Islamic Social Enterprise (ISE) is increasingly gaining attention due to its flexibility to perform trading activities for income generation while at the same time offering societal contributions. The role of ISE is greatly viewed from a value-based perspective, where ISE’s objective is to support the Islamic third-sector economy in easing the needs of those unfortunate and middle-class citizens.
In this regard, ISE plays a crucial functional role in generating wealth for societal purpose, either in the form of small independent entities, wing of non-government organisations (NGOs), and local or international bodies. An example would be Islamic Relief, a worldwide Islamic NGO which has its own ISE outlets known as Charity Shoppe. Others that fall under the same criteria include, Waqf Annur Clinics in Malaysia, Baitul-Mukarram Complex in Bangladesh and Baitul Maal wat Tamwil (BMT) in Indonesia.
There are increasing numbers of ISE with varieties of services offered; including education, healthcare, hospitality services and consumer goods trading. These type of institutions are established from capital (in the form of goods or money) that is collected via donations and almsgiving. ISE fulfils the needs of the needy by offering goods and services at an affordable price, while at the same time generating income for its own sustainability. Although there are some understandings on what constitutes ISE, there is still a great deal of uncertainty and imprecision with regards to the definition of ISE.
What is ISE?
ISE is derived from the concept of Social Enterprise (SE), which has been identified as one of the solutions to societal challenges related to inequality caused by the gap between the rich and the poor. SE practices foster the empowerment of communities in a sustainable manner through the promotion of local innovation and support of entrepreneurship in rural communities. The term ‘social enterprise’ is often used interchangeably with several related terms such as volunteerism, social work, welfare and entrepreneurship. The terms infer two areas, namely social and entrepreneurship. These two areas are then combined to form SE.
Although derived from the concept of SE, ISE operates on Islamic principles with additional values. There are three important Islamic concepts that are closely related to every Islamic organisation, including the ISEs:
- al-falah (success in this world and hereafter)
- maslahah (public interest) and
- ’maqasid shari’a (Islamic objectives)
In order to achieve the objectives of al-falah and maslahah, ISE must operate based on maqasid-e- shari’a. For this, there are five basic elements under maqasid-e-shari’a that needs to be considered for every activity and decision made by ISE:
- preservation of faith
- preservation of life
- preservation of intellect
- preservation of posterity and
- preservation of wealth
Hence, ISE may be defined as “An Islamic-based entity that gained funding (in the forms of monetary and non-monetary assets) from Islamic charitable sources (through waqf, sadaqah, hibah, and qard) and channelled them into businesses activities (goods and services) for the purpose to contribute to the needy and at the same time sustain this contribution in a long term.”
Based on this definition, ISE comprises of four main elements:
- objective of ISE as an Islamic-based entity
- Islamic charitable contracts as a source of capital
- activities and
- income generation and distribution.
This definition excludes other Islamic-based entities that directly accept charities and distribute them to the needy, without accumulating those funds.
Selection of Charitable Contracts for ISE as a Source of Capital Understanding the features of each charitable contract allows us to better recognise what constitutes ISE and provides a more solid definition. In addition, understanding these contracts can help participants (managers) fulfil their obligations in dealing and managing the funds. As the basic characteristic of ISE is related to income generation, some Islamic charitable contracts are excluded from the definition of ISE. In this case, ISE is seen as a non-profit organisation that collects Islamic alms such as zakat, infaq, sadaqah, and waqf while at the same time fulfils the social enterprise criteria.
Taking into consideration that these contracts have different characteristics from Shari’a viewpoint, their definitions although inclusive, are relatively conflicting with some of the contract’s requirement. For example, zakat contract requires that collections from donors be distributed to eight types of recipients post-collection. In this case, the collection cannot be kept and used by the management to generate income, thus leading to restrictions in the usage of funds.
However, waqf with its uniqueness and limitations provides huge potential to be used by ISE in the form of capital as long as the requirements on the perpetuity of the original assets are put in place. Comparing all these contracts, sadaqah and hibah are considered as the most flexible contracts since they do not impose any limitations and restrictions in managing capital. This enables ISE to expand capital without any restrictions.
As ISE is also involved in social business, Islamic charity funds should be managed properly and prudently based on trust. Islamic charity funds can be reinvested for future benefits. Investment of funds from donors can be utilised for various business needs and activities such as trading of goods and providing services in areas that fulfil the needs of the poor and related customers. Rather than confining ISE activities within a limited scope, this article includes ISE’s activities that are in line with ISE’s social business activities. As discussed above; sadaqah, waqf, qard hasan and hibah can be utilised by ISE to generate continuous income through businesses, rather than solely distributing these funds directly to recipients, due to their flexibility nature.
The main characteristic that differentiates ISE from other types of institutions has to be its establishment as an economic unit that generates income, where capital is contributed through eligible almsgiving contracts. The distribution of income is made to the recipients (depending on the types of contracts) after deducting all relevant expenses. For instance, for zakat collection, the distribution should be specified only for asnaf. Meanwhile, for waqf-based source, the net income should be distributed to the recipients that are specifically named by the donor, except for waqf am where it is opened to all. In the case of sadaqah, on the other hand, net income can be distributed to the poor and needy without any limitations.
Conclusion
In essence, ISE is distinctively different from other institutions due to its wealth-generating properties and such ISE should aim for al-falah and be guided by maqasid-e-shari’a. ISE contributes to society in several forms. In addition to providing donors with opportunities to give in ways that reflect their interests and offer affordable goods and services to the niche segment of the society, ISE also serves the local community by creating jobs opportunities.
