This study examines the potential of Islamic social finance (ISF) to reduce poverty and promote sustainable economic development. Using a qualitative and interpretative methodology, it reviews scholarly literature, policy reports, and case studies to analyze the mechanisms, principles, and operational dynamics of ISF instruments, including zakat, waqf, sadaqah, and Islamic microfinance. The findings indicate that well-managed ISF initiatives have produced significant positive impacts on income generation, access to healthcare and education, and community resilience in countries such as Pakistan, Malaysia, and Indonesia. These mechanisms, grounded in ethical principles of justice and social responsibility, facilitate both immediate poverty alleviation and long-term development through investments in social infrastructure and human capital. Nevertheless, challenges such as weak governance, limited institutional capacity, regulatory gaps, and cultural barriers impede optimal implementation. The study proposes strategic reforms, such as strengthening institutional frameworks, leveraging digital technologies to improve transparency, and fostering multi-stakeholder collaboration. Integrating ISF within broader national development strategies, particularly by incorporating zakat, waqf, and sadaqah into social safety nets and social service programs, can enhance their effectiveness. Future research should assess long-term impacts and develop scalable models to maximize ISF’s contribution to inclusive growth and social justice. In summary, with appropriate reforms and strategic integration, Islamic social finance offers substantial potential as an ethical and community-driven approach to achieving global sustainable development goals.