National Seminar, 28 September 2019, Universitas Gunadarma

Islamic Finance for Global Goals

Greget Kalla Buana

UNDP Islamic Finance Specialist

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On the ground in about 170 countries and

territories, UNDP works to eradicate poverty

while protecting the planet. We help

countries develop strong policies, skills,

partnerships, and institutions so they can

sustain their progress.

United Nations Development Programme

GlobalCountry

Level

Indonesia

Context

SDGs requires additional

investment of $5-7 tn per

year up to 2030 (ICESDF),

developing countries needs

$3.3-4.5 tn per yer

(UNCTAD), financing

shortfall of about $2.5 tn

(World Investment Report

2014 – Investing in the

SDGs).

Government alone cannot

be responsible for domestic

financing, leaving

opportunity for increased

and more effective

philanthropic giving and

social finance.

Domestic public and private

investment accounts for

more than half of all

financing for development.

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SDGs Financing: Problem or trillion $ opportunity?

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SDGs Financing Gap in Indonesia

Source: BAPPENAS (2018), Preliminary analysis for draft of RPJMN 2019-2024.

Source: Indonesia’s Development Assessment (DFA) supported by UNDP

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Assets expected to exceed $3 trillion by 2020.

Annual Islamic finance industry expansion 10-12%.

Embodies socially responsible & sustainable development.

Engaging with religious organisations crucial for peace,

development, promoting tolerance.

Islamic Finance and SDGs

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Striking Commonalities between SDGs and Maqasid Sharia

Maqasid Sharia (MS) is very

systematic and it attempts to

address human welfare and

wellbeing in a comprehensive

way in a systemic manner.

17 SDGs are important for the

world community and for the

Muslims as well because:

a. They are good in

themselves.

b. Not in direct conflict with

Islamic percepts, and

c. Have been agreed by world

community in general.

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Proof of Concept

Harnessing Catalyzing Convening

UNDP receives grants

from Islamic finance

stakeholders to

implement projects.

UNDP helps Islamic

finance stakeholders

align their activities with

the SDGs.

UNDP presents at public

or inter-agency events

on its engagement with

Islamic finance.

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SDGs Country Platform

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Baznas commits zakat funds (US$350k) for

micro-hydro energy in rural Sumatra

leveraging CSR from Bank Jambi. The

collaboration is continued with local

economic development programme.

Zakat for SDGs

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UNDP Indonesia is engaging with

Indonesian Waqf Board to develop

waqf digital platform through

blockchain technology with support

from AID:Tech.

Waqf Digital Platform

Conventional Impact Investing

Global Impact Investing Network (GIIN), impact

investments are investments made into companies,

organizations, and funds with the intention to generate

social and environmental impact alongside a financial

return.

Characteristics:

a. Intentionality

b. Return expectation

c. Range of return expectation and asset classes

d. Impact measurement (Financial, e.g. ROE/ROA/ROI;

Social, e.g. outreach, output, outcome, impact)

Standards: ESG

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ImpactOutcomeOutputOutreach

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Islamic Impact Investing

Basic tenets:

a. Application of screen and filter

b. Risk sharing by both financier and client

c. Money has no inherent value alone

d. Clear contractual terms

e. Zakat (Charitable Giving)

Key structures of investments:

a. Sukuk

b. Murabaha

c. Ijarah

d. Istishna

e. Musyaraka/Mudaraba

Infrastructure readiness: regulation and innovation

Financial intermediaries: investment platforms, banks, MFIs

a. Pakistan Voluntary Islamic Pension

system. Studied by Thompson Reuters.

b. Tax treaty effects on Islamic investing

markets and investments. Studied by

KPMG.

c. Oman regulatory framework. Permitted

Islamic banking in 2012 and developed

comprehensive, systematic framework

for Islamic financing. Studied by E&Y.

d. Wasil Foundation. Non-profit MFI in

Lahore, Pakistan that is offering only

Sharia compliant products like

Musharaka and salaam. Studied by

CGAP.

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Success value of sukuk in Indonesia has increased from

US$59,7 million in 2013 to US$1 billion in 2016.

Budget Tagging for Climate

Change MitigationIssued in 2018 & 2019

UNDP Contributed to the Issuance of Green Sukuk

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Indonesia is the world’s largest archipelago comprising over 17,508 ISLANDS. Covering an area of about

790 million hectares with a total coastline length of 95.181 km and a land territory of about 200 million

hectares. Therefore, Indonesia is highly vulnerable to the adverse impacts of climate change.

Data collected on the

average temperature

variation across the

entire region of

Indonesia for the past

years shows a trend of

increasing temperature

level.

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The financial gaps between funding needs and currently available financial resources to support

GoI commitments in financing climate change activities is apparent.

Financial resources allocated

for both mitigation and

adaptation actions 2015 -

2019, are $55.1 billion

Estimated cost of climate

change mitigation and

adaptation actions

2015-2020 are $81 billion

Source: NDC, 2017 Source: TNC, 2017

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In 2018 & 2019, RoI has issued Green Sukuk of

(~IDR 30 trillion)

• The world’s first sovereign green sukuk

• First sovereign to issue green bond/sukuk

twice consecutively

Green bonds market developed quite rapidly in recent years.

Globally there is, up to now, USD1.45 tn climate aligned bonds

with USD389 bn alone in green bond. (CBI, 2018)

SOVEREIGN GREEN BOND CLUB:

POLAND, FRANCE, FIJI, INDONESIA, NIGERIA, BELGIUM

• Sukuk is bonds that comply to Islamic law/securities based on Islamic principles. What is Sukuk?

•Sukuk represents proportionate ownership of an asset, while bonds indicate a debt obligation. In

other words, sukuk is backed with tangible assets not debt.

•The assets that back sukuk are compliant with Sharia.

•The returns of bonds in in the form of interest payments, while returns on Sukuk is periodical

payments -> rent/profit.

How is Sukuk different than Bond?

• Regulation from the National Islamic Council (DSN MUI) No 01/DSN-MUI/III/2012.How is it being regulated in

Indonesia?

• Innovative financial instruments where the proceeds are invested exclusively to finance or

refinance green projects that generate climate or other environmental benefits, including

mitigation, adaptation and biodiversity.

What is Green Bond/Sukuk?

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Climate Change Budget Tagging (CBT) is a tool to identify and track how much the Government

has spent on climate change mitigation and adaptation by tagging all of the spending that fits into

the GoI’s climate objectives. CBT has been developed and implemented since 2014 with the

support from UNDP.

Supporting Blue Economy is also already in Government regulation and SDG:

1. Undang Undang Republik Indonesia Nomor 32 Tahun 2014 Tentang Kelautan

2. Sustainable Development Goals 14 – Life Below Water

3. Rencana Aksi Nasional Tujuan Pembangunan Berkelanjutan – Perpres Nomor 59 Tahun 2017

The utilization of Marine Resources:

a. Fishery

b. Energy and mineral resources

c. Coastal and small islands resources

d. Nonconventional resources

The exploitation of marine resources:

a. Marine industry

b. Marine tourism

c. Sea transportation

d. Sea building

Sustainable fishery

Marine renewable energy

Sustainable aquaculture

Coastal protection, restoration and blue carbon

Waste management

Marine Technology

Tourism

Definition: Translated to Sectors:

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Blue Financial Instrument

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Initial liftHelp people move beyond survival to security & growth

Revolving fund for the micro-

entreprises; investment in waqf

land

Promote inclusive, sutainable

economic growth

ZakatIslamic

MicrofinanceCash &

land WaqfSukuk

Complementarity of Islamic Finance

Youth Co: Lab and Incubation

UNDP Impact Accelerator

SDG Impact Fund

Incubator for very early stage

start-ups. A RBAP Initiative. We

work with local partner of

Hubud and the Creative

Economy Agency (BEKRAF).

The Impact Accelerator

program is designed to provide

social entrepreneurs with access

to the knowledge, networks,

and resources they need to

grow their businesses and their

impact.

A blended finance fund to

invest in companies that have

the intention to generate a

measurable and beneficial

social or environmental

impact.

SDG Impact

Framework –

Islamic

Impact

Framework

Pipeline development Scale-up capital

UNDP Strategy in Impact Investment in Indonesia

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Thank you

Contact: Innovative Financing Lab

greget.buana@undp.org