Despite the region’s economic potential, Maghreb countries have been struggling during the last decades with socio-economic issues including poverty, unemployment and raising inequalities. It seems clear that achieving sustainable goals with a “business as usual scenario” is very unlikely especially that COVID-19 pandemic worsened economic indicators and limited governments’ leeway for economic recovery plans. Hence, the need to close the financing gap in order to address current social and economic issues, creates important opportunities for the Zakat and Waqf in the Maghreb region.
The Islamic Social Finance Report 2020 by the Islamic Research and Training Institute is a timely contribution as it sheds light on the potential of Islamic social finance instruments to mobilize funds to alleviate socio-economic challenges in the Maghreb region. In a nutshell, the main takeaway from the above-mentioned report is that instruments such as Waqf and Zakat have a huge potential to raise social funds. For instance, Zakat can mobilize, on average, 3% of the region’s GDP, which accounts to around US$10 billion annually! However, because of lack of supporting institutional environment and infrastructure, such much-needed resources are lost.
The good news is, there is a way out and here’s how:
- First things first: A strong political will
In my opinion, this is definitely the more critical recommendations as all significant improvements depend on it. One example of the lack of political will is the absence of adequate supporting institutions and infrastructure for Waqf and Zakat sectors in most Maghreb countries. Furthermore, even when a dedicated legal and regulatory framework exists, as in the case of Waqf, the reality shows that these institutions are far for producing the expected impact.
- Operational excellence and innovation
The existence of a dedicated of legal and regulatory framework is necessary but not sufficient. Implementing Islamic social finance instruments requires strong, independent and professional management organizations. Waqf and Zakat funds, for instance, should be at par with international best practices in terms of asset management, human resources management, marketing and technology. The case of Fintech illustrate this argument. Technologies such as crowdfunding, blockchain and mobile offer tremendous possibilities for the social sector. Yet, Waqf and Zakat institutions in Maghreb are still turning their back to these innovations.
- Restoring trust
Success of Zakat and Waqf institutions in Maghreb is contingent upon restoring confidence in such institutions. For instance, in countries with an official Zakat Fund (e.g. in Algeria, Libya, Mauritania), donors unfortunately distribute a large proportion of Zakat individually. In the social finance context, the importance of communication, transparency and accountability in alleviating trust-deficit vis-à-vis ordinary citizens can hardly be overemphasized.
- Leveraging synergies with Islamic finance institutions
Both Waqf and Zakat institutions should foster synergies with Islamic financial institutions to develop innovative financial instruments. For example, Islamic financial institutions can, not only facilitate fund raising but also provide investment instruments and blended finance mechanisms. In addition, this synergy allows financial institutions to strengthen sustainable finance positioning.
This article was first published in Islamic Finance news Volume 17 Issue 28 dated the 15th July 2020.