Abdul Halim bin Ismail: How Islamic banks can better serve the poor

What has been the contribution of Islamic banks to helping the poor and the needy? Almost nothing, and it’s about time to change that, according to Abdul Halim bin Ismail, the recipient of the Royal Award for Islamic Finance 2014.

Bin Ismail is proposing a new way for the Islamic finance sector to do more for society. His idea calls on central banks, most notably in Muslim-majority nations, to issue licenses to Islamic banks that would allow them to establish subsidiaries — or Sadaqah houses — catering to the social welfare sector.

These charity houses would collect donations from the private sector and utilize the funds to make sound investments, with profits supporting programs that improve livelihood, health and education services for disadvantaged populations.

“It would be very humbling and very rewarding if this initiative is implemented in my lifetime,” bin Ismail said. “And I hope to encourage other like-minded individuals to push the envelope and introduce innovations in Islamic finance that will grow the industry and also use it to help others.”

In this exclusive interview, the renowned Islamic finance expert from Malaysia shared his aspirations for the proposal and the Islamic banking sector.

What makes your proposed solution unique, and what do you see as its biggest socio-economic benefits for Muslims?

I believe that the fortunate, including myself, have a responsibility to society, and my proposal is to introduce a charity scheme to be operated by Islamic banks that would make it easier for people to give to the needy and, in the process, raise the bar around the notion of “ethical banking,” which Islamic banking is strongly associated with.

By introducing banking products and services specifically for charity, it would create a radical new way of facilitating donations to society’s most needy that would also be ethical in its approach to charity.

Islamic banking has achieved tremendous growth in the past 30 years, particularly in the private and public sector, but it still needs to address the gap in social welfare by prioritizing charity to the poor as a key area of business.

There are over 1 billion Muslims in the world today and in Southeast Asia, the population is 250 million. Sadly, poverty is a common problem among many Muslim-majority nations. Over half a billion of the world’s poor, who earn below $2 per day, come from Indonesia, Bangladesh, Pakistan, Nigeria and Egypt.

These are often people who have tried very hard, but they have not had the good fortune to secure all that is required to make ends meet and sustain a certain quality of life. These are the people we can and should reach out to and help, by providing them the support and opportunity they need to rise from poverty.

I hope the Sadaqah houses will result in a sustainable charity system for the less fortunate, raising millions and effecting real, lasting change.

What is the level of interest in contributing to these efforts?

I believe my proposal for Sadaqah houses taps into the social sensibilities of Muslims around the world as it makes it easy for individuals to contribute to charity in perpetuity, with their donations channelled toward initiatives that will allow society to continue benefiting from in the long term.

Charity is one of the main tenets of Islam, which teaches its followers to give to the less fortunate and that they will be rewarded for their good deeds in the thereafter. Muslims will view these donations as an investment — an investment in their lives in the thereafter, as these contributions to charity in perpetuity continue to be counted as good deeds even after death.

However, it is crucial for the banks to develop an efficient and transparent transaction system. The demand is already there, but there is not yet a system in place where transaction is easy and non-time consuming for people who have the means and the desire to give to charity. Currently, these people don’t know who to reach out to, and the proposed Sadaqah house can facilitate that process.

What would also get more people to contribute is if banking groups can come up with highly differentiated or imaginative products under the Sadaqah house.

I do also see interest coming from the non-Muslim segment, the same way this segment has supported the growth of Islamic banking in the past 30 years. Though Islamic banking was initially aimed at addressing the banking requirements of the Muslim community, its current wider acceptance across the world has been encouraging. I believe the appeal is in the fact that their donations will be channelled towards initiatives which society can benefit from for the long term.

What role does Islamic financing play in financial inclusion?

Islamic finance is deeply connected with the real economy, offering ethical investments and funding options for businesses. The principles of Islamic finance also encourage inclusiveness and collaboration to create a fair and equitable financial system that is accessible to all.

Islamic finance has achieved such phenomenal growth in the past 30 years, supported by both Muslims and non-Muslims alike. It has expanded its presence to almost everywhere in the world. However, these growths are limited to the public and private sector so I see much potential for Islamic banking to achieve further growths.

Its development is incomplete when it comes to the social welfare sector. There are areas where more could be done to make Islamic banking sector more aligned to Islamic principles. In particular, Islamic banks need to address the gap in social welfare by prioritizing charity to the poor as a key area of business.

With my proposal, I hope to see banks integrate charity into their businesses, which would benefit families living below the breadline, the homeless and the long-term unemployed from all over the world.

How can banks better serve the poor and the needy? Share your thoughts using the comment section below.

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