Social Finance and Financing Social Enterprises: An Islamic Finance Prospective


Enterprises that have a dual objective of generating positive social impact and financial economic benefit turned to be vital with the increased level of poverty and other major social problems accompanied with limited public spending. The growth and development of social impact enterprises is fundamental for all economies and financing them is a challenging issue where they struggle to accessing finance. Traditional financial instruments are difficult to access especially after the recent financial crisis due to that social enterprises face high risk regarding generating profit, problems of governance model, and lacks of performance measurement valuations especially when it comes to measuring social value. On the other hand, Islamic finance has experienced progressive growth in the last years and could play significant role not only limited to Muslims but also for Non-Muslim countries. Advances in Islamic Finance and Social Finance demonstrate an increasing global attention for finding alternative ways of financing and creating value in the society since both of them have similar ethical dictates. Sharia that regulates all Islamic financial instruments and investments and its screening methodology prohibits unethical businesses and practices that are similar to the negative screening methodology adopted by the socially responsible investment which make both of them connected to Social Finance. This paper is exploratory in nature and argues that Islamic finance could be a viable potential alternative with its diversified instruments for financing social impact enterprises. The paper provides insights for researchers, decision makers, and practitioners of how Islamic finance provide valid financing tools for social finance through mobilizing private funds allocated from investors who seeks investments that generate both social and economic value.


S. Johnson, “Literature review on social entrepreneurship,” Can. Cent. Soc. Entrep., vol. 16, p. 23, 2000.

J. T. Zietlow, “Releasing a new wave of social entrepreneurship,” Nonprofit Manag. Leadersh., vol. 13, no. 1, pp. 85–90, 2002.

J. Almarri and J. Meewella, “Social entrepreneurship and Islamic philanthropy,” Int. J. Bus. Glob., vol. 15, no. 3, pp. 405–424, 2015.

J. Robinson, J. Mair, and K. Hockerts, International perspectives on social entrepreneurship. Palgrave Macmillan, 2009.

H. Abazi-Alili, V. Ramadani, V. Ratten, B. Abazi-Çaushi, and G. Rexhepi, “Encouragement factors of social entrepreneurial activities in Europe,” Int. J. Foresight Innov. Policy, vol. 11, no. 4, pp. 225–239, Jan. 2016.

P. P. Biancone and M. Radwan, “Social Finance And Unconventional Financing Alternatives: An Overview,” Eur. J. Islam. Finance, no. 10, 2018.

T. Cooney, J. Manning, A. Arisha, and P. Smyth, “Muslim entrepreneurship in Ireland,” 2011.

J. Henderson, “Building the rural economy with high-growth entrepreneurs,” Econ. Rev.-Fed. Reserve Bank Kans. City, vol. 87, no. 3, p. 45, 2002.

S. A. Zahra, H. N. Rawhouser, N. Bhawe, D. O. Neubaum, and J. C. Hayton, “Globalization of social entrepreneurship opportunities,” Strateg. Entrep. J., vol. 2, no. 2, pp. 117–131, 2008.

P. P. Biancone and M. Radwan, “International Entrepreneurship from an Islamic (Sharia Compliant) Prospective ‘The Opportunities for Western Economies,’” World J. Account. Finance Eng., vol. 1, no. 1, p. 12, 2017.

H. Kabir, “Entrepreneurship, Islamic Finance and SME Financing Lecture by Professor Dr M. Kabir Hassan, IFSB 7th PUBLIC LECTURE ON FINANCIAL POLICY AND STABILITY, 2015.,” 2015. .

A. S. Spencer, B. A. Kirchhoff, and C. White, “Entrepreneurship, innovation, and wealth distribution: the essence of creative destruction,” Int. Small Bus. J., vol. 26, no. 1, pp. 9–26, 2008.

A. Mirakhor, A. Ng, and M. H. Ibrahim, Social capital and risk sharing: An Islamic finance paradigm. Springer, 2015.

Z. Karake-Shalhoub, “Private equity, Islamic finance, and sovereign wealth funds in the MENA region,” Thunderbird Int. Bus. Rev., vol. 50, no. 6, pp. 359–368, Nov. 2008.

B. J. Grim and M. S. Karim, “The future of the global Muslim population: projections for 2010-2030,” Wash. DC Pew Res. Cent., 2011.

T. The Banker, “Top Islamic financial institutions 2015,” 2015.

M. O. Mohammad and S. Shahwan, “The objective of Islamic economic and Islamic banking in light of Maqasid Al-Shariah: A critical review,” Middle-East J. Sci. Res., vol. 13, no. 13, pp. 75–84, 2013.

S. M. S. Azman and E. R. A. E. Ali, “The potential of innovative financial tools: Social Impact Bond (SIB) and Sustainable and Responsible Investment (SRI) sukuk, towards the sustainable growth of the Islamic finance industry,” Eur. J. Islam. Finance, no. 4, 2016.

S. Hamid, A Study on the Corporate Image of Zakat Institutions. Master of Science (Marketing) dissertation), International Islamic …, 2013.

L.-P. Dana, Entrepreneurship and Religion. Edward Elgar Publishing, 2010.

G. Rexhepi and N. Ramadani, “Ethics and Social Responsibility in Islamic Finance,” in Entrepreneurship and Management in an Islamic Context, Springer, 2017, pp. 133–142.

S. Sairally, “Community development financial institutions: Lessons in social banking for the Islamic financial industry,” Kyoto Bull. Islam. Area Stud., vol. 1, no. 2, pp. 19–37, 2007.

M. Khalid, “Waqf as a Socially Responsible Investment instrument A case for Western Countries,” Eur. J. Islam. Finance, no. 1, 2015.

M. U. Chapra, S. Khan, and A. Al Shaikh-Ali, The Islamic vision of development in the light of maqasid al-Shariah, vol. 15. Iiit, 2008.

M. N. Siddiqi, Riba, bank interest and the rationale of its prohibition. Islamic Research and Training Institute Jeddah, Saudia Arabia, 2004.

M. F. Khan, “Social Dimensions of Islamic Banks in Theory and Practice,” Manuscr. Islam. Res. Train. Inst. Islam. Dev. Bank, 1997.

P. P. Biancone and M. Radwan, “EUROPEAN COMPANIES: EVALUATION FOR SHARIA COMPLIANCE ‘OPPORTUNITIES AND CHALLENGES,’” Eur. J. Islam. Finance, vol. 0, no. 5, Jul. 2016.

M. A. El-Gamal, Islamic Finance: Law, Economics, and Practice. Cambridge University Press, 2006.

D. Mauro et al., “Islamic Finance in Europe,” Social Science Research Network, Rochester, NY, SSRN Scholarly Paper ID 2251204, Apr. 2013.

M. K. Hassan and I. I. I. William J. Hippler, “Entrepreneurship and Islam: an overview,” Econ J. Watch, vol. 11, no. 2, pp. 170–179, May 2014.

S. S. Rehman, “Globalization of Islamic Finance Law,” Wis. Int. Law J., vol. 25, p. 625, 2008 2007.

S. Ullah and D. Jamali, “Institutional investors and corporate social responsibility: the role of Islamic financial institutions,” Int. Rev. Bus. Res. Pap., vol. 6, no. 1, pp. 619–630, 2010.

M. Ayub, Understanding Islamic Finance. John Wiley & Sons, 2009.

A. Abdul-Rahman and S. M. Nor, “Challenges of profit-and-loss sharing financing in Malaysian Islamic banking,” Malays. J. Soc. Space, vol. 12, no. 2, pp. 39–46, 2016.

P. P. Biancone and M. Radwan, “Sharia-Compliant financing for public utility infrastructure,” Util. Policy, 2018.

N. Piper, “Assessing the Potential for Shari’ah - Compliant Project Finance in India,” Columbia J. Transnatl. Law, vol. 47, p. 418, 2009 2008.

P. P. Biancone and M. Radwan, “Sharia Compliant ‘Possibility for Italian SMEs,’” Eur. J. Islam. Finance, no. 1, 2015.

M. N. Siddiqi, Riba, bank interest and the rationale of its prohibition. Islamic Research and Training Institute Jeddah, Saudia Arabia, 2004.

J. G. Vargas-Hernández, M. R. Noruzi, and N. Sariolghalam, “An Exploration of the Affects of Islamic Culture on Entrepreneurial Behaviors in Muslim Countries,” Asian Soc. Sci., vol. 6, no. 5, p. 120, Apr. 2010.

I. Warde, Islamic Finance in the Global Economy. Edinburgh University Press, 2000.

B. Huybrechts and A. Nicholls, “Social entrepreneurship: definitions, drivers and challenges,” in Social entrepreneurship and social business, Springer, 2012, pp. 31–48.

R. Spear, C. Cornforth, and M. Aiken, “Spear, R., Cornforth, C., & Aiken, M. (2009). The governance challenges of social enterprises: evidence from a UK empirical study.,” Ann. Public Coop. Econ., pp. 247–273, 2009.

J. A. Kerlin, “Social enterprise in the United States and Europe: Understanding and learning from the differences,” Volunt. Int. J. Volunt. Nonprofit Organ., vol. 17, no. 3, p. 246, 2006.

B. Doherty, H. Haugh, and F. Lyon, “Social enterprises as hybrid organizations: A review and research agenda,” Int. J. Manag. Rev., vol. 16, no. 4, pp. 417–436, 2014.

S. Finance, “A technical guide to developing social impact bonds,” Lond. Soc. Finance Retrieved Httpwww Socialfinance Org UksitesdefaultfilesTechnical Guid. Pdf, vol. 25, p. 2015, 2011.

I. So and A. Jagelewski, “Social Impact Bond: Technical Guide for Service Providers,” MC F Invest. Ed, p. 36, 2013.

“Bennet, M. (2015). Vaccine Sukuks: Islamic securities deliver economic and social returns.” .

S. DRISSI, “Islamic Microfinance: Locomotive In The Service Of Financial Inclusion,” Eur. J. Islam. Finance, no. 7, 2017.

M. Asutay, “Islamic microfinance: fulfilling social and developmental expectations,” Islam. Finance Inst. Mark., pp. 25–29, 2010.

P. P. Biancone and S. Secinaro, “The equity crowdfunding italy: a model sharia compliant,” Eur. J. Islam. Finance, no. 5, 2016.

M. Cizakca, “Cash waqf as alternative to NBFIs Bank,” in International Seminar on Nonbank Financial Institutions: Islamic Alternatives, 2004.

M. A. El-Gari, “The qard hassan bank,” in International Seminar on Nonbank Financial Institutions: Islamic Alternatives, 2004, pp. 1–3.

M. Ainley, A. Mashayekhi, R. Hicks, A. Rahman, and A. Ravalia, “Islamic finance in the UK: Regulation and challenges,” Financ. Serv. Auth. FSA Lond., 2007.

A. J. Alexander, “Shifting Title and Risk: Islamic Project Finance with Western Partners,” Social Science Research Network, Rochester, NY, SSRN Scholarly Paper ID 1666063, Apr. 2011.

S. Ilias, Islamic finance: overview and policy concerns. DIANE Publishing, 2009.

R. A. A. Karim, “International accounting harmonization, banking regulation, and Islamic banks,” Int. J. Account., vol. 36, no. 2, pp. 169–193, May 2001.