A Social Impact Bond (SIB) : A Shariah Appraisal

Abstract

Social Impact Bond (SIB) is a funding mechanism for social projects whereby the payment for the projects is anchored on meeting the outcome metrics, otherwise the investors risk losing their money. The mechanism emerged since 2010 in the United Kingdom and has quickly spread to other parts of the world. In the past, there has not been any popular fatwā on this mechanism from a Sharīʿah point of view.  Therefore, this article will examine the funding and payment arrangement and then conduct takyif fiqhi (jurisprudential adaptation) to ascertain the degree of Sharīʿah compliance and determine the most appropriate Islamic contract most suitable under the arrangement. The article adopts qualitative method of research by making in-depth analysis of Islamic contracts including the primary and secondary sources of Islamic law. It also relied on literature on SIB from conventional point of view and internet materials. Major findings of the research show that SIB, whilst its pay-for-success mechanism does not contain ribā, it contains excessive gharar. The excessive gharar, however, was found ineffective to void al-jaʿālah-based SIB and hibah li thawāb which is the second contract similar to SIB. This is because of hājah and element of gratuity respectively.