Potential contribution of Islamic finance to SDGs

Francine Pickup, UNDP Deputy Country Director

Regional Knowledge Exchange: Supporting Policy Coherence for Accelerating Progress Towards the 2030 Agenda

Manila, September 4 2017

Private resources are key to achieving the SDGs

The shift to private resources was highlighted by the UN SG in the GA in Sept.

“We can choose to bemoan the lack of financing for the 2030 Agenda in a world awash with so much unproductive and unrewarding finance.

Or we can grasp the opportunity to reshape finance according to our urgent, collective

needs.”

Mobilising the right scale & mix of finance is essential

0

100

200

300

400

500

600

700

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

US$

Billi

ons

Domestic public

Domestic private

International private

International public

Rapid growth in finance highlights potential to drive SDGs across ASEAN

Source: UNDP, using constant 2015 USD prices

Domestic private finance has grown to become largest source in Indonesia

Domestic public

Domestic private

International public

International private

Source: DI calculations based on multiple sources

The SDG challenge remains huge with low govt revenues, decreasing ODA & lagging international private finance

Why Islamic finance for SDGs?

• Source of finance: Assets expected to exceed $3 trillion by 2020; • Growth potential: Islamic finance industry has expanded rapidly over

past decade, growing at 10-12% annually;• Underlying philosophy: Embodies socially responsible development

Networks and partnerships: Religion as a force of change in the world and engaging w religious organisations is crucial for peace, development and promoting tolerance.

Islamic finance has tremendous potential to contribute to SDGs but largely untapped and overlooked.

Zakat: greater potential for humanitarian and development impact

• Potential in countries with large Muslim populations & high poverty • Typically zakat is given informally, individually from person to person• Approx. ¼ contributions channeled thru formal certified orgs• Focus on act of giving, not development impact or rights of recipients• Shift needed from charity to programme with professional mgmt• Giving to higher level causes, not individuals, for greater impact• Longer term, sustainable impact needs capacity devt thru formal orgs.

Faith (hifdh-ul-iman) : SDG goals 1,2,3,6, and 10 focuses on reducing vulnerability which in turn is believed to help strengthen their faith.

Life (hifdh-ul-nafs) : Zakat aligns with Goals 2,3,6,8, and 11 in ensuring healthy lives and promoting well-being for sustainable development.

Progeny (hifdh-ul-nasl) : Zakat that helps people escape the poverty trap, promoting peace, and protecting the environment such as goals 3,5,7,11,12,13,14,15, and 16 is consistent with human progeny.

Intellect (hifdh-ul-aqal) : Zakat’s alignment with SDG 1,2, and 9 facilitates access to healthy nourishment, quality education, and make children more productive in the future.

Wealth (hifdh-ul-maal) : Zakat has inbuilt wealth transfer (SDG 10) which can help generate economic activity (SDG 8) and a social safety net (SDG 1 and 3).

Overlap between Zakat and SDGs

Indonesia’s National Zakat Body, BAZNAS, extends first contribution to support SDGs

Similarities between Islamic Finance &Impact Investment

• Value-based, with moral purpose to do good;

• Understanding of relationship btw business & society based on well-being: beneficial social / env impact alongside financial return;

• Build inclusive financial systems integrating ppl excluded from formal financial sectors.

• Islamic finance based impact investing can support SDGs.

• Value-add for Impact investing: new sources of finance & markets, enlarging tools

• Value-add Islamic finance: from negative screening to positive impact, expanding reach & recognition

• Provides support to governments to integrate SDGs into their national development plans and policies; convene with array of different partners and localise SDGs at the sub-national level

• Innovating new financing models and instruments for channeling Islamic finance, documenting and sharing learning from experiences

• Helps strengthen institutions responsible for delivering services. UNDP can help Islamic organisations address poverty and vulnerability.

• UNDP can support Islamic organisations to align with the SDGs, monitor, report and communicate development impact

Recommendations for Linking Islamic Finance & SDGs

• Build on Islamic orgs’ devt experience & networks, incl. Islamic principles re. financial inclusion & social solidarity;

• Research, consult & raise awareness on SDGs and their relevance; obtain buy-in from clerics, Islamic groups;

• Support zakat institutions to create incentives for ppl to contribute thru formal channels, incl. financial inclusion, e-services, transparency, M&E.

• Collaborate w Islamic institutions to identify innovative financing instruments to channel Islamic finance to SDGs

• Coordinate w Government; set-up system that tracks Islamic Finance’s contribution to SDGs.