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INTEGRATION OF ISLAMIC FINANCIAL AND SOCIAL SECTORS:

CREATING SYNERGIES FOR SOCIAL IMPACT

Habib Ahmed Professor and Sharjah Chair in Islamic Law & Finnace

Durham University Business School, UK

1. INTRODUCTION

Socio-economic justice and equitable distribution of income are among the primary goals of

Islam and are expected to be unyielding features of an Islamic economic system (Chapra

1985). The Islamic financial system being a part of Islamic economic system should also

reflect and promote these objectives of Islam. Siddiqi (2004) and Khan (1997) point out the

philosophical basis of the Islamic financial system lies in adl (social justice) and ihsan

(benevolence). The implication of these concepts is "taking care of those who cannot be taken

care of by the market, who cannot play with economic forces or do not have access to

economic means to enable them to exploit the economic opportunities around them" (Khan

1997: 12-13). As such, it is imperative on Islamic financial sector to include social

dimensions in their operations along with the normal commercial financing practices.

However, most of the evidence on contemporary Islamic finance practice reveals that the

industry’s contribution to social objectives has been minimal.

Whereas the financial sector has a commercial profit motive, the nonprofit social sector aims

to achieve certain social goals. The social elements of the financial institutions are sometimes

reflected in their corporate social responsibility (CSR) activities. However, given their

diverse goals, the financial sector and the social sector are usually discussed separately. The

dichotomy is also reflected in practice of both Islamic finance and the Islamic social sector to

large extents. Whereas the Islamic financial sector has shown neglect of social factors, the

Islamic social sector which includes zakat, waqf and nonprofit organizations has been

operating independent of the financial sector. The disconnection of Islamic finance and social

finance is contrary to its foundational values and principles of promoting ethical and social

goals.

Given the above, there is a need to examine ways in which the gap between the Islamic

financial and social sectors can be bridged. This paper provides a framework to understand

how the two sectors can be integrated to create synergies that can promote social objectives.

The interaction of the Islamic financial sector and the social sector in promoting societal

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10th International Conference on Islamic Economics and Finance

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welfare can be exemplified in two ways. First, the financial sector can provide financial

services to the social sector to enhance latter’s capabilities and impact. Second, the social

sector can contribute to financial inclusion by either providing services to the poorer sections

of the population directly or supporting the financial sector to do so.

The paper is organized as follows. The next section provides an overview of the Islamic

financial sector and its social role followed by a section that discusses the status of the

Islamic social sector in general and zakat and waqf in particular. While Section 4 presents the

functions of the financial sector that can promote growth and social welfare, Section 5

provides a framework to assess the interactions between Islamic financial and social sectors.

Section 6 discusses ways in which the Islamic financial sector can contribute to the

development of the social sector and Section 7 presents how the latter can interact with the

former sector to enhance financial inclusion. The last section concludes the paper.

2. ISLAMIC FINANCE AND SOCIAL IMPACT

The financial sector can promote social welfare by providing financial services to all

segments of the population. In particular, the social goals can be achieved by providing

financial services to the social sector and also the poor. Given the multifaceted nature of

poverty and the risks facing the poor, ‘inclusive finance’ would entail providing a variety of

financial services to the poor including savings, credit and insurance facilities (United

Nations 2006 and Matin et. al. 2002). The poorer segments of the population are, however,

financially excluded from the formal financial sector voluntarily and involuntarily (World

Bank 2008).

Voluntary financial exclusion can occur on the demand-side due to cultural and religious

reasons. The poor in Muslim countries may choose not to access conventional financial

services due to religious reasons. Karim et al (2008) find that an estimated 72 percent of the

people living in the Muslim countries do not use formal financial services and a large

percentage of the population (ranging from 20 to more than 40 percent) would not avail

conventional microfinance to avoid interest. Thus, access of finance to the poor in many

Muslim countries would require provision of Shari’ah compliant services.

Involuntary exclusion arises on the supply side whereby financial institutions choose not to

finance the poor due to economic reasons. The private information of the poor households is

scant that leads to, among others, moral hazard and adverse selection problems. Furthermore,

as the size of the financial services for the poor is small, the costs of per-unit of financial


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services increase. Given the high risks and costs, sustainability becomes an important issue

for organizations providing financial services to the poor creating a tradeoff between outreach

and sustainability. The implication is that sustainability of inclusive finance would require

subsidies to cover the high costs of financing to the poor. Without subsidies financial

institutions would exclude the poor or sustain their activities by charging exorbitantly high

rates of return/interest rates. Given the tradeoff between outreach and sustainability, there are

two broad approaches to provide financial services to the poor. One is the poverty approach

that focuses on outreach, but need subsidies to sustain the activities. The other is the

commercial approach in which the organizations providing financial services are profitable,

partly because they exclude the poor clientele. Nonprofit organizations usually adopt the

former approach and for-profit firms the latter.

As the Islamic economic system pays particular attention to equitable income distribution,

there must be mechanisms for the poor and microenterprises to have access to finance. There

is a general feeling that the majority of the Islamic financial institutions have not been able to

serve the poorer segments of the society and fulfill the broader social goals adequately.

Several studies examining the Islamic financial sector’s role in contributing to the social

goals show that it is either small or non-existent. Kamla and Rammal (2013) study the social

reporting of 19 Islamic banks to examine, among others, funding socially motivated

investments and projects and community contribution. They did not find any evidence of

contribution of Islamic banks to social development or having any ‘serious schemes targeting

poverty elimination or enhancing equitable redistribution of wealth in society’ (Kamla and

Rammal 2013: 933). They conclude that ‘failure to make social justice the core value of their

operations has contributed to the failure of Islamic banks to fulfill their ideological claims’

(Kamla and Rammal 2013: 933). Whereas Haniffa and Hudaib (2007) find high scores for

commitment of Islamic banks towards stakeholders such as debtors and employees, the

commitment towards society scored the lowest.

3. ISLAMIC SOCIAL SECTOR: STATUS AND ISSUES

Zarqa (1988) identifies various institutions and structures Islam has instilled through which

income and wealth can be redistributed to fulfill the basic needs for all in the society. Among

others, zakat, awqaf, and qard hasan played important role in increasing the welfare and

mitigating poverty.1 Zakat (obligatory alms) is one of the fundamental pillars of Islam that

1 For detailed discussions see El Asker and Haq (1995) for zakat and Basar (1987) and Cizaka (1996, 1998) for

waqf.


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has direct economic bearing on the distribution of income and emancipation of the poor.

Considered among one of the essential forms of worship, it requires Muslims whose wealth

exceeds a certain threshold level (nisab) to distribute a percentage of their wealth and income

among specified heads annually. Though zakat can be an effective tool of income

distribution, it has diminished in scope in recent times in most Muslim countries.

Governments of a few countries such as Saudi Arabia, Pakistan and Sudan take the

responsibility for collecting and distributing zakat. While zakat is collected on a mandatory

basis in these countries, there are differences in the coverage of kinds of assets/properties on

which zakat is levied. Several other countries such as Jordan, Kuwait, Qatar, Bahrain,

Bangladesh, Indonesia and Oman have established governmental agencies to receive zakat

paid on a voluntarily basis (Kahf 1989 and 1997). The total zakat collection in most

countries, however, is very small. Kahf (1997: 55-57) reports that the ratio of zakat collected

as a percentage of GDP in Saudi Arabia, Yemen and Pakistan varies between 0.3-0.4 percent.

Waqf is a charitable endowment that has wide economic implications and can play an

important role in increasing social welfare. Whereas the corpus of waqf is usually immovable

assets such as land and real estate, moveable assets such as cash, books, grain to use as seeds,

etc. were also used for its creation. Other than providing support for religious matters, waqf

can be established for provision of economic relief to the poor and the needy and also to

provide social services such as education, health care, public utilities, research, serve animals

and environment. The status of waqf, however, has deteriorated in many Muslim countries

during modern times. Not only have the existing waqf become dormant and unproductive,

fewer new waqf are being established to serve social functions (Ahmed 2004).

One of the key problems faced by waqf is mismanagement and corruption of managers.

Traditionally, awqaf were mainly managed by private individuals (mutawallis) who were

nominated by the founder of the waqf. It takes only one dishonest mutawalli over the life of a

waqf to lose the endowed assets. While one of the reasons of the involvement of governments

with waqf in some countries was to resolve this problem of mismanagement, managing waqf

by them is not a solution. In fact, in most cases, government involvement with waqf has made

the problems worse. The managers of waqf under governments are public servants and

bureaucrats who lack the management skills. Thus, inefficient and passive management by

both private and public bodies are reasons of ineffective use of waqf and limiting their social

impact during contemporary times.


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4. FINANCIAL SECTOR: FUNCTIONS AND ECONOMIC IMPACT

To understand the scope of how the financial sector can promote growth and social goals

there is a need to understand their nature and functions. A financial system performs certain

core functions that are common to different financial structures and stable across time and

place (Merton 1992). Merton and Bodie (1995) identify six functions of financial system as

managing risks, transferring economic resources, dealing with incentive problems, pooling of

resources, clearing and settling payments (to facilitate trade) and providing price information.

Similarly, Levine (1997: 689) identifies the functions of a financial system as “the trading of

risk, allocating capital, monitoring managers, mobilizing savings, and easing the trading of

goods”. The functions that a financial system performs can enhance growth by increasing

saving and promoting capital accumulation and technological innovation (Levine (1997). BIS

(1986: 8) recognizes that financial innovations perform the functions of ‘transferring risks,

enhancing liquidity and generation debt and equity’ to meet the evolving financial

requirements. The key functions of financial institutions that are relevant to achieving social

goals can be summarized as mobilizing savings/asset management, allocating

capital/financing and managing risks. These are discussed below.

Mobilizing Savings/Asset Management

One of the key functions of the financial institutions and markets is to mobilize savings from

resource surplus individuals/institutions and allocate these to productive activities. This

function not only promotes growth but also provides important services that meet various

financial needs of individuals and institutions. The short-term and long-term financial needs

are identified under financial planning literature as money management, emergency planning,

investment for goals, and inheritance and estate planning (Chieffe and Rakes 1999). Note that

the former two items would be dealt with mainly under savings and the latter two by asset

management. Investment for goals would include wealth accumulation, pension and

retirement income, and wealth and lifestyle protection (Mindel and Sleight 2010). Achieving

these goals would require appropriate range of products and services. Specifically, products

for investments and wealth accumulation would include core banking products, lending

products and a menu of financial and non-financial assets. Similarly, retirement income is

ensured by using a variety of investment vehicles and pension schemes. Wealth and lifestyle

can be protected by different types of insurance products such as property, health and life

insurance/assurance. Finally, inheritance and estate planning are used to transfer wealth to

achieve desired distributive goals.


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Allocating Capital/Financing

Levine (1997) asserts one of the key functions of a financial system that enhances growth is

use savings to promote capital accumulation and technological innovation. Whereas

financing can be debt-based or equity-based, Islamic finance would prefer a balance in their

usage. Proponents of Islamic banking pointed out the advantages of profit-sharing modes of

financing over the conventional interest based financing. These include increase in

investment, allocative efficiency, stability, equity and reduction of poverty.2 They argued

that as the reward for a financier would be a share of profit, financial resources will be

allocated to projects with the highest productivities. Furthermore, equity based financing tend

to be for longer terms that would contribute positively to growth. Theoretical models (such as

Khan 1987) showed that a banking system using profit-loss sharing modes on the liability

side would be more stable as these would be able to absorb the negative shocks on the assets

side. Experiences, however, show that fixed-income short-term debt based instruments (like

murabahah, mark-up financing) are the dominant modes of financing used by Islamic banks.

Various reasons are given to explain the lack of use of profit-sharing modes by Islamic banks,

the most significant being the moral hazard problem.3

Managing Risks

Levine (1997) identifies one of the functions of the financial system as ‘facilitating the

trading, hedging, diversifying and pooling of risk’. The insurance industry can play an

important role in poverty alleviation if services can provided to the poor to reduce their risks

and vulnerability. Siddiqi (2009) discusses the approaches to risks management in financial

intermediation from Islamic perspective. He identifies two ways of managing risks in

financing, sharing and transferring. While the tendency in conventional finance is to transfer

risks, he asserts that the approach in Islamic finance should be risk sharing.

A key instrument of mitigating risks is the use of insurance services. The conventional

insurance contract has been deemed as non-Shari’ah compliant by most Shari’ah scholars

because of the existence of excessive uncertainty (gharar). The OIC Fiqh Academy in a

resolution 9 (9/2) 1985 declared conventional insurance to be prohibited due to uncertainty

(gharar) in the object of sale and outcome of the contract. The Islamic alternative, takaful,

using principles of ta’awun (mutual assistance) and tabarru’ (gift or donation) are operating

2 The advantages of Islamic banking are discussed in Chapra (1985) and Khan (1995a), and Siddiqi (1981 and

1983). 3 For a discussion on the lack of profit sharing modes of financing by Islamic banks see Khan (1995b).


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under the mudarabah (partnership) and wakala (agency) based models. There are two main

types of takaful, general and family. While the former provides short-term protection against

accidents and losses of property, the latter provides saving opportunities and long-term

protection arising from death or disability. The types of products under family takaful have

become diverse providing a variety of products that can be used for wealth and lifestyle

protection. The products under family takaful include investment-linked family takaful,

mortgage takaful, hospitalisation takaful and group medical takaful (Oracle 2008).

5. INTEGRATION OF FINANCIAL AND SOCIAL SECTORS: CONCEPTUAL

FRAMEWORK

Understanding how the financial sector and the social sector can be integrated to increase the

societal welfare requires examining how the functions of the financial sector affect various

market segments. In order to examine the social orientation of financing, the household and

business sectors are divided into two categories. Specifically, the household sector is

classified as poor/non-poor and the business sector as micro/small enterprises and

medium/large firms. Financial industry would fulfill the social goals if they serve all market

segments including the poor and micro/small enterprises.

Table 1 shows the interactions of the functions/products of financial sector and different

markets segments including the social sector. Provision of financial services to a specific

market segment is denoted by ‘√’ and non-provision is indicated by ‘?’ in the Table. As

discussed above, financial exclusion occurs from the supply side due to economic reasons

whereby the poorer households and the micro/small enterprises are not served by the

financial institutions due to higher risks and costs. As the formal financial sector generally

serves the non-poor households and the medium and large enterprises, gaps exist in providing

financial services to the poorer households, micro/small enterprises and the social sector.

Table 1: Financial Sector Functions and Outreach to Different Market Segments

Financial

Functions/Products

Household sector Business

Sector

Social

Sector

(zakat,

waqf &

charity)

(5)

Poor

(1)

Non-

poor

(2)

Micro &

small

enterprises

(3)

Medium &

large

enterprises

(4) Mobilizing savings/asset

management

MS1(?) MS2(√) MS3(?) MS4(√) MS5(?)

Allocating

capital/financing

AC1(?) AC2(√) AC3(?) AC4(√) AC5(?)

Managing risks MR1(?) MR2(√) MR3(?) MR4(√) MR5(?)


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Given the above framework, there are two approaches in which the synergies between the

financial and social sectors can be enhanced to promote social development. First, the

financial sector can provide its services to social sector to increase its potential and

capabilities of promoting social well-being. Specifically, the financial sector can invest in the

development of the social sector which then would be able to enhance its social outreach.

Second, given the tradeoff between outreach and sustainability, provision of financial

services to the core poor would require subsidies which can be provided by the social sector.

As the financial sector is reluctant to provide services to the poor and micro/small enterprises,

the social sector can fill the gaps by either providing the services directly or subsidizing the

financial sector engaged in inclusive finance.

6. FINANCIAL SECTOR PROMOTING SOCIAL SECTOR

Although the social sector in general and institutions of zakat and awqaf in particular can

potentially play an important role in enhancing social welfare, these institutions are dormant

and not used effectively in most countries. The financial sector can strengthen the social

institutions by providing services that can improve their management and enhance their

potentials and impact. The ways in which the financial sector can contribute to the

development of the social sector can be examined under the functions of the financial sector

identified above.

Mobilizing Savings/Asset Management (MS5)

The financial sector can facilitate mobilizing resources to enhance the capabilities and

potentials of the social sector in two ways. First, the contributions to the social sector can be

enlarged by changing the notion of savings from personal goals only to include broader social

objectives. This would require developing appropriate instruments that can be used to divert a

part of the savings to support the social sector. An example of this would be an option of

buying waqf certificates at financial institutions the proceeds of which can be used for

different social activites.

Second way in which the financial sector can contribute to the social sector is to provide

various services related to management of waqf assets. As discussed above, one key problem

of the waqf sector the mismanagement by both individual mutawallis and the government.

The financial sector can provide efficient and professional management services to the waqf

institutions to enhance their social impact. Conventional financial institutions offer trust


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services to individuals and organizations to meet various current and future financial needs

related to wealth management. Other than ensuring professional and expert management of

the assets, a professional corporate body acting as a trustee ensures continuity and

permanence. Furthermore, a corporate entity will fulfill the administration of the trust without

bias towards any particular beneficiary, which may happen in case of an individual manager.

The services that can be provided by the financial sector to the nonprofit sector in general and

the waqf in particular are the following:

Acting as a Trustee/Mutawalli

The key role of a corporate entity managing a waqf would be to act as a trustee or mutawalli.

Specifically, the services would include reviewing and implementing waqf terms; developing

and implementing investment strategies for waqf assets; collecting, distributing, reinvesting

income from waqf assets; maintaining all accounting records and provide regular information

to beneficiaries; fulfilling financial obligations related to assets (e.g., paying bills, taxes, etc);

and seeking legal counsel when needed. The corporate trustee/mutawalli can also provide

investment management services that includes making investment decisions; collecting and

reinvesting income (dividends, capital gains); pay asset related bills; preparing annual tax

information letter; and prepare monthly statements for all transactions.

Estate management and advisory services

The corporate entity can also provide estate management services by taking the role of an

executor of wills upon the death of a donor. The specific activities that can be performed in

this role include acquiring relevant document (wills, titles, etc.); notifying affected

companies/government entities of death; taking inventory of assets; collecting all income and

proceeds; paying off debt; accounting for all transactions; and distributing estate’s asset

according to will. Advisory services related to waqf would include will writing, advice on

waqf accounts/funds and waqf formation and general investment advice.

The asset management and trustee services can be provided by two types of institutions. First,

banks and financial institutions provide these services either themselves through a department

that deals with trust services or through a subsidiary that specializes in trust services. Second,

there are independent trustee companies that offer various types of services. Whereas

conventional trustee companies providing various services to the individuals exist, these

institutions are new and rare in Islamic finance. An example of an independent trustee

companies providing both conventional and Islamic trust services is Amanah Raya Malaysia.


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Another institution named Waqf Trust Services Ltd (UAE) which owned by Dubai Islamic

Bank & DIFC Investments LLC was established in 2007, but closed down after a couple of

years operations.

Allocating Capital/Financing(AC5)

Similar to any commercial enterprise, waqf assets can also be developed by raising funds for

investment either from Islamic financial institutions or capital markets. A large part of the

waqf properties are located in prime commercial areas in most countries and the rate of return

on investments to develop these assets is potentially high. For example, in a survey in India

revealed that the average rate of return on investments for a sample of waqf properties would

be close to 19% per annum. Therefore, a good economic case for the Islamic financial

institutions to provide financing to develop the social sector exists. Due to unique ownership

status of waqf, innovative financing mechanisms such as built-operate-transfer are used to

finance waqf assets. An initiative in this regards was taken by Islamic Development Bank

which established the Awqaf Properties Investment Fund (APIF) in 2001 to finance awqaf

properties in different parts of the world. Since its inception, APIF has approved $956 million

for 46 projects in different countries (IDB 2014). This experience can be replicated at

national levels.

The capital markets can also be used to develop waqf properties. Example includes Sukuk al

Intifa’a to fund Zamzam Towers in Makkah. The waqf land leased land to Binladin Group for

28 years on BOT to build complex (4 towers, mall & hotel). Binladen leased the project to

Munshaat Real Estate Projects for 28 years. Manshaat raised $390 million issuing sukuk al

intifaa (time-share bond) for 24 years by selling usufruct rights. Similarly, in Singapore,

musharakah sukuk used to raise $60 million to develop 2 projects. The partnership in which

the waqf provided the land and the investors (sukuk holders) provided the funds for

investment. In one case, a new mosque was built with attached commercial property earning

$200,000 annually. In another case, investment in the waqf properties increased the revenue

from SGD 19,000 per annum in 1995 to an income of SGD 5.3 million in 2006 (Karim

undated).

Managing Risks (MR5)

Like any other business, the non-profit sector also needs to mitigate the risks they face. The

waqf assets may need special risk management techniques as they corpus of the waqf needs to


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be kept intact. Among other, takaful schemes need to be created to deal with the special needs

of waqf institutions.

7. SOCIAL SECTOR PROMOTING INCLUSIVE FINANCE

As indicated, financial exclusion arises from the supply side due to economic reasons (high

costs and risks). The social sector can contribute to inclusive finance by integrating its

activities with the financial sector. The specific ways in which the social sector can contribute

to the different financial functions identified above are discussed below.

Mobilizing Savings/Asset Management (MS1 and MS3)

One area where the social needs of the poor can be served is to use zakat and waqf to provide

financial planning services to the poor. Usually, financial planning is used by the relatively

well-off households as they can afford to pay for these services. However, it is the poor who

need financial advice and planning services more partly due to their lower financial literacy.

In this regard, zakat and awqaf can be used in different ways to enhance savings and asset

management skills and capabilities of the poor. First, funds from zakat and waqf can be used

to provide the poor with specialized financial planning services that increases their

capabilities to manage their finances. Specifically, advice on different issues such as money

management, emergency planning and investment for goals can be provided. Second, zakat

and awqaf can be used to meet specific financial planning goals of the poor. For example, the

funds from these sources can be used to assist emergency planning and investment for goals

of the needy. Third, the funds from zakat, awqaf and other charities can also be used to

enhance financial literacy among the poor.

Allocating Capital/Financing (AC1 and AC3)

Given the charitable nature of zakah and awqaf, these instruments can be used to resolve the

problem the tradeoff between outreach and sustainability to some extents. The social sector can

contribute to inclusive finance in two ways. First, institutions based on zakat and waqf can be

used to directly provide financial services to the poor. Historically, waqf based institutions did

provide loans to the disadvantaged in Turkey and Iran. Cizakca (2004) suggests a model in

which the concept of cash waqf can be used to serve the social objectives in the society. One

use of cash waqf would be to provide microfinance to the poor. Kahf (2004) and Ahmed

(2004 and 2011) propose establishing a microfinance institutions based on zakah and waqf.

They suggest that the returns from waqf can be used to finance productive microenterprises at

subsidized rates.


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Second, zakah and waqf can be integrated with the operations of the existing financial sector to

provide financial services to the financially excluded. For non-profit organizations focusing on

poverty, charitable funds from these sources can provide support to sustain their activities. For

commercial for-profit organizations, zakat and awqaf can provide subsidized sources to funds

that can be used to expand their outreach to the poor. Waqf can also be used to support

financing to the poor minimizing there risks indirectly by providing guarantees. Guarantees

are important for small and medium enterprises (SMEs) to get financing. Shari’ah issue—

guarantees are gratuitous contracts. Some Shari’ah scholars have allowed fees for providing

guarantees under certain conditions. Waqf based institutions can provide guarantees, mainly

to SMEs (small and medium enterprises) and also MFIs.

Managing Risks

As there are some Shari’ah related issues arising in the mudarabah and wakala based models

in terms of gift contributions and distribution of surplus, a waqf based model can be used to

resolve these issues. Other than using waqf-based takaful model for takaful and re-takaful, it

can also be used for mirco-takaful. Microtakaful can be provided by commercial organisations

and nonprofits. While the commercial takaful operators may not serve the poor due to

economic reasons identified above, there is potential for non-profit that cab use zakat and

waqf to provide services to the poor. Another way in zakah and waqf can be used to mitigate

risks face by the poor is to use these funds to pay for takaful contributions. Doing this along

with support with current economic activities would also protect the poor from future risk

events and reduce their vulnerability.

The problems of sustainability and outreach also exists in providing microinsurance/micro-

takaful as information problems of adverse selection and moral hazard will be severe for the

poor (Mosley 2003). Several limitations make providing insurance to the poor difficult which

includes lack of actuarial data on the poor households and limited distribution options make

the provision of insurance riskier and costly. Thus, commercial insurance companies and their

agents and intermediaries shy away from providing insurance to the poor. As a result, there

may be a need for non-profit organizations to provide microinsurance (Roth et.al. 2007).

Nonprofits can provide microtakaful either providing these services agents and intermediaries

of takaful companies or establishing takaful companies. Example non-profits providing

various financial services including takaful to the poor as an intermediary include Peramu

Foundation (Yayasan Pengembangan Masyarakat Mustadh’afiin) based in Bogor, Indonesia


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which is a multi-purpose social development organization. It provides microtakaful using the

indirect approach for both its microfinance clients and non-clients. Whereas it is able to

provide takaful to the poorer sections of population, its breadth of outreach is still small.

Though initially it got some funds from external sources, the scheme is operating at a surplus.

Takaful T&T Friendly Society (TTTFS) is a multipurpose cooperative established under the

Friendly Societies’ Act (18 of 1950) of Trinidad and Tobago. The scheme has covered the

poorer sections of the society but their operations are small with a limited number of

members. TTTFS also has a waqf funds that is used to provide additional financial support in

case of death in of the family of tafaful participants.

8. CONCLUSION

Socio-economic justice and equitable distribution of income are among the paramount goals

of an Islamic economy and these goals must be reflected in an Islamic financial system.

Although most of the Islamic financial sector is modeled similar to their conventional

counterparts, the foundational principles and values requires coming up with alternative

organizations and products that can fulfill social goals. A framework of integrating the

financial and social sectors to create synergies for social impact has been presented in the

paper. Among, other things, this would require strengthening the social sector and

organizational and product diversification in the Islamic financial sector. Going forward, a

key determinant of realizing the synergies of the two sectors to achieve social goals will be a

supporting and facilitating legal and regulatory environment that can promote both

development of the zakat, waqf and the nonprofit profit sector and organizational/product

diversity in the financial sector.

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Ahmed, Habib (2004), Role of Zakah and Awqaf in Poverty Alleviation, Occasional Paper

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Basar, Hasmet. 1987. Management and Development of Awqaf Properties. Research

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BIS (1986), Recent Innovations in International Banking, Bank of International Settlements,

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Chapra, M. Umer (1985), Towards a Just Monetary System, The Islamic Foundation,

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Chieffe, Natalie, & Rakes, Ganas K. (1999), "An Integrated Model for Financial Planning",

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Cizakca, Murat (1996) “The Relevance of the Ottoman Cash Waqfs (Awqaf al Nuqud) for

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