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ISLAMIC SOCIAL
ENTERPRISE
FOR COMMUNITY
EMPOWERMENT
AND
ENHANCEMENT
MUHAMMAD IQMAL HISHAM KAMARUDDIN
UNIVERSITI SAINS ISLAM MALAYSIA

Islamic Social Enterprise (ISE) is increasingly gaining attention due to its flexibility to perform trading activities
for income generation while at the same time offering societal contributions. The role of ISE is greatly viewed
from a value-based perspective, where ISE’s objective is to support the Islamic third sector economy in easing
the needs of those unfortunate and middle-class citizens.

In this regard, ISE plays a crucial functional role in generating wealth for societal purpose, either in the form of
small independent entities, wing of non-government organisations (NGOs), and local or international bodies.
An example would be Islamic Relief, a worldwide Islamic NGO which has its own ISE outlets known as Charity
Shoppe. Others that fall under the same criteria include, Waqf Annur Clinics in Malaysia, Baitul-Mukarram
Complex in Bangladesh and Baitul Maal wat Tamwil (BMT) in Indonesia.

There are increasing numbers of ISE with varieties of services offered; including education, healthcare,
hospitality services and consumer goods trading. These type of institutions are established from capital (in
the form of goods or money) that is collected via donations and almsgiving. ISE fulfils the needs of the needy
by offering goods and services at an affordable price, while at the same time generating income for its own
sustainability. Although there are some understandings on what constitutes ISE, there is still a great deal of
uncertainty and imprecision with regards to the definition of ISE.

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What is ISE? Hence, ISE may be defined as “An Islamic-based

ISE is derived from the concept of Social Enterprise
(SE), which has been identified as one of the solutions
to societal challenges related to inequality caused
by the gap between the rich and the poor. SE
practices foster the empowerment of communities
in a sustainable manner through the promotion of
local innovation and support of entrepreneurship
in rural communities. The term ‘social enterprise’
is often used interchangeably with several related
terms such as volunteerism, social work, welfare and
entrepreneurship. The terms infer two areas, namely
social and entrepreneurship. These two areas are then
combined to form SE.
Although derived from the concept of SE, ISE
operates on Islamic principles with additional values.
There are three important Islamic concepts that are
closely related to every Islamic organisation, including
the ISEs:
i. al-falah (success in this world and hereafter)
ii. maslahah (public interest) and
entity that gained funding (in the forms of monetary
and non-monetary assets) from Islamic charitable
sources (through waqf, sadaqah, hibah, and qard) and
channelled them into businesses activities (goods and
services) for the purpose to contribute to the needy
and at the same time sustain this contribution in a
long term.”
Based on this definition, ISE comprises of four main
elements:
• objective of ISE as an Islamic-based entity
• Islamic charitable contracts as a source of capital
• activities and
• income generation and distribution.
This definition excludes other Islamic-based entities
that directly accept charities and distribute them to
the needy, without accumulating those funds.

iii. ’maqasid shari’a (Islamic objectives)

In order to achieve the objectives of al-falah and

maslahah, ISE must operate based on maqasid-e-
shari’a. For this, there are five basic elements under
maqasid-e-shari’a that needs to be considered for
every activity and decision made by ISE:

(i) preservation of faith

(ii) preservation of life

(iii) preservation of intellect

(iv) preservation of posterity and

(v) preservation of wealth

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Selection of Charitable Contracts for ISE as a
Source of Capital
Understanding the features of each charitable contract
allows us to better recognise what constitutes ISE
and provides a more solid definition. In addition,
understanding these contracts can help participants
(managers) fulfil their obligations in dealing and
managing the funds. As the basic characteristic of
ISE is related to income generation, some Islamic
charitable contracts are excluded from the definition
of ISE. In this case, ISE is seen as a non-profit
organisation that collects Islamic alms such as zakat,
infaq, sadaqah, and waqf while at the same time fulfils
the social enterprise criteria.
Taking into consideration that these contracts have
different characteristics from Shari’a viewpoint, their
definitions although inclusive, are relatively conflicting
with some of the contract’s requirement. For example,
zakat contract requires that collections from donors
be distributed to eight types of recipients post-
collection. In this case, the collection cannot be kept
and used by the management to generate income,
thus leading to restrictions in the usage of funds.
However, waqf with its uniqueness and limitations
provides huge potential to be used by ISE in the
form of capital as long as the requirements on the
perpetuity of the original assets are put in place.
Comparing all these contracts, sadaqah and hibah
are considered as the most flexible contracts since
they do not impose any limitations and restrictions in
managing capital. This enables ISE to expand capital
without any restrictions.
As ISE is also involved in social business, Islamic
charity funds should be managed properly and
prudently based on trust. Islamic charity funds can
be reinvested for future benefits. Investment of funds
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from donors can be utilised for various business needs
and activities such as trading of goods and providing
services in areas that fulfil the needs of the poor and
related customers. Rather than confining ISE activities
within a limited scope, this article includes ISE’s
activities that are in line with ISE’s social business
activities. As discussed above; sadaqah, waqf, qard
hasan and hibah can be utilised by ISE to generate
continuous income through businesses, rather than
solely distributing these funds directly to recipients,
due to their flexibility nature.
The main characteristic that differentiates ISE from
other types of institutions has to be its establishment
as an economic unit that generates income, where
capital is contributed through eligible almsgiving
contracts. The distribution of income is made to the
recipients (depending on the types of contracts) after
deducting all relevant expenses. For instance, for zakat
collection, the distribution should be specified only
for asnaf. Meanwhile, for waqf-based source, the net
income should be distributed to the recipients that are
specifically named by the donor, except for waqf am
where it is opened to all. In the case of sadaqah, on
the other hand, net income can be distributed to the
poor and needy without any limitations.
Conclusion
In essence, ISE is distinctively different from other
institutions due to its wealth-generating properties
and such ISE should aim for al-falah and be guided
by maqasid-e-shari’a. ISE contributes to society
in several forms. In addition to providing donors
with opportunities to give in ways that reflect their
interests and offer affordable goods and services to
the niche segment of the society, ISE also serves the
local community by creating jobs opportunities.
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