As the world observes International Women’s Day today, we are reminded of the massive Sustainable Development Goals (SDG) funding gap which exacerbates gender inequality on women’s participation in decision-making and leadership, particularly in entrepreneurship.

For Indonesia, home to the world’s largest Muslim population, the solution may lie in the largely untapped USD 16 billion sector of the Islamic charity giving of zakat.

Zakat is one of the five pillars in Islam. It’s a wealth redistributive mechanism where Muslims earning above a certain threshold must donate their wealth to the most vulnerable communities, including the poor and the needy (asnaf). If channeled properly and with structured planning, such contributions can be used to address gender inequality.

The latest statistics on women’s participation in the work force paint a stark picture of inequality. According to the International Labour Organization (ILO), women are less likely to participate in the labor force with a 47 percent rate, compared to 74 percent for men. The World Bank puts women’s participation in the work force at around 38.8 percent. The low participation of women is exacerbated by traditional views that restrict women’s role in the labor market. Mothers, for instance, are less likely to be employed compared to fathers and women without children. Such unpaid caregiver responsibilities can prevent opportunities for paid employment (ILO, 2019), placing women at a serious disadvantage.

There must be a way to break structural barriers and cultural restrictions that contribute to the gender gap, particularly in largely faith-based communities such as Indonesia.

Hence, turning to Islamic finance, is a logical move. Islam is a religion that upholds the values of justice and equality with its holy book noting that women and men should be given equal opportunities to participate in economic activities.

According to a recent study conducted by UNDP, and the Center for Economics and Development Studies at the University of Padjajaran, with donation channel Rumah Zakat, most households benefiting from women’s entrepreneurship funding programs are also beneficiaries of government social protection programs (Program Keluarga Harapan). However, these funds are used for medical treatment, children's school supplies, and fees. This is where zakat can play a role as one of the Islamic finance instruments complementing the government’s social protection programs.

Medium, small and micro-businesses are the backbone of the country’s economy, occupying nearly 50 percent of businesses in the accommodation, food, and beverage industry in the country. The MSME sector also makes up 27.78 percent of businesses in the retail industry. Women entrepreneurs can use zakat funds as capital to start their business and sustain business operations with funds from the government’s social protection program. The study also found that two-thirds of these businesses do not have access to business loans or credit, which indicates that these funds help support these businesses in different ways.

Another interesting fact is that 96 percent of women who receive zakat are in the high Women Participation Index, meaning that they independently make decisions regarding the family’s finances. For example, 80 percent of the women took decisions on household purchases independently of their husbands, while 35 percent made these decisions in consultation with their spouse. Similarly, 60 percent of beneficiaries noted that they made decisions on their family’s healthcare needs independently while 35 percent noted that the decision was made together with their partner. With 43.28 percent of women earning higher incomes than their husbands, they contribute more to the household income and reflect the four keys to achieving gender equality — access, control, participation, and incentives.

The women’s entrepreneurship funding program is also equipped with non-cash assistance, which provides beneficiaries the skills needed to develop their business (such as product packaging, promotion and mentoring) and utilize online platforms to market their products during the pandemic.

The zakat funds provided to women-owned micro and small enterprises are in line with the Sustainable Development Goals (SDGs) Agenda on gender equality and women’s empowerment. Zakat can be an alternative to, or even support, existing social protection programs as it offers a different approach to distributing funds. Zakat funds could also unlock wider access for beneficiaries by shifting from a consumptive model of disbursement to a productive model, which targets beneficiaries through an empowerment program. Zakat distributed in this way focuses on production e.g. transferring initial capital and provision of training.

Developing the partnership between government and civil society holds the key to increasing public awareness of paying zakat to trusted institutions. In doing so, the non-cash assistance programs that support women’s empowerment programs which require large amounts of funds can continue to be implemented and be periodically evaluated for effectiveness.

Islam has strong, entrepreneurial women figures such as Siti Khadija, the beloved wife of the Prophet Muhammad. A central and highly esteemed leader in Islam, Khadija was believed to be an extremely successful and powerful businesswoman. Indeed some transactions used in Islamic finance are traced back to her.

It is time to encourage more action from Islam’s embedded values which champion women’s participation and entrepreneurship.

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Writing by Greget Kalla Buana (Islamic Finance Specialist) and Atika Nur Aini (Innovative Financing Lab Intern)

Edited by Tomi Soetjipto and Ranjit Jose.