POINT OF

POINT OF
VIEW
VIEW

ISLAMIC
SOCIAL
ENTERPRISE
AND ITS
POTENTIAL ROLES
DURING COVID-19
Muhammad Iqmal Hisham Kamaruddin
Graduate Fellow, Universiti Sains Islam Malaysia

T
he 2019 pandemic caused by the coronavirus disease (COVID-19) is a new tragedy for the human
civilisation. It was first identified in December 2019 in Wuhan, China and spread rapidly, resulting in an
on-going global epidemic. As COVID-19 primarily spreads between people during close contact, either
via coughing, sneezing, or talking, social distancing became the leading prevention approach adopted by
most countries, and have introduced restrictions on movements and lockdown orders.

Due to the lockdown order, economic activities have been
affected and as a result, many are losing their jobs and income.
Although charitable institutions, including the Islamic social
finance instruments such as zakat, sadaqah and waqf are able
to secure basic needs for the underprivileged individuals, other
groups of the community are also suffering in the wake of the
COVID-19. The unemployment rate is increasing and many
businesses are closed for good. Thus, this is a likely sign that a
bankruptcy threat is looming and its unexpected effect on the
non-performing loans taken by these unfortunate people, and
towards the financial institutions and the economy as a whole.
The United Nation University estimated that the economic
fallout could push an estimated half a billion people into poverty
and take global development progress back three decades,
primarily in emerging economies. In higher-income countries,
stimulus packages are unlikely to reach those already excluded
from the economic mainstream. Recently, the International
Labour Organization (ILO) warned that the steep decline in the
ability to work and operate due to the pandemic is threatening
the livelihoods of 1.6 billion workers in the informal economy,
almost half of the global workforce.
Therefore, in order to balance the economic situation during
the COVID-19, a vital solution is needed. In this situation, the
existence of Islamic social enterprise (ISE) is crucial in order to
solve market failures and demonstrate a sustainable model to
build inclusive economies with resistance to the crisis including
the COVID-19.
Effect of COVID-19 on Islamic Economy
It is too early to examine the impact of COVID-19 on the Islamic
economy. However, based on previous evidences, during the
global financial crisis 2008-2009, Islamic economy proved to
be resilient because of the nature of Islamic finance and the
social finance products and instruments, which offer a balanced
solution to channel funds to end-users and to not increase the
level of debt at the same time.
The early positive impact of Islamic finance during the COVID-19
can be assessed from the Islamic capital market performance.
Despite the adverse market movement in the first quarter of
2020 due to the COVID-19, S&P and Dow Jones reported

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that their Islamic indices outperformed their conventional
benchmarks. This happened due to the advantages set by
the Shari’a screening criteria where it forbids investment in
excessively leveraged companies. In this case, Islamic indices
with low leverage portfolios performed better in down
markets and had better stock selection albeit with lower
diversification.
Meanwhile, the Islamic Development Bank (IsDB) through its
Islamic financial instruments is also contributing to support
Islamic economies. So far, a total of USD2.3 billion has been
approved to be channelled towards preventing, mitigating
and recovering from the COVID-19 pandemic. The latest
contribution made by the IDB is to support innovation
in minimising the adverse impact of the pandemic on its
member countries.
Why Islamic Social Enterprise?
In general, ISE is one of the many forms of organisations
established to fill the gap between the traditional for-
profit and the not-for-profit structures. The rise of ISE 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. ISE
demonstrates how both social and business objectives can
be combined under a single entity, whose main economic
activities are classified as non-profit in nature. Therefore, it
can be concluded that the existence of ISE is to solve the
market and the government failures by serving the excluded
and vulnerable populations, who are most at risk to the
impacts of COVID-19.
W W W. I S F I R E . N E T
POINT OF
VIEW
By referring to the COVID-19 situation from a maqasid al-
Shari’a perspective, Islamic finance and social finance can
become effective tools to support the public especially in the
aspect of wealth preservation (hifz-ul-mal). This is because
Islamic finance and social finance has the ability to provide
social assistance and financial subsidies to support the burden
faced by the common person. Besides consisting of a wide
range of products and instruments, Islamic finance and social
finance is also able to have a positive impact on individuals,
industries, communities, nations and even the global market.
Islamic finance and social finance can play significant roles
both in short-term and long-term stages to overcome the
impact caused by the COVID-19. One of the main players
who able to integrate Islamic finance with social finance is
the Islamic social enterprise.
It is an undeniable fact that COVID-19 has impact almost
every economic sector including the ISE. In this case,
although ISE have benefited from tax exemption and gained
support from the public, its economic activities are affected
along with the private sector organisations. However, as ISE
possessing integrated characteristics including involvement
with Islamic social and economic finance, it has been seen
that ISEs have a bright potential to overcome the COVID-19
impacts.
For instance, as ISEs are able to collect and distribute Islamic
charitable funds such as zakat, sadaqah, waqf and qard
hasan, these instruments can be used as an emergency
support to solve the adverse impacts of the crisis. Zakat
funds particularly can be used to support those who have
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been facing financial insecurity, as one of the main rules of
zakat is that it needs to be distributed within one year of
it being collected, this urgent factor suits the nature of the
COVID-19 pandemic.
Besides, qard hasan as a free-interest loan can also be
offered to individuals and businesses to function until the
environment is stabilised. This will especially allow business
owners to continue to function sustainably and avoid layoffs
and closure, they can also run incubation and acceleration
programmes that would guide and invest in entrepreneurs
by nurturing them and supporting their solutions. In this
case, ISEs can benefit if they receive qard hasan from Islamic
banks as support for them to maintain their operations and
activities during such crisis, especially the COVID-19.
Moreover, several Islamic finance instruments such as waqf
and sukuk also can be used by ISEs for recovery and resilience
in the economy. Waqf is potentially becoming another
important contributor in the fight against the COVID-19
impact. Financial and non-financial waqf can be dedicating
for use by ISEs for social purposes or as a supporting
mechanism to the needy, creating a long-term impact for the
beneficiaries. For example, waqf properties owned by ISE can
be utilised by waving its rental fees for a certain period of
time to ease the burden of the tenants.
While, sukuk can become the source for the government
and social organisations, such as ISE, to fund the various
development projects for the benefit of the public by seeking
investors who are looking for social investment. In the case of
COVID-19, sukuk can be issued by the government to have
adequate funds for them to conduct fiscal policies such as
providing adequate equipment for the health care industry
that is in the front line of the battle. Besides, the government
can also channel part of the sukuk funds to ISEs to conduct
social activities as feeding the hungry, improving access
to clean water, ensuring the learning of children as well as
keeping in-touch with the public as a whole to warrant their
mental health and wellbeing.
How Islamic Social Enterprise Can Fight
COVID-19?
After discussing the potential roles of ISE during the
COVID-19 due to its special characteristics, another
question was raised. How are ISEs able to fight the impact
of COVID-19? To answer the question, several initiatives can
be proposed. For instance, food and financial support can be
provided for individuals whose incomes have been affected
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due to the lockdown or any other impact of the pandemic. In
this case, ISEs can cooperate with zakat and waqf institutions
by using zakat, waqf and sadaqah funds to provide such aids.
Besides, ISE also can give similar aids for COVID-19 front-
liners such as doctors, nurses, polices and soldiers in terms
of cash and food.
Moreover, ISEs also can support in fighting the COVID-19
by providing or even producing medical equipment such as
surgical masks, face shields, personal protection equipment
(gowns, hoods and boot covers), gloves, medical material
(e.g. filling hygienic gels) and others. In fact, some other social
activities can also be conducted by ISEs including performing
disinfecting processes in public areas and buildings such as
mosques, halls, bus stops, public centres and schools. ISE
can also provide essential medical healthcare at these public
areas, such as face masks, hand washes and hand sanitizers
for public use.
Also, ISEs who are involved in the agricultural sector can play
their part by hiring those who are unemployed due to this
epidemic and expand their productions by collaborating with
local governments to provide them abundant land for this
purpose. This is because currently majority of the countries
are affected and the lockdown order has restricted the
import of goods including food and this initiative will be able
to maintain a sustainable food chain in the future as well.
Furthermore, COVID-19 also has a profound mental effect
on people as a whole. ISE can support the mental well-
being of people by providing motivational videos and remote
mental health services or encouraging people to exercise and
eat well. Besides, free mental health sessions can also been
provided to overcome this issue. Similarly, awareness on
COVID-19 can also be provided by ISEs by encouraging and
supporting health campaigns such as ‘stay at home’ activities
and self-healthcare activities.
Conclusion
In a nutshell, it can be concluded that ISEs have potential
roles to play, especially in promoting the well-being of the
economy and the people during the COVID-19 pandemic.
Besides, the integration of Islamic finance with social finance
by the ISEs also made them capable of delivering both the
social and economic objectives. It is believed that with the
advantage of technology, ISE will be able to achieve the
maqasid al-Shari’a through these Islamic finance and social
finance instruments, i.e., to treat every member of the
ummah as brothers and sisters, and reach them with right
intention in terms of a pandemic-like situation.