Abstract This study investigates the potential of Islamic financial instruments—such as Zakat, Waqf, Qard al-Hasan, and Islamic microfinance—as effective tools for poverty reduction and inclusive socioeconomic expansion. Through a qualitative literature review supported by thematic analysis, the research draws from both classical Islamic texts and modern case studies across Muslim-majority countries. Finding’s highlight the effectiveness of Islamic finance in endorsing financial inclusion, reducing income inequality, and supporting Sustainable Development Goals (SDGs). However, challenges such as inadequate awareness, regulatory inconsistencies, and institutional limitations hinder its broader impact. The paper recommends that integrating the ethical framework of Islamic finance with contemporary financial systems can lead to a more just, inclusive, and sustainable economic model. Policy recommendations accentuate financial literacy, regulatory standardization, and hybrid models that amalgamate Islamic and conventional practices to enhance outreach and effectiveness.
Mehwish Malik (Wed,) studied this question.