Economic activities, which are generally divided into three sectors — public, private and non-profit, consist of numerous structured organisations that are involved in different economic activities with different goals and objectives. Organisations were previously classified according to their economic activities. But today’s modern organisations are much more complex social units with diverse characteristics, resulting in the multidimensional classification of organisations. Thus, a combination of organisation’s objectives is defined, giving way to a new type of organisational structure. This includes the establishment of an organisation that combines public and private objectives (e.g. government-linked company), public and non-profit objectives (e.g. statutory body) and non-profit and private objectives (e.g. social enterprise).
Social Enterprise (SE) is one of the many forms of organisations established to fill the gap between traditional for-profit and non-profit structures. The rise of SE has been driven by several push factors, including the lack of involvement of public sector organisations in social activities, conceptualisation of the market, growth of self-reliance and personal responsibility culture, growth of entrepreneurship and also changes in funding within the non-profit sector. SE demonstrates how both social and business objectives can be combined under a single organisation, whose main economic activities are classified as non-profit in nature. Therefore, SE is a combination of characteristics, activities and the entity form itself.
The emergence of Islamic social enterprise (ISE) as a new type of entrepreneurship has fast gained attention from many quarters. Although both SE and ISE have social and economic objectives, the latter is based on Islamic (Shari’a) principles.
BACKGROUND OF ISE
As a type of Islamic organisation, ISE carries Islamic objectives in their operations. Known as maqasid shari’a, Islamic objectives are the vital foundation of every Islamic organisation. The five basic elements under maqasid shari’a that need to be considered in every activities and decision made by ISE are:
(i) preservation of faith; (ii) preservation of life; (iii) preservation of intellect; (iv) preservation of posterity; and (v) preservation of wealth.
Apart from maqasid shari’a Islamic practices are also embedded within the daily operations and activities of ISE, such as obedience to Allah swt and operations based on Islamic teachings or Shari’a principles. Hence, ISE is an entity that is driven by both social and business objectives according to the Islamic principles and values. Based on this argument, the objectives of ISE are based on three main pillars, which are: (i) Islamic social objectives; (ii) Islamic economic objectives; and (iii) other Islamic principles and values.
1st Pillar: Islamic Social Objectives
Under the first pillar, several Islamic principles and values pertaining to social activities can be included as part of the Islamic social objectives of ISE. These Islamic principles and values are as follows:
- Ta’awanu alal birri wattaqwa (Islamic cooperation). Under this concept, ISE is encouraged to deliver its responsibilities on the basis of goodness, which is to help others. This concept is found in verse 2 of Surah Al- Ma’idah.
- Amar ma’ruf nahi munkar (commanding the good and forbidding the evil or jihad). Under this concept, ISE is seen to have a role in helping or abstaining others from reprehensible acts due to their poor
or less fortunate conditions. This concept is referred to in verse 110 of Surah Al-i-Imran.
- Fastabiqul khairat (to be competitive in doing good deeds). Based on this concept, ISE is believed to obey, receive and follow responsibilities given to them according to Shari’a. Fastabiqul khairat is mentioned in verse 148 of Surah Al-Baqarah.
- Maslahah ummah (public interest). This refers to the need for ISE to ensure every action or decision made by them is for the stakeholders’ interests or benefits at large as clearly stated in verse 107 of Surah Al-Anbiya’.
2nd Pillar: Islamic Economic Objectives
The Islamic economic objectives of ISE include several Islamic principles and values related to its economic activities. This includes involvement with Islamic charity funds, avoidance of prohibited economic activities in Islam and ensure that they are not dealing with goods prohibited in Islam such as liquor and pork. ISE is involved with Islamic charity funds for social activities and economic activities. Zakat (charity), waqf (endowment), sadaqah (voluntary charity), hibah (gift) and qard hasan (benevolent lending) are Islamic charity funds that reflect and promote the social tenets of Islam.
Under economic activities, Islamic finance contracts normally used by ISE are wadiah (deposit), wakalah (protection), mudharabah (profit sharing), murabahah (cost-plus financing), musharakah (joint enterprise) and ijarah (Islamic leasing). In addition, economic activities conducted by ISE should not be associated with prohibited economic activities in Islam such as riba’ (interest), gharar (uncertainty), maysir (gambling) and dealings with prohibited goods such as liquor and pork.
3rd Pillar: Other Islamic Principles and Values
Besides Islamic social objectives and Islamic economic objectives, several other Islamic principles and values are also embedded and practiced within ISE.
- ‘Adala is a principle of cooperation with justice, righteousness and also not exploiting others or be exploited by them. The principle of ‘Adala is described in verse 90 of Surah An-Nahl’.
- Ihsan is a principle of good behaviour or acts that benefit others without any obligation and is based on verse 195 of Surah Al-Baqarah.
- Amanah is a form of trust given by Allah to every human to be responsible and accountable as mentioned in verse 58 of Surah An-Nisa’.
- Ikhlas refers to the a principle that every act is done ultimately just for Allah without any expectation of compensations or rewards. The principle of ikhlas is referred to in verse 5 of Surah Al-Bayyinah.
- Rahmah is a principle that reflects humanitarian values and concern for others. This principle is based on verse 107 of Surah Al-Anbiya’.
- Islamic accountability is derived from the bond of relationships between the Islamic organisation and its owner with dual accountability. Dual accountability in Islam refers to hablum minallah (accountability to Allah) and hablum minannas (accountability among the people). Islamic accountability is clearly stated in verse 112 of Surah Al-i-Imran.
In order to ensure that all 3 pillars are put into practise, the role of the board and management of ISE is critically important. As they are responsible for all decisions made, the board and management must bear accountability for any decision and activity conducted by the ISE. In this case, the practice of syura (mutual consultation) among them can help reduce the gaps between personal and organisational goals (both social and economic), which will subsequently help reduce the possibility of making any wrong decisions. Through syura, all members of the board as well as management achieve consensus after considering all possible matters within their combined knowledge and expertise. In Islam, mutual consultation is encouraged as described in verse 60 of Surah At-Taubah.
By adopting syura practices among its board and management, this ensures that all three aspects of ISE from the Islamic perspective are integrated within the ISE’s daily operations. Moreover, syura practice is also believed to solve several issues and challenges faced by ISE such as managing interdependencies between the board and management, managing external stakeholders’ interests, balancing between social and economic objectives and also answering accountability itself.
In a nutshell, it can be concluded that ISE as an Islamic organisation, combines both social and economic objectives that are embedded with Islamic principles and values. In addition, extended from traditional Islamic non-profit organisation, ISE is not only involved with Islamic charity funds but is also able to utilise these funds for economic activities (income generation) and re-investing its profits for social objectives in accordance with Shari’a. For example, re-investments can be done through various business activities such as trading and rendering services, which are in line with its social business activities.
ISE contributes to society in several forms such as giving opportunities for donations and offer affordable goods and services to the niche group of society members. It also serves the local community by creating job opportunities. The employees of ISE can be those who are working as permanent staff with a regular salary or volunteers.
ISE, as a concept, has a huge potential to solve inequality among the Muslim society. ISE not only supports religious works, but can also provide other contributions such as educational projects and community empowerment. This is especially true for Islamic venture philanthropy model, which consists of collaboration among various Islamic philanthropic institutions and Islamic philanthropists from the Muslim world.