How Islamic finance is making the financial system more inclusive
By Yasin Patel, Co-founder Autarky Sukuk
Financial inclusion is not only a societal aspiration, but something that fundamentally underpins a healthy and prosperous global economy. There are many new technologies and financial instruments emerging that are set to play a big part in improving the inclusivity of our financial system, Islamic Finance being one which will play a crucial role in enabling access to, and usage of, financial services. Islamic finance products, which are more often than not governed by Shari’ah law, not only adhere to ethical principles, but also offer unique benefits, making them instrumental in fostering financial inclusion on a global scale.
Preventing religious exclusion
Perhaps most obviously, Islamic finance helps those who are excluded from the financial system based on Islamic religious beliefs. As of the 2021 Census, 6.5% of the population of England and Wales are Muslim, all of whom can only use Shari’ah compliant products. Islamic finance can empower these individuals, households and businesses to participate fully in a burgeoning economy and allows them to access financial services that were previously inaccessible to them without having to compromise on their religious beliefs. Having more active economic participants can only positively impact non-religious communities at a local and national level, whilst simultaneously supporting political and social empowerment for the Muslim community.
Social responsibility at the heart of Islamic Finance
All Islamic financial products are guided by Shari’ah principles, which promote ethical and socially responsible investments. Unlike conventional finance, which often engages in speculative practices, Islamic finance avoids gharar contracts – contracts with too many uncertainties or risks. This approach ensures that investments are transparent, secure, and contributing as meaningfully as possible to the economy. By aligning financial activities with these principles, Islamic finance fosters trust among communities, attracting ‘financially avoidant’ individuals who may have been previously hesitant to participate in the financial system.
In the same vein, greenwashing has engendered a lack of trust in ethical investments, and many people may choose not to make certain investments because they don’t believe their investment will be used in an ethical way. Islamic Finance removes all ethical ambiguity, with Islamic finance providers only able to invest in a truly ethical way.
Enabling poorer communities
One of the significant advantages of Islamic finance is its inclusivity. It accommodates a wide array of people, including those from lower-income brackets and marginalised communities. Islamic financial institutions offer products and services that are accessible to individuals who might otherwise face barriers in conventional financial systems. By structuring financial products around the principles of risk-sharing and partnership, Islamic finance empowers individuals to invest in ventures that promote economic growth, regardless of their financial standing.
Islamic finance makes use of a number of Islamic instruments to re-distribute wealth, and build a healthy economy. Zakah, Sadaqat, Waqf, and Qard-al hassan are all financial structures that aim to financially stimulate poorer communities, and address poverty through redistribution of wealth. Over the long-term, this will enable communities with lower levels of financial inclusion to contribute more to the economy, creating change from the bottom up.
These instruments are complimented by the focus Islamic finance places on education and awareness. Islamic financial literacy programmes can empower individuals, enabling them to make informed decisions about their financial future, and helping poorer communities engage with the financial system.
Resilience in times of crisis
The COVID-19 pandemic underscored the importance of financial resilience. Islamic finance demonstrated its robustness during this crisis, as its risk-sharing principles mitigated the impact on vulnerable individuals and businesses. Unlike conventional systems that rely heavily on debt-based financing, Islamic finance’s emphasis on equity and fairness ensures that the burden of economic challenges is distributed more equitably among stakeholders. This resilience not only protects the most vulnerable but also reinforces the credibility and attractiveness of the financial system more broadly, potentially drawing in more participants.
Autarky Sukuk and financial inclusion
As a Shari’ah compliant organisation, Autarky Sukuk is committed to a more equal, inclusive financial system. Consequently, through its charitable giving programme, Autarky Sukuk funds initiatives that have a transformative impact on society, aiming to ensure wealth is distributed as equally as possible, and encouraging shift towards a more equitable and inclusive economic landscape.
Jesse Pitts has been with the Global Banking & Finance Review since 2016, serving in various capacities, including Graphic Designer, Content Publisher, and Editorial Assistant. As the sole graphic designer for the company, Jesse plays a crucial role in shaping the visual identity of Global Banking & Finance Review. Additionally, Jesse manages the publishing of content across multiple platforms, including Global Banking & Finance Review, Asset Digest, Biz Dispatch, Blockchain Tribune, Business Express, Brands Journal, Companies Digest, Economy Standard, Entrepreneur Tribune, Finance Digest, Fintech Herald, Global Islamic Finance Magazine, International Releases, Online World News, Luxury Adviser, Palmbay Herald, Startup Observer, Technology Dispatch, Trading Herald, and Wealth Tribune.