ISLAMIC (MICRO)FINANCE

promise of an eternal hereafter ever-present. Through this remembrance, and a view of existence
as a continuum from the here to the hereafter, “self-interest and social interest are integrated,” 17
making social justice a “shared endeavor…between God and humankind.” 18 Engaging in Islamic
finance can thus be understood as an ethical duty, emphasizing human accountability and “a
fulfillment of this-worldly endeavors in the world to come.” 19
The history of early Islam is also an economic history: The Qur’an, Sunnah, hadith (collected
sayings and acts of the Prophet Mohammed), and fiqh (juridical interpretations of Shari’a) offer
guidance for trade and business, and produced a rich Islamic contract law tradition. The
protracted timeframe of long distance merchant trade for in medieval Islam gave rise to the
mudaraba and musharaka contract—two common Islamic financing contracts today. 20 Guidance
also exists regarding socially just distributions of wealth. In Islam, believers are recognized to
struggle against tendencies toward self-benefit. Self-interest is foundational to the principle of
scarcity in conventional economics, where limited supply interacts with demand. As individuals
are presumed to maximize self-interest, they ostensibly engage in ethical behavior only when it is
in their self-interest to do so. 21
Islamic economics, by contrast, posits a sufficient amount of God-given resources for all human
needs. The strain on the supply or the “perceived scarcity” of goods results from the “lack of effort
and insatiable needs on the part of man,” due in part to haram indulgences or activities counter to
Islamic social justice. 22 Wealth is not inherently immoral; the Qur’an allows for the acquisition of
wealth and acknowledges that wealth disparities will always exist. 23 Redistribution of wealth in the
following forms helps mitigate the most egregious economic inequalities:
• Sadaqat: voluntary charity given without expectation of reciprocity or recognition.
• Waqf (plural, awaqf): immovable property established by an individual owner to be used
in perpetuity for charitable or religious purposes, often mosques, orphanages, or religious
schools.
• Zakat: mandatory alms-giving and one of the “five pillars” of Islam; 24 the Qur’an specifies
an annual tax on all income after expenses to be given to certain categories of recipients.
Believers can use online calculators to determine personal zakat contributions. State
involvement in the collection and distribution of zakat varies widely. In deference to
Malaysia’s religiously pluralistic population, citizens can pay income tax as either a secular
tax or as zakat. Saudi Arabia mandates zakat contributions. In Bangladesh, zakat is private
and voluntary, although subject to social pressure. One Bangladeshi NGO, the Center for
Zakat Management, encourages corporate zakat and aims to channel it toward strategic
development goals. 25
17 Tashkiri 2004, see also Chapra 1979
18 DeLorenzo and McMillen 2007: 137
19 Smith and Haddad 2002: 106
20 Kuran 2010
21 Within this framework, “ethical behavior is a commodity that needs to be economized.” (Sandel 2012: 26)
22 Jackson-Moore 2009: 3
23 Kuran 2010, Lewis and Algaoud 2001, DeLorenzo and McMillan 2007, Meenai and Ansari 2001, Saeed 1996
24 These refer to the mandatory obligations of all Muslims, health and circumstances permitting: daily prayer;
completing the Hajj, or pilgrimage to Mecca; observance of the holy month of Ramadan; reciting the Shahada, or
declaration of faith.
25 For more on the current state of these charitable and wealth redistribution methods, including several country-wise
breakdowns, see IRTI/Thomson Reuters 2014.
ISLAMIC MICROFINANCE: CONTEXT, CULTURE, PROMISES, CHALLENGES | www.gatesfoundation.org 5