Development of Islamic Social Finance Standards Hylmun Izhar Islamic Research and Training Institute A Member of Islamic Development Bank Group Joint Task Force on Islamic Social Finance for Humanitarian Action International Islamic Microfinance for Poverty Alleviattion 14 May 2016 Bogor, Indonesia

Rationale Deficit of trust Credibility of institutions The need to examine the flow of funds from a macro perspective within the system and to investigate artificial barriers that exist between social fund and profit based fund Hence the need to establish regulatory frameworks, guidelines and standards 11/27/2018

Milestones 30 October 2015 4th ZCP Workshop & Public Hearing on ZCP 28-29 August 2014 1st ZCP Workshop Jakarta, Indonesia 5 November 2014 2nd ZCP Workshop Surabaya, Indonesia 30-31 March 2015 3rd ZCP Workshop Aceh, Indonesia 30 October 2015 4th ZCP Workshop & Public Hearing on ZCP 1st Workshop on WCP 11/27/2018

Working Group Members and Observers Pusat Pungutan Zakat Malaysia Lembaga Zakat Selangor Department of Zakat and Income Tax, Saudi Arabia Zakat Foundation of India Asset Development Islamic Religious Council of Singapore Pakistan Institute of Development Economics Islamic Community of Bosnia South Africa National Zakat Fund IHH Humanitarian Relief Foundation, Turkey The Zakat Chamber of Sudan Institute Kajian Zakat Malaysia Islamic Banking Department – OJK Badan Waqaf Indonesia (BWI) UGM Airlangga University, Indonesia Padjajaran University, Indonesia World Zakat Forum University College of Bahrain INCEIF 11/27/2018

Proposed Regulatory Standards of Zakat Management The main objective of the Zakat Core Principles is to strengthen a sound supervisory zakat management and a zakat safety net instrument among Muslim countries. The Zakat Core Principles are the minimum standards to be applied by all zakat supervisions. There are 18 Principles, composed of of “essential criteria” and “additional criteria”.

Essential criteria are elements that should be present in to assess full compliance with a Zakat Principle Additional criteria are elements that may be relevant to the countries with advanced zakat system

Six Major Areas of Zakat Core Principles No. Dimensions ZCP 1 Legal Foundations ZCP 1 – ZCP 3 2 Zakat Supervision ZCP 4 – ZCP 6 3 Zakat Governance ZCP 7 – ZCP 8 4 Intermediary Function ZCP 9 – ZCP 10 5 Risk Management ZCP 11 – ZCP 14 6 Shari’ah Governance ZCP 15 – ZCP 18

Areas of Waqf Core Principles Prudential Regulations and Requirements Waqf Core Principles WCP 8 : Good Waqf governance WCP 9 : Risk Management, WCP 10 : Collection management WCP 11 :Disbursement management WCP 12 : Problem waqf asset, provision & reserve WCP 13 : Transaction with related party WCP 14 :Country and transfer risks WCP 15 : Reputation and Waqif loss risk WCP 16 : Revenue/profit loss sharing risk WCP 17 : Disbursement risk WCP 18 : Operational risk WCP 19 : Shari’ah control and internal audit WCP 20 : Financial reporting and external audit WCP 21 : Disclosure and transparency WCP 22 : Abuse of waqf asset usage & financial services Supervisory Powers, Responsibilities and Functions Waqf Core Principles WCP 1 : Responsibilities, Objectives, powers, independence, accountability and collaboration WCP 2 : Permissible activities WCP 3 : Licensing criteria WCP 4 : Waqf supervisory approach WCP 5 : Waqf supervisory techniques and tools WCP 6 : Waqf supervisory reporting WCP 7 : Corrective and sanctioning powers of waqf supervisor 11/27/2018

On the Establishment of IIFSB In order to produce the sound regulatory framework of Zakat and Awqaf systems as well as to increase the quality of Zakat and Awqaf management, an international collaboration in the form of multilateral standard-setting institution is deemed necessary to explore the potential of Islamic social sector development in the future. IIFSB is expected to govern the effective and efficient Zakat and Awqaf supervision and regulation that would serve as the main reference for the OIC member countries. Furthermore, the regulatory standards issued may also be used in the international financial sector assessment process (FSAP) where Zakat and Awqaf sectors are unique in the Islamic financial system.

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