In the name of God, the compassionate the merciful
Islamic finance can be utilized to address social security challenges not only to individual members of a society but also to whole communities and their habitats, through providing financial solutions that align with Islamic principles.
In fact, in Islam, any action that causes hardships and difficulties for ordinary people is viewed as spreading corruption in the land. Likewise, any action that eases the hardships and difficulties of ordinary people is viewed as spreading kindness in the land.
Social security in general terms refers to a system of programs and policies that provide financial support and assistance to individuals and families facing various life risks and challenges. Its primary objective is to ensure a basic level of economic security and well-being for the members of society. Social security programs typically encompass a wide range of benefits and services.
Here are some ways Islamic finance can contribute to social security:
Microfinance: Islamic microfinance institutions provide financial services to low-income individuals and small businesses who may be excluded from traditional banking systems. By providing interest-free loans, Islamic microfinance helps empower individuals to start businesses, generate income, and improve their economic well-being, thereby enhancing social security and financial inclusiveness.
Social Impact Investing: Islamic finance can facilitate social impact investing, where funds are directed towards ethical and socially responsible projects. Investments can be made in sectors such as clean energy, affordable housing, healthcare, education, or microfinance, which contribute to the social security of communities.
Takaful: Takaful is an Islamic alternative to conventional insurance. It operates on the principles of solidarity and mutual assistance, where participants contribute to a shared pool to provide financial protection against risks. Takaful can be tailored to provide coverage for social security needs, such as health, disability, or retirement, ensuring the welfare and security of participants.
Social Sukuk: Sukuk are Islamic bonds used for financing various projects. Social Sukuk can be issued to fund infrastructure projects that enhance social security, such as hospitals, schools, affordable housing, and utilities. Investors earn returns from the income generated by these projects, while simultaneously contributing to the social well-being of society.
Zakat Administration: the government and Islamic finance institutions that have been entrusted can play a role in efficiently collecting and distributing Zakat funds. By ensuring proper Zakat collection and management, Islamic finance institutions can facilitate the distribution of these funds to eligible individuals and communities in need, addressing social security challenges on a large-scale basis.
Waqf: Waqf endowments can be established to support social security initiatives and provide sustainable funding for projects like healthcare facilities, educational institutions, or elderly care centres. The income generated from these endowments can be used to address social security needs and provide long-term support to vulnerable populations.
By leveraging the principles and instruments of Islamic finance, social security needs can be met in a way that aligns with ethical principles, fosters socio-economic development, and promotes equity, justice-belongingness, and community well-being. And Allah knows best! “Praise be to God in whose favour good deeds are accomplished”- (ibn Maja 3803).
YAHAYA ILIASU MUSTAPHA
The writer is an Islamic Banking and Finance patron and advocate in Ghana and beyond.
Email: yahaya0246873726@gmail.com
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