Report on Islamic Social Finance for Social Protection launched at IPS

Zakat-based welfare economy: Experts urge government to address trust-deficit through public-private partnership

Islamic social protection system fulfills multiple SDGs and serves as an excellent tool for building resilience and equilibrium in social and economic lives. For that, effective reforms at the legislative, constitutional, and operational levels are needed to tap the potential of Islamic finance options.

This was stated at an event organized on March 17, 2023 to launch a landmark report, ‘Islamic Social Finance for Social Protection in Pakistan’, based on research conducted by the Institute of Policy Studies (IPS), Islamabad in collaboration with Council of Islamic Ideology (CII) and Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH.

The session, presided by Prof Dr. Qibla Ayaz, chairman, Council of Islamic Ideology (CII), was addressed as the guest of honor by Muhammad Arshad, CEO, Prime Minister’s Health Program, Khalid Rahman, chairman, IPS, Dr. Atiquzzafar Khan, dean social sciences, Riphah International University, Dr. Salman Ahmad Shaikh, director, Islamic Economics Project and principal investigator of the study, and Mohammad Mustafa Khan, technical advisor, GIZ.

Speaking on the occasion, Dr Qibla Ayaz termed the trust-deficit of the people in government institutions and capacity as the major hurdle in the way of creating a Zakat-based welfare system in Pakistan and stressed that foundations grounded in trust are hope for the future of social protection in Pakistan.

Therefore, he stressed, the need is to promote and strengthen trustworthy faith-based social welfare organizations, which must also be given opportunities to flourish. Moreover, the government should initiate partnerships with such private sector organizations. This would result in a more efficient social protection system and build public trust and confidence in the government.

The willingness to take ownership, collective effort, and action-oriented measures on part of institutions are foundational to the success of nations, said Muhammad Arshad. The functioning of institutions like Akhuwat, Alkhidmat Foundation, and Edhi Foundation present a bright side of this potential that must be taken forward to a higher level, with a prominent role of the new generation.

As part of action-oriented measures in this context, health insurance under the Sehat Sahulat Program will be converted to the Takaful mode to align it with the Islamic social finance model next year, he announced.

Khalid Rahman stressed that the issues affecting the overall paradigm of life must not be discussed in isolation, rather a comprehensive facilitating environment must be created to bring into focus multiple factors and issues affecting the country. He further emphasized the integration of relevant institutions, cooperation-based working models rather than competition, public-private partnership, and consensus as crucial to exploiting the existing unexplored potential in the country.

Dr. Salman Shaikh outlined the establishment of a comprehensive Islamic social finance ecosystem with a proper governance framework and administration. He further explained the social security mechanisms in Islam, analyzed various challenges and obstacles encountered in institutionalizing Zakat, Ushr, and Waqf, explored ways to tackle these issues, and proposed policy steps for reforming the administration of Islamic social finance institutions.

Commenting on the report, Dr. Atiquzzafar highlighted that a welfare economy based on Islamic economic principles provides a prospective alternative to the Riba-based economic system. Countries like Malaysia have set a good example in the adoption of 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 take into account the models of these countries to develop an economic fiscal system based on social welfare.

Adding to this, Mustafa Khan stated that diverting the flow of money towards the lowest strata of society and preventing the rich from getting richer and the poor poorer should be the most important principle for any government to adopt in related policy matters.