Effective reforms advocated to tap potential of Islamic finance

Islamabad : Insisting that Islam's social protection system corresponds to the multiple UN Sustainable Development Goals and serves as an excellent tool to build resilience across social and economic spheres, experts during the launch of a report advocated effective reforms at legislative, constitutional and operational levels to fully tap the potential of Islamic finance.

The report titled ‘Islamic Social Finance for Social Protection in Pakistan’ and based on research conducted by the Institute of Policy Studies Islamabad in collaboration with the Council of Islamic Ideology (CII) and Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH was launched during an event chaired by CII chairman Prof Qibla Ayaz.

Noted among those in attendance were CEO of the government's health insurance Sehat Sahulat Programme Muhammad Arshad, IPS chairman Khalid Rahman, dean of social sciences at the Riphah International University Dr. Atiquzzafar Khan, director of the Islamic Economics Project and principal investigator of the study Dr. Salman Ahmad Shaikh and GIZ technical adviser Mohammad Mustafa Khan.

Dr. Ayaz said the lack of people's trust in government institutions and capacity was the major hurdle to the creation of a Zakat-based welfare system in the country.

He said the foundations grounded in trust promised social protection.

"There's a need for promoting and strengthening trustworthy, faith-based social welfare organisations, which should be given opportunities to flourish. Also, authorities should initiate partnerships with such private sector organisations to produce a more efficient social protection system and build public trust and confidence in them," he said.

Mr. Arshad said the willingness to take ownership, collective initiatives, and action-oriented measures on part of institutions were crucial for the success of nations. He said the successful functioning of Islamic financial institutions and charities like Akhuwat, Al-Khidmat Foundation and Edhi Foundation presented a bright side of that potential, which should be pushed ahead with a prominent role for the new generation.

"As part of action-oriented measures, health insurance under the government's Sehat Sahulat Programme will be converted to the Takaful mode to align it with the Islamic social finance model next year," he said.

Mr. Rehman of the IPS said the issues affecting the overall paradigm of life shouldn't be discussed in isolation and instead, a comprehensive facilitating environment should be there to bring into focus multiple factors and issues affecting the country. He emphasised the integration of the relevant institutions, cooperation-based working models instead of competition, public-private partnerships, and consensus to exploit the unexplored potential in the country.

Dr. Shaikh outlined the establishment of a comprehensive Islamic social finance ecosystem with a proper governance framework and administration. He explained the social security mechanisms in Islam, analysed challenges to the institutionalisation of Zakat, Ushr and Waqf, highlighted ways to tackle those issues, and proposed policy steps for reforming the Islamic social finance institutions. Dr. Atiquzfzafar said a "welfare economy" based on Islamic economic principles was a prospective alternative to the riba-based economic system.

He said Malaysia and some other countries had set a good example by adopting Islamic social finance tools for the social protection of the people. "As the collection and disbursement of zakat is the state’s responsibility, the government should examine the models of these countries to develop an economic fiscal system based on the principle of social welfare," he said.