Integrating Zakat, Waqf, and Risk-Sharing Contracts through Fintech-Enabling Mechanisms for Sustainable Islamic Microfinance toward Financial Inclusion in Developing Economies: The Case of Palestine

Abstract

This study proposes an innovative model of Islamic microfinance that integrates zakat, waqf, and risk-sharing contracts, supported by fintech-enabled transparency tools, to promote financial inclusion and support sustainable development in developing economies, with particular reference to Palestine. This research employs a qualitative, exploratory approach, drawing on ten semi-structured interviews conducted in Palestine with Shariah scholars, policymakers, and legal experts. Participants were selected through purposive sampling based on their expertise in Islamic social finance, governance, and microfinance operations. Thematic analysis was applied to identify the economic, social, and environmental challenges facing Islamic microfinance institutions (IMFIs). Expert interviews reveal that existing IMFIs often rely on collateral-based lending, limiting access for marginalized groups. Environmental sustainability is rarely incorporated into financial products, and strategic risk-management frameworks are often absent. The proposed model combines Islamic social finance tools (zakat, cash waqf) with risk-sharing contracts (mudarabah, musharakah) through fintech-enabling platforms to extend outreach, reduce dependency on collateral, and embed environmental sustainability practices. Governance and Shariah supervision are emphasized to ensure compliance, institutional efficiency, and alignment with Maqasid al-Shariah. Policymakers and IMFIs can adopt this integrated model to expand access to finance, align operations with Maqasid al-Shariah, and contribute to the UN Sustainable Development Goals (SDGs). This research offers a comprehensive, Shariah-compliant framework that merges Islamic social finance with modern sustainability principles, addressing a critical gap in both academic literature and industry practice.