Magdy Martínez-Solimán: Realizing Agenda 2030: How Islamic Finance Through Impact Investing Can Help Achieve the SDGsSep 20, 2017
Distinguished Speakers, Colleagues and Friends.
I am very pleased to join this event on how to tap the resource and innovation potential of Islamic finance and impact investing for achieving the Sustainable Development Goals (SDGs).
The meeting is very timely, following the launch of our joint report with the Islamic Development Bank (IDB) titled I for Impact: Blending Islamic Finance and Impact Investing for the Global Goals, back in May at the 12th IDB Global Forum. The report was a key step forward in conceptualizing Islamic finance-based impact investing, and building an ecosystem in support of this idea. The strategies and approaches to leverage Islamic financial instruments, like sukuk and micro-takaful, for development financing were very well-received by investors. I am very pleased that we can take these discussions forward today.
With the global commitment to the SDGs, we have set the course of all our development efforts towards promoting prosperity, preserving and protecting our planet and improving the livelihoods of all people. At the same time, we acknowledge that the implementation of this ambitious agenda requires a surge in financial resources. The gap in financing for SDGs is currently estimated at US$ 2.5 trillion every year. Official Development Assistance (ODA) alone is not enough. To quantify, ODA flows from the member countries of the OECD Development Assistance Committee (DAC) was around US$142 billion in 2016. Hence, we need new approaches and innovative partnerships, involving both stakeholders and sources of capital.
Areas for collaboration on SDG financing
Islamic finance is one of the fastest growing sources of finance in the global financial industry. Global assets in Islamic finance have grown from about US$200 billion in 2003 to US$2 trillion in 2015; and are expected to reach US$3.5 trillion in 2021. Considering the scale, I would like to underline that Islamic finance could offer a strong, non-traditional source of financing to advance SDG implementation.
Let me bring another source of financing for the SDGs to the discussion – impact investing. Impact investors seek to invest in enterprises that generate both financial returns, and social and environmental benefits. Such investments are rapidly growing across the globe: a recent survey by the Global Impact Investing Network shows that more than two hundred investors are collectively managing around US$114 billion worth of impact investment assets. Leveraging private investment for social outcomes is a market that is likely to expand further in the coming years.
The potential for synergies and complementarities between Islamic finance and impact investing is high; tapping into these would generate significant financial resources for the SDGs. Both Islamic finance and impact investing uphold rigorous moral and social criteria for investments. Both emphasize inclusiveness in investment decisions and seek greater consideration of business-society relations. Both value financial stability, financial inclusion and shared prosperity.
The compatibilities and similarities between the two sources of finance, thus, suggest that bridging them could offer a promising new avenue. The principles of the two sources of finance match well with the need for long-term investments towards the SDGs.
Bridging Islamic Finance and Impact Investing for the SDGs
This brings up my next point – how do we bridge these two sources of finance for better development results? UNDP and IDB jointly established the Global Islamic Finance and Impact Investing Platform (GIFIIP) in 2016 to position Islamic finance and impact investing as leading enablers of SDG implementation, particularly through private sector engagement. By bringing together different actors in the Islamic finance and impact investing arena, our aim is to create a collaborative working space among stakeholders, and nurture a business ecosystem for Islamic finance and impact investing.
UNDP is well positioned to play the role of an aggregator that can manage a pipeline of impact investment opportunities. We are present across 170 countries and our expertise ranges from governance and sustainable development to resilience, conflict prevention and recovery. We have a proven track record of developing and managing a large portfolio of development projects. Based on this, we can assess what constitutes a socially, environmentally and economically sustainable project. Combined with the technical expertise of IDB on Islamic finance, GIFIIP could thus be a key channel for leveraging Islamic finance for the SDGs through impact investing.
We are guided by a three-pillar strategy with IDB for SDG financing through GIFIIP.
The first pillar, conceptualization and capacity building, will include the mapping and assessment of the actors involved and the products of the two areas. Our joint report I for Impact: Blending Islamic Finance and Impact Investing for the Global Goals already laid the groundwork in this sense. Based on these assessments, we will develop practical financial instruments and products.
Through the second pillar, advocacy and inter-industry collaboration, GIFIIP will raise awareness about the potential of Islamic impact investing. We will advance partnerships in the two areas, through developing networks of investors, impact enterprises and projects.
The final and the most critical pillar is deal sourcing and matchmaking. We will bring Islamic impact investors, as well as both public and private funds together with screened, compliant investment opportunities. The financing for higher impact and scale would then be available for existing inclusive businesses, start-ups, impact-driven enterprises and projects under deal-sourcing.
In conclusion, let me underline that the SDGs require new sources of capital, and this capital must be used innovatively. The premise of Islamic finance and impact investing are aligned in this sense – offering financial returns and social impact for shared prosperity. Through collaboration and joining of expertise in these two areas, we could significantly advance our progress towards sustainable development.
At UNDP, we are fully committed to strengthen and advance our partnership with IDB on Islamic finance and impact investing, through the Istanbul International Center for Private Sector in Development, as well as with other members of the IDB Group, companies and investors. I call on you to join GIFIIP in implementing innovative financing solutions to achieve the SDGs.