Islamic Safety Nets for the Poor: Pakistan's experience

Islamic finance (IF) plays a pivotal role in the development of the real economy. It helps and stimulates economic activities and entrepreneurship, addresses poverty and income inequality, ensures financial stability, and promotes comprehensive human development in complex societies of the 21st century. IF and Islamic economics (IE) recognize the significant role of the voluntary Islamic financial sectors which uplift poverty, and eliminate homelessness and hunger. Some of the tools being used to accomplish these targets include sadaqat, zakat, Khairat, and the development of the institution of Bait-ul-Mal and qard-e-hasana1 (interest-free loans) in providing relief and assistance to the needy and the sparse population of the country. The voluntary sector can be used not only for poverty alleviation through simple transfers but also as a system of social protection and assistance. 2 These IE and IF tools target a broader group than the zakat recipients, but it can also be used to build social and public institutions in which private for-profit sector may not have incentives to develop but which are however needed for economic development and poverty alleviation of the communities in developing and the developed countries where Muslims are in minorities.