Islamic Finance

Could cooperation with U.N. agencies optimize the humanitarian impact of Islamic philanthropy?

This article is produced and sponsored by UNHCR. It was first published in the State of the Global Islamic Economy 2020/21 report produced by DinarStandard and supported by the Dubai Islamic Economy Development Centre. The report can be downloaded from here. 


We live in a world where 1% of humanity has been forced to flee their homes. Nearly 80 million people around the globe are forcibly displaced, including 26 million refugees. If the displaced population were a country, it would rank among the top 20 largest countries in terms of population, bigger than the UK, France, South Africa, or South Korea. This situation becomes more tragic when we realize that 40% of the total are children and that 68% come from only 5 countries, namely Syria, Venezuela, Afghanistan, South Sudan, and Myanmar (Rohingya refugees).

Humanitarian response in these circumstances is made all the more challenging by the protracted and increasingly close rate at which these crises occur: the Syria crisis, which started in 2010, was followed by South Sudan in 2013, the Venezuela refugee crisis in 2014, and the Rohingya situation in 2017. The Sahel situation is the fastest-growing displacement crisis in the world right now. In less than two years, violence and insecurity have pushed 6.6 million people in the central Sahel region (the region in West Africa including Mali, Burkina Faso, and Niger) to acute hunger levels and 1.4 million people into internal displacement.

Adding to the socio-political challenges of displacement, refugees and internally displaced persons (IDPs) have been deeply affected by the COVID-19 pandemic, which came as ‘an emergency on top of an emergency.’ In response, UNHCR is employing its 70-year track record in protecting forcibly displaced populations through prevention and response efforts, prioritizing situations with large populations of refugees and IDPs to ensure that water, sanitation, and hygiene services are reinforced and quickly adapted. However, while the pandemic does not discriminate and can affect anyone, its impact goes beyond health, with more devastating economic consequences for refugees and IDPs, many of whom have lost their jobs and sources of livelihood and hence became more vulnerable than before.

As the displacement crisis is now at an all-time high and widely spread all over the globe, with increasingly difficult circumstances, it is becoming more challenging for concerned entities to cope with the increasing humanitarian needs. Today, with some 60% of the world’s displaced population coming from member states of the Organization of Islamic Cooperation (OIC), exploring the potential of Islamic social finance becomes imperative. Islamic social finance provides a plethora of tools that could be adapted to respond to socio-economic problems. Those include, but are not limited to, zakat, sadaqah, waqf, purification funds, and humanitarian sukuk. Such tools could also combine to maximize the impact by reinforcing the imbedded social responsibility of a global Islamic finance system that is based on equity, solidarity, and doing no harm.

UNHCR’s pioneering Islamic philanthropy activities, primarily through its Refugee Zakat Fund, have set a workable example in this context by providing a trusted, compliant, and above all efficient mechanism for strategic partnerships in support of the forcibly displaced. Launched by UNHCR in 2019, following a two-year pilot, the Refugee Zakat Fund aims at harnessing the power of zakat (and sadaqah) to transform the lives of the most vulnerable refugees and internally displaced families worldwide. The fund is backed by six fatwas, most recently a fatwa by the OIC’s International Islamic Fiqh Academy, and is subject to strict governance, ensuring the utmost transparency at every step - from needs assessment to donation to provision of assistance. To date, the fund has helped more than one million beneficiaries spanning Yemen, Lebanon, Iraq, Jordan, Egypt, Pakistan, Bangladesh, India, and Mauritania.

While establishing grant partnerships with foundations and corporations such as the Sheikh Thani Bin Abdullah Bin Thani Al-Thani Humanitarian Fund, World Assembly for Muslim Youth (WAMY), International Humanitarian and Charity Organization, Islamic Aid and Fajr Capital, UNHCR’s Refugee Zakat Fund has also widened the scope of its strategic partnerships with key Islamic organizations. In May 2020, UNHCR and the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) signed a three-year MoU, intending to further develop Islamic social finance tools for the benefit of the world’s most vulnerable refugees and IDPs. This partnership will allow the exchange of expertise, help create zakat governance standards for international humanitarian organizations, and develop other Islamic philanthropy tools for UNHCR, such as waqf, sukuk, and purification funds, creating a relevant avenue of engagement for Islamic banks and financial institutions.

Diversifying partnerships and funding streams are crucial. Faith-based organizations and thought leaders should work together to exemplify social solidarity tools that worked for centuries, such as Islamic finance and its underlying philanthropy tools. The time is ripe to showcase the efficiency of such tools, especially in environments that provide ample scope for evaluation and lessons learned, such as refugee situations. UNHCR’s Refugee Zakat Fund is an example of this high potential and can be replicated and hopefully emulated by UNHCR and others.

During the first half of this year, UNHCR’s Refugee Zakat Fund was able to support over 1.4 million refugees and IDPs by distributing 100% of zakat received, most of which has been distributed in the form of direct cash assistance to the most vulnerable refugees and internally displaced families. Cash is a quick and efficient way of getting assistance to beneficiaries and empowering families to make the best decisions on how to care for themselves. Cash is particularly useful in making necessary purchases such as rent, food, or other immediate needs in case of lockdown, mitigating some of the negative socio-economic impacts of COVID-19 on families and communities, many of whom have lost their informal daily-wage livelihoods. Another 400 thousand beneficiaries will receive support from other Islamic philanthropy sources, including the Ramadan campaign and sadaqah donations. The underlying philosophy of UNHCR’s Zakat Fund is maximizing the impact of zakat contributions by guaranteeing compliant distribution in their totality. This provides the most efficient vehicle for Muslim donors, including NGOs and zakat houses, to deliver zakat, especially in areas where the distribution cost is high and fund transfers are complicated. The overall objective is a win-win-win scenario where displaced people receive maximum assistance, donors optimize the impact of their contributions, and UNHCR achieves part of its protection mandate. This vision is based on burden-sharing and mutual accountability by capitalizing on the strengths of all partners for the benefit of the vulnerable, the marginalized, and the displaced.

With Islamic philanthropy recently sparking increased interest in humanitarian fora and among international organizations and given the inclusion of refugees in the SDG framework through a dedicated indicator, there is a historic opportunity to strategically prioritize and institutionalize Islamic Philanthropy as an innovative approach to realizing the SDGs. As philanthropy is not considered a sub-sector of conventional finance, likewise Islamic philanthropy has its own specificities and unique objectives that make it distinct from Islamic finance, especially considering the variety in Islamic philanthropy tools. It is, therefore, worth exploring Islamic philanthropy (or, in other words, Islamic social finance) as a stand-alone Islamic economy sector, among halal food, halal cosmetics and pharmaceuticals, modest fashion, halal travel, and media. This process should include a clear understanding of challenges to realize the full potential of Islamic social finance and its socio-economic impacts. In all cases, more focus on Islamic philanthropy within the Islamic economy discussion will further pave the way for philanthropic collaborations among Islamic economy sectors that thrive at their core to be ethical and serve the underprivileged.

© State of the Global Islamic Economy 2020/21 All Rights Reserved


This article is produced and sponsored by UNHCR. It was first published in the State of the Global Islamic Economy 2020/21 report produced by DinarStandard and supported by the Dubai Islamic Economy Development Centre. The report can be downloaded from here



Islamic philanthropy