The Maqasid of Zakah and Awqaf and Their Roles in Inclusive Finance

Abstract

Financial inclusion refers to the providing of finance to the non-financeable segments of the population, who are traditionally denied financial services like banking and insurance facilities due to the absence of collaterals to substantiate their ‘bankability’. They are thus considered as ‘un-bankable’ by formal financial institutions. This ‘un-bankable’ segment of society isestimated to cover more than 2 billion adults - that is around one third of the world population, and over half of the world’s working adults - hindering them from growth, productivity, employment, and stability, compromising the peace and prosperity of society at large. Therefore, the primary aim of inclusive finance is to provide the ‘un-bankable’ with access to finance, to strengthen domestic resource mobilization and contribute to economic and social development. In recent years, only conventional and Islamic microfinance institutions (IsMFIs) have considered ‘inclusive finance’ - which includes various delivery channels, like credit unions, banks, insurance and also mobile operators. However, the Islamic institutions of zakah (compulsory alms) and awqaf (perpetual charities) were also ordained with the objectives (maqasid) of eradicating poverty, circulation of wealth, creating a stable and sustainable economy, and enhancing micro, small and large scale infrastructure for social and economic development. This paper attempts to identify the maqasid of these two traditional institutions of the Islamic economy and their potential roles in inclusive finance.

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