Islamic Philanthropy and Poverty Reduction in Indonesia: The Role of Integrated Islamic Social and Commercial Finance Institutions

Abstract

The recent studies about the role of Islamic philanthropy in addressing socio-economic problems have been growing and confirming its significant role in overcoming the problem. This is in line with the existence of regulations that support the effectiveness of its role in poverty reduction in Indonesia, such as Law No. 23 of 2011 on Zakat Management and Law No. 41 of 2004 on Waqf. This study has two objectives. First, to analyze the impact of Islamic philanthropy on poverty reduction as the socio-economic problems in Indonesia in the short and long run. Second, to analyze the effectiveness of integrated Islamic commercial and social-economic or finance to address the poverty compared to unintegrated one. This study used Auto-Regressive Distributed Lag (ARDL) approach to analyze annual data for the period of 2002-2019 while investigating the long and short-run relationships among variables. It found that Islamic philanthropy reduces poverty both in the short and long run, particularly in the integration of Islamic social and commercial finance in a single model. The government should therefore include Islamic philanthropy or other Islamic social finances as a fundamental strategy for building financial stability and sustainable development.