place uh both Scholars and practitioners they they were looking at a possible strategic use a strategic mix of uh philanthropic and nonprofit funds the Islamic ones with the development Finance in a way that this could attract more private capital so you are looking at kind of composite mechanisms a blended Finance where private Capital also plays its role and philanthropic Capital philanthrophy driven Capital plays its role nonprofit Capital plays its role but the combined effect is that you can make certain projects sustainable development projects attractive enough for the finan for the private players so this this is uh perhaps the uh again uh it became popular over the subsequent years but we also find some very early examples of uh isdb and undp uh sponsored Islamic micr Finance programs for poverty alleviation where a work fund was used basically for uh meeting the basic requirements uh I'm talking about the alaka fund in Palestine uh that project you can still find uh description of that in the undb website perhaps even now so this where they started quite early in the uh if I am not mistaken year 20 2007 8 or 10 that's the time when uh these joint projects they were implemented uh and they kind of uh sought a marriage between conventional micro Finance models like the uh group based micro Finance as Champion by gramine the Bangladesh gine or the Dr Yus uh the names are kind of they go together they jointly got the Noel piece priz Dr Mohammad yuros and also the Gamin model this model had its unique feature of uh mitigating default Risk by suggesting a group based financing it had nothing un Islamic about the model itself what was UN Islamic was the product so uh those who were concerned with uh Pro providing Halal products in the financial sector they took the best of the conventional ones this one approach to Islamic micr Finance or one type of Islamic micr Finance models they were also indigenously developed in Islamic micr Finance models as you find in Indonesia for example but gramine replica replications Islamic replications of gramine were also becoming popular so there was a marriage between conventional micro Finance in terms of model the products would be Islamic or Sharia compliant and also there was use of or at least it was at a very high level of discussion uh the use of work funds for meeting part of the uh requirements of the of the beneficiaries their basic requirements will be met that with that the capacity building or the training related cost will be met with some other type of funds and eventually when they're ready to to take up set up their own microenterprises they will be getting you know for profit Sharia compliant micro Finance so these were some very early uh you know in in the first decade of the 21st century these were the experiments but then they they start becoming more and more popular and the reports that I was talking about you'll find more case studies of uh such combinations or composite structures where part of these uh uh zakat and work related benefits they could be used to absorb certain recurring operational costs and remember uh please remember that these were the justification uh that was used by gramine type of experiments to use high rates of Interest or high cost of funds and the Islamic replications of gramin also uh you know though they were charging less rate of profit sh compliant uh micr Finance I'm talking about uh by for example IBB islami Bank Bangladesh they were also uh there were charging less rate of interest but still it was uh higher compared to what uh uh a a simple bank would be offering you know micr Finance by definition was costlier because of the cost of operation so a new model was uh contemplated to the uh under which many of the recurring costs could be absorbed by again the recurring flows that will be uh that zakat and of Institutions will be providing and if they could absorb certain of these recurring costs the result would be that you can will be able to operate offer your product on a commercial basis but at an affordable price which is which made a huge difference which was the main CR criticism against conventional micro Finance of the conventional approach to finance the poor it was costly it was too costly to become unaffordable so the only way you can make it affordable again uh Scholars uh like to use the beautiful example of uh the uh the Water work which was contributed by where the owner of the uh the uh well was charging uh very high price and uh so part of half of the rights were purchased by H and it was made a w which means uh it was made free now what was the impact of this we all uh would like to finally remember the impact was that you know the the seller of that the the other half it was forced to sell off the rights because there were no takers the no bias of uh water at such high rate on the other other days so uh this example actually taught a lot of things uh and has a lot of implications in terms of pricing uh how to bring or how do we price our products if it is a social Enterprise if it has some social goals so we have to make like micr Finance has very solid social goals and you cannot use a similar pricing mechanism or strategy as you do for a purely commercial product so if you're looking at a social product obviously you you you can look at zakat and W as possible ways to bring down your uh costs operational cost and hence the price that you charge to the ultimate customer so this is uh again this was tried out by uh in some experiments and uh again uh those of you who are interested in these experiments uh I would suggest there at the end of my presentation uh there is a URL to a website which has got a lot of the net City website which has got uh these uh uh case studies in the form of blogs so you can search for uh after visiting the website go to The Forum and the blogs section and uh you can search for work for zakat and you will find these beautiful case studies of where uh the social funds have been utilized to in various ways sometimes to as grants sometimes for building capacity sometimes to cover training costs sometimes to uh sort of create new AA there are many ways that they can be used sometimes to absorb operational cost and eventually uh to make to create an enabling environment in which there is no dirth of social goods and services okay so what are the again uh requirements as we move forward to innovate we are talking about now sustainable finance and we are looking at the possible use of zakat and a uh and other social tools but we have to take certain precautions you know first of all in what way uh we can move forward what are the strong advantages strong merits if we're talking about using platforms using web web based platforms which will enhance I just restrict myself to a few examples because it's say it's becoming a huge discipline by itself so we all know that if you are dealing on a platform between whether it's a buyer and seller meeting on the platform or a donor and doni meeting on the platform the use of the platform essentially can enhance transparency about the transaction about the players the actors it can enhance accountability of the actors how and how they are very very relevant for how the can enhance the efficiency of the zakat and work institution itself we can see very clearly the benefits here that in case of zakat as we know the eligible beneficiaries are stipulated by the Quran itself you cannot use discretion uh in uh you know Distributing zakat to someone who doesn't qualify to be a beneficiary who does doesn't belong to one of the eight asnaf or the eligible categories which have been defined by Sharia so you have to be very careful about who is going to receive the benefit of zaka now that requires identity and identity can be a big constraint if here talking about humanitarian crisis where people lose their documents and and uh you know maybe coming from the lowest strata of the society they never bothered to prepare develop or keep prepare those documents so it's difficult to give an identity and many of them they come without identity so the idea of a digital identity and a platform can help you keep track of the flow of goods and services the benefits to the desired to the eligible beneficiary and there have been very good use cases here award winning cases where uh these were used for helping the displaced persons families in Syria in Palestine and so on so forth and you have other examples I'm just quickly going through this incentivization of uh uh volunteering for example this is s of efforts or you making a of assets of work and so and so forth know there are platforms have come up which try to incentivize this via social cryptos basically to monitor to keep track of the contributions not necessarily to make it a marketable uh crypto and make money out of it but more a kind of uh recognition of somebody's contribution you can incentivize the process by through social cryptos and it is also now well documented that blockchain provides a way to preserve aaf related deeds and documents and the loss of the Deeds that's the single most challenge facing the global aov sector why we are unable to develop our billions of worth of AA assets the single most constraint is the loss of the W and we also know using technology like blockchain you can perpetually preserve the W that is prepared by the wakif or the donor and which has the sort of uh uh Force as if it is given by the ultimate lawgiver it is given by Sharia itself so this is something to be preserved you know perpetually and that's possible using on a platform which is powered by blockchain so it provides that immutability to work facets which means you cannot tamper with the contracts with the D or any other document related to the work and you can use Smart contracts for the development and this is where you are opening up the uh doors to private capital comingling of private Capital with W Capital you know as long as you have tamper proof documents contracts Auto executable contracts then you are making it more attractive to the private players to the private investors I'm not using WF but investors of investment Capital to come forward and mingle it that with of capital and of course you have to keep in mind all the Sharia related requirements uh when it comes to separation of these different sources and uh uh you know the the uh sharing of the returns the benefits once you have created the sukuk or the instrument and put it on the blockchain then it becomes kind of tamper proof and a uh kind of long-term uh you know evidence of documented evidence of uh and it's kind of provides perpetuity to the arrangement okay so these platforms basically they they provide undiluted emphasis on stipulated and designated beneficiaries via impact measurement is a new thing again that we are trying out aldah as on on a platform that how to measure impact of this uh different projects different initiatives in terms ofar also in terms of the SG goals and by so doing uh you can have a uh community of donors and uh social investors who are much more satisfied and uh you know with the compliance aspect of uh you know the the game these are two or three quick examples uh before we uh uh end my presentation again uh platformization can lead to can enhance actually transparency accountability we have some of these good case studies again you can find at the website uh on the nity portal and also to the blog site you'll find complete case studies on these uh the Singapore M Singapore Maj AMA Islam Singapore they are the Pioneers in fact in when it comes to uh issuing sukuk for financing the development of AA and these mashara bonds they are the first of their kind to commingle to facilitate the mixing of private investment Capital profit seeking capital with W capital for development and it was a combined development mixed development and again you have very DET case studies of that what are the challenges and how they were uh you know tackled and uh and so on so forth the end result was just fine for all the parties was a win-win for all the stakeholders similarly you have Malayan excellent cases I've taken one from Singapore one from Malaysia and one from Indonesia and these case studies again let me underline these are available for you and the website and Indonesia is the latest one cashlink sukuk which backed the idb price for Innovation this year and which basically it makes the you know uh the the the rate of return on uh the government infrastructure uh bonds below market yet this would be accepted by the market because the market now comprises W donors they're not comparable to the market based investors who would Benchmark their expected return with what is provided by the sometimes by the uh by the conventionals markets so here we had a you know the the sukuk owners would be W if would basically be happy with you know a below Market uh return they would of course forgo these returns the returns would go for meeting a different type of stakeholders Madan wakaf will mobilize all this returns maybe below Market but they are positive returns so they will they'll be mobilized and put into social causes so the infrastructure agency that financing body will make will enjoy the benefit of uh you know uh below market cost so this is a a win-win for several types of stakeholders you have the on hand on the one hand you have the infrastructure financing body on the other hand we have the badan wakf we have the beneficiaries of the W funds and finally we have the wak who is happy with doing a a work which is the benefits of which he can see with his own eyes in fact the benefits of the first issue of the cash walkling sukuk they were donated for an Eye Hospital based in Jakarta and this is this was managed by a very well-known leading nonprofit organization so the entire uh you know the the the returns that were transferred into the hands of this eye hospital and subsequently you can set your own goals when you go for additional issues of this sukuk okay so uh I have tried to very briefly you know uh give you a brief synopsis of uh uh what has been happening on uh in the Islamic Finance scene uh how the thought processes have changed over time sometimes facing the criticism of a mission drift and uh eager to uh exploit or or make use of the opportunities to make Islamic Finance mainstream the first opportunity as I said came with the global financial crisis of the 2007 2009 where when it was uh shown perhaps not very convincingly that if you Shan riba if you Shan complexity in contracts or if you had Shan RBA and F had Shan complexities then perhaps the world would not have seen the global financial crisis at least not in that uh with that intensity the second opportunity again the challenge of the uh sdgs the sustainable development goals it still exists it will continue to haunt our policy makers till the year 2030 uh let's see what happens after that and uh but if you go by the current level of achievement it is pretty low so you need a lot of funds to finance and uh here we have uh social funds Islamic social funds as which have similar goals similar objectives so you have another opportunity to to mainstream Islamic social Finance as an alternative financing mechanism which is rooted in ethics but and which is governed by the ultimate objective of the welfare of the people and the planet and I've also provided with uh you with this uh URL here so the various examples that I cited you will find blogs which explain them in uh detail and uh so uh thank you