Designing a Transformative Programme with Islamic Social Finance Instruments

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One of the hallmarks of Islam is the prominence of social finance. The early revelation is categoric and clear on two elements: duty to Allah and duty to people. The Qur’an describes the peril of the people in the Hereafter and gives two primary causes:

“For he did not believe in Almighty Allah, he never encouraged feeding the hungry.” [Qur’an 69:33-34]

It is no of surprise then that there are several forms of social finance instruments in the portfolio of Islam. These include Qard, Zakat, Waqf, Sadaqa, Islamic Microfinance among others.

The key questions that must be explored given the multitude of instruments are as follows:

  1. Do the different instruments have specific goals and objectives
  2. Is there any connection between these different instruments?
  3. Can these instruments be mobilised into a programme structured for transformative impact?

Even though these instruments share an ultimate objective of supporting people, the reality is that there are different instruments with their own underpinning principles and governance. Clearly, they are different in form and substance. The multiplicity of instruments simply cannot be repetition and duplication; the Shariah is very specific, intelligent, and comprehensive, duplication and repetition is not among the features of the Shariah.

Following from the above premise, we must conclude that each instrument facilitates something different, and as such, the challenge is understanding the jigsaw pieces and connecting the puzzle. It follows that if we piece this puzzle correctly, we will maximise output and efficiency with these instruments. If the different agencies and Islamic social financial institutions collaborate and work together, a transformative programme can be developed. This transformative programme can leverage the strengths of each instrument and allow a beneficiary to journey through the various modules in the programme, starting with Zakat and ending with Microfinancing opportunities.

Overview of the Transformative Programme

The concept of the programme is based on collaboration and sharing data among the various institutions, with a goal to empower people. In addition, these institutions are not and should not simply be about giving grants, but also supporting individuals to be empowered through careers’ advice, recruitment support and basic skills development.

The diagram shows the programme structure:


Zakat plays a specific role in safeguarding people from hitting rock-bottom. It is a safety net and barrier against starvation, hunger, and destitution. Nobody who believes in the sustenance of Allah should be left without a shelter, meal, and clothing. Zakat as a system is a welfare institution which ensures everyone in the community receives the basic services and provisions they need in their emergency and hour of need.

If we consider Zakat against all the other instruments, it cannot be used for those who have surplus wealth, the minimum threshold (Nisab) or who do not qualify for Zakat. Zakat is reserved for those lacking wealth and basic necessities.

Therefore, to get the most out of Zakat and the other social financial instruments, Zakat should be focused and channelled to those who are struggling at the very bottom of the socio-economic ladder, and those who potentially have no possibility of development and need their basic needs sustained on a regular basis.

In the Transformative Programme, Zakat will be the first agency to support those at the very end of the spectrum and at the very bottom of the ladder. The goal will be to support and work with individuals to an extent that they graduate from this module of the programme and are then elevated to the next agency and institution in the Islamic economy, that of Sadaqa.

The transformative intervention of the Zakat institution will be that the eligible individual being supported through Zakat begins to break even with their earnings and expenditures. An individual who is no longer Zakat eligible but still not able to move further up the social mobility ladder, can be supported by the next institution in the Islamic economy of Sadaqa. Once this individual moves to this institution, it will be considered as a transformative intervention for the Zakat institution and having met its KPIs.


The Sadaqa institution in the Islamic economy can support various causes and individuals, that which cannot be supported by Zakat. Hence, the Sadaqa institution should onboard into its programme all those who graduated from the Zakat module in the programme.

Sadaqa can be used for those who have wealth over and above the Zakat-eligibility threshold but are continuously struggling to get out of the vicious cycle of poverty. Similarly, those who cannot receive Zakat funds due to non-financial reasons can also benefit from the Sadaqa module. Hence, the Sadaqa institution can be seen as an extension of the Zakat module, but specific for those that cannot benefit from Zakat.

The transformative intervention of the Sadaqa institution would be that the individual being supported begins to earn a relatively small surplus.


Waqf is a very flexible tool that can be structured in multiple ways and for various benefits. Waqf proceeds can be used anywhere in this spectrum, but if we were to consider this particular model, Waqf can play a dual role of being an emergency fund for those struck by sudden financial burden and a protective fund for those falling down the ladder.

As an emergency fund, Waqf proceeds can be channelled to those who have a surplus in wealth and are not Zakat eligible – thus deemed wealthy from a Zakat perspective – yet overcome by sudden financial distress. As a protective fund, the Waqf instrument is placed in the middle as a stop loss to prevent further loss. It is designed to protect an individual falling further down the ladder.

The Waqf institution would act as a floating module in the programme to support emergencies, bringing stability to individuals wherever they maybe in the programme. The Waqf would very much act as a risk mitigant, ensuring that nobody anywhere is wiped out due to a sudden shock.

A Takaful can also be developed supporting all participants in the programme to absorb the shock. For those that can afford to make the monthly contributions, they would be required to pay a small payment. For those that cannot pay, the Waqf should pay on their behalf.

Qard Hasan

Qard Hasan is an interest-free loan. Qard should not be given to those who are Zakat or Sadaqa eligible as they have very little-to-no means of repaying that Qard. It would just be further burden upon such beneficiaries and increase the risk of further poverty. In fact, giving Qard to such beneficiaries would result in high default risk and high counterparty risk. Extending loans to such individuals is no favour upon them. As such, the instrument of Qard should be used where there is scope of repayment, and the beneficiary is not Zakat eligible but stable enough to earn a larger surplus to repay the loan.

Channelling Qard to beneficiaries who are able to repay loans further acts as an incentive for the individual to maximise the opportunities and earning capabilities they already have.

The Qard institution would support those that have graduated from the module of Sadaqa in the Transformative Programme and be ready to support those needing a short-to-medium term financial uplift.

Micro-Musharaka and Micro-Mudaraba

For those who have graduated from the module of Qard and are now entrepreneurs and business owners, the Transformative Programme should be focused on empowering and scaling these individuals further. Giving debt to them will increase their liabilities in the long term and can impact their future sustainability given the unpredictable and uncertain nature of business, but for the short term, a profit-sharing venture would be in the favour of all parties.

Venture philanthropists and Islamic microfinancing organisations would work with SMEs and seek to deploy capital through micro-Musharaka and micro-Mudaraba. The profit would be shared whilst loss would be borne by both parties in the Musharaka, and by the capital provider in the Mudaraba.


The above programme is an illustration of how different institutions and Islamic social finance instruments can collaborate and work together to create a system of empowerment and a programme that works for the long term. Whilst Zakat has due diligence, there is less of a concern of risk assessments and credit worthiness. Whilst in Qard, due diligence, risk assessment and credit worthiness would be more of a concern. In micro-Musharaka and micro-Mudaraba, along with due diligence and risk assessment, the focus would be a business evaluation and its potential, as opposed to the credit worthiness of the individual.

The instruments clearly have power to change and can be transformative if applied in a programme of change, with clear and specific interventions. Zakat should not be used for everything, and similarly, Qard should not be offered to everyone. Every instrument has a power that the other does not have. When these instruments are used in collaboration and made into a programme, a complete and revolutionising programme can arise transforming lives and uplifting people.

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