It’s been a week of impactful developments: after a two-year gap, the Malaysian sovereign wealth fund has finally resumed the issuance of its pioneering SRI Sukuk program, even opening it to the retail market; and it is learned that a Malaysian solar company is on its way to becoming the industry’s first green SRI Sukuk issuer. It looks like Islamic finance and impact investing are indeed converging in the name of sustainability; MARC ROUSSOT speaks to the United National Development Program (UNDP) to explore if this is indeed the case and if Shariah finance has a role to play in meeting the UN Sustainable Development Goals.
In 2015, world leaders adopted the 2030 Agenda for Sustainable Development. This agenda defines 17 Sustainable Development Goals (SDGs) for the people, planet, prosperity, peace, and partnership. To achieve these goals, an estimated US$5-7 trillion in financial support is required annually over the next 15 years.
“Although this sounds high, we should remember that [the] global Sukuk and bonds market runs around US$133 trillion,” reminds Gulcin Salingan, the deputy director of the UNDP’s Istanbul International Center for Private Sector in Development.
However, financing the SDGs is not a simple task. It requires a comprehensive approach that includes innovative ways.
“What we need is impact investment,” declares Gulcin. Impact investment is investment that intentionally seeks to create both financial returns and positive social or environmental impact. Islamic finance has a lot in common with impact investment as it aims to promote wealth for all humankind.
Given that Islamic finance is a US$2 trillion industry, how much can Islamic finance contribute toward these goals?
“It is very difficult to provide a concrete figure at this stage,” admits Gulcin. The goal is to utilize the highest amount of these US$2 trillion in investments that will create social and environmental impact, she says.
Islamic finance can also help in achieving the SDGs by creating financial inclusion, which is considered as an enabler of other developmental goals. “A relatively large population in OIC member states are currently out of available financial services due to their religious ethical concerns,” asserts Gulcin. On top of aiding the achievement of the SDGs, this is a great business opportunity for Islamic banks to serve this unbanked population.
As mentioned, the SDGs also offer business opportunities to the Islamic finance industry, on top of moral returns. According to a research done by the Business and Sustainable Development Commission, the SDGs-related sectors can generate up to US$12 trillion in business value.
“We are not merely talking about pure moral impact for Islamic finance players; rather, we are talking about accessing the unreached markets and gaining financial returns through these investments and at the same time contributing to the global agenda and the well-being of the planet,” explains Gulcin.
In order to foster linkages between Islamic finance and impact investment modalities, at last year’s IDB annual meeting that took place in Jakarta, the IDB and the UNDP launched the Global Islamic Finance and Impact Investing Platform.
“The platform aims to play a matchmaking role between investors and other players in the ecosystem such as business incubator, development organizations, start-ups and most importantly, with business ventures seeking capital,” explains Gulcin. “Our vision is basically to position Islamic finance-based impact investing as a leading enabler of SDGs implementation all around the world,” she says.