Strengthening the Management and Accountability of Islamic Social Finance Institutions

The recent Dialektika webinar organised by The Indonesian Association of Islamic Economists in the United Kingdom (IAEI-UK) on 21st June 2025 explored the critical interaction between Islamic social finance and sustainable development. Featuring Dian Andari (Lecturer and Researcher at the Department of Accounting, Universitas Gadjah Mada), and Urip Budiarto (Deputy Director of Komite Nasional Ekonomi dan Keuangan Syariah), the discussion offered a multiperspective view of how Zakat, Infaq, Sadaqah, and Waqf (ZISWAF) can function not merely as tools of religious custom but also as sources of inclusive and equitable economic development. The event’s key highlight was: Islamic social finance must not be treated to the status of a “third sector,” as commonly seen in capitalist economic paradigms. Instead, it should be recognised as a core component of Islamic economics, where social and moral are on equal.

One of the most compelling ideas raised in the webinar was the foundational role of Islamic worldview in shaping accountability within Islamic financial and philanthropic institutions. Dian Andari elaborated on how accountability in Islamic organisations is both outward—toward donors, regulators, and society—and inward, guided by moral and spiritual responsibility. Using the principles of Tauhid (Oneness of God), Khalifah (human stewardship), and Amanah (trust), she argued that Islamic institutions are ultimately accountable not only to their stakeholders but to God. In this sense, accountability becomes a sacred trust, demanding transparency, proper governance, and alignment with Shariah principles. Legal and regulatory frameworks, such as Indonesia’s Law No. 23 of 2011, Government Regulation No. 14 of 2014, and PSAK 109 (an accounting standard for zakat institutions), help institutionalise this accountability. Nevertheless, it was emphasised that compliance alone is not enough without a genuine internalisation of ethical conduct and spiritual integrity.

Urip Budiarto expanded this conversation by focusing on the developmental role of ZISWAF in Indonesia’s broader national economic strategy. Representing the National Committee for Islamic Economy (KNEKS), he explained how Zakat and Waqf are being integrated into the country’s long-term development plans, particularly in the context of poverty alleviation and inclusive growth. Zakat, is primarily used to support consumption, such as through humanitarian assistance, while Waqf contributes to long-term productive investments in areas such as education, healthcare, agriculture, and halal industries. However, the potential of these instruments remains significantly underutilsed. For example, while Indonesia’s zakat potential is estimated at over IDR 300 trillion, while actual collections are only a fraction of its potential due to limited public trust, lack of data transparency, and the fact that much of the zakat is still managed off-balance-sheet. Similarly, although there are an estimated 440,000 waqf land assets, only around 21,000 have been formally certified, which limits their economic mobilization.

Innovation is emerging as a critical response to these gaps. The webinar highlighted financial instruments such as Cash Waqf Linked Sukuk (CWLS), waqf-linked shares, and waqf-based mutual funds and insurance products. These tools represent a significant innovation in Islamic philanthropy being reimagined as investment with sustainable returns and measurable impact, not just as a social donation. Yet even these innovations face structural hindrance. Regulatory obstacles, for example, often burdens smaller zakat institutions with bureaucratic requirements that hinder operational efficiency. Furthermore, there is still a disconnection between religious obligations and market mechanisms regarding corporate zakat. Many businesses see little incentive to pay zakat in addition to taxes and CSR contributions, underlining the need for better integration of Islamic finance with national policy and financial inclusion strategies.

The proposed solutions, as discussed by the speakers, lie in changing the agenda. First, public literacy must be strengthened to raise awareness of ZISWAF’s potential as a developmental tool. Second, blended finance models that combine Islamic social funds with private capital and public sector investment should be more pursued. Third, legal reforms are necessary to allow for flexibility and innovation. Fourth, the importance of spiritual accountability and ethical leadership must be emphasised within zakat institutions. Lastly, robust data management, infrastructure, and transparent reporting mechanisms are important to track the impact.

In conclusion, the IAEI UK webinar highlighted that Islamic social finance when properly governed and innovatively changing, could be an important factor of sustainable development. Instruments like zakat and waqf offer unique perspective of addressing poverty, inequality, and underdevelopment. However, to fully unlock this potential, Islamic financial institutions, regulators, and communities must shift from ritualistic custom to strategic perspective.

Contributor: Muhammad Rizky Radhianityawan
(MSc of Accounting University Manchester, IAEI UK Committee)