Opening remarks on "Innovative Financing for the SDGs: The Role of Islamic Finance"
The Role of Islamic Finance
Thank you Ministers and Ambassador Djani,
I am grateful for the opportunity to discuss the important potential of Islamic Finance to help governments leverage new sources of financing for development during this important week of reflection on our commitments to Agenda 2030 and the Addis Ababa Action Agenda.
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 significantly more financial resources. The gap in financing for SDGs is currently estimated at US$ 2.5 trillion every year and we know that Official Development Assistance (ODA) alone is not an adequate source of financing. ODA flows from the member countries of the OECD Development Assistance Committee (DAC) was US$146.6 billion in 2017. Hence, to help countries deliver the SDGs, we need new approaches and innovative partnerships, involving both stakeholders and sources of capital, including the private sector, faith-based and social giving, which is why this discussion today is so important.
One vital area where innovative partnerships could better respond to the financing needs of SDGs is Islamic finance, which is one of the fastest growing financial industries. 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, strengthening our collective ability to better leverage Islamic finance will be crucial to offer governments a strong, non-traditional source of financing to advance their local SDG implementation and leave no one behind.
The core principles of Islamic finance – channeling funding to the real economy, avoiding excessive speculations, and limiting debt to the value of assets – and Islamic social finance tools –Zakat, Sadakah, Waqf - are highly aligned with the spirit of the SDGs. The Islamic Development Bank found Islamic Finance to be especially relevant in addressing ten of the 17 SDGs, including goals pertaining to poverty alleviation, infrastructure development, financial stability, and beyond.
I am sure that our speakers and panel members today will offer a number of insights as to the opportunities and complementarities that Islamic Finance brings to Agenda 2030. I hope you will challenge us as development partners to step up and build a better bridge between Islamic Finance and the SDGs.
UNDP and other parts of the UN have already begun to scale up our efforts to engage member countries on Islamic finance in innovative ways. In Indonesia, for example, UNDP is partnering with BAZNAS – the national Zakat collection body – to apply Zakat funds, for the first time ever, towards local SDG plans, beginning with renewable energy projects in underserved communities. UNDP Indonesia is also working with Badan Wakaf Indonesia, their national waqf board, to collaborate on SDGs and develop a digital platform for waqf contributions. UNDP is also working with the Indonesian Ministry of Finance to support the issuance of their first $1.25 billion sovereign green sukuk. This sukuk, which is oversubscribed, shows that the SDGs are a huge investment opportunity, with vital potential to leverage Islamic Finance partnerships for green investments.
In Palestine, UNDP is facilitating the mobilization of funds for SMEs through Islamic microfinance, and in Turkey, we are exploring new ways to blend Islamic finance with crowdfunding through Blockchain technology. These types of projects could be replicated from the Philippines to Pakistan, from Sudan to Suriname.
Impact investment is another new form of financing, growing rapidly and estimated to be worth $1 trillion by 2020. It has much in common with Islamic Finance, being value-based with a moral purpose to do good, intending to generate a measurable, beneficial social or environmental impact alongside financial return and seeking to build inclusive financial systems, valuing financial stability and shared prosperity. UNDP has been actively engaged in fostering impact investment – both conventional and Islamic – in service of the SDGs.
In 2017, UNDP and the Islamic Development Bank (IDB) launched a joint report titled I for Impact: Blending Islamic Finance and Impact Investing for the Global Goals. The report was a key step forward in conceptualizing Islamic finance-based impact investing, and building an ecosystem in support of this idea, with strategies and approaches to leverage Islamic financial instruments, like sukuk and micro-takaful, for development financing.
To help bolster this potential, UNDP and the Islamic Development Bank also launched the Global Islamic Finance and Impact Investing Platform, which promotes market-based solutions to sustainable development challenges, with the aim of positioning Islamic finance and impact investing as leading enablers of global SDG implementation through private sector engagement. The platform is a knowledge hub for peer learning, a forum for policy dialogue and a market place for deal sourcing and match making. By bringing together different actors in the Islamic finance and impact-investing arena, it aims to create a collaborative working space among stakeholders, and nurture a business ecosystem for Islamic finance and impact investing.
And this is just the beginning. UNDP is present across 170 countries, with expertise ranging from economic empowerment, governance and sustainable development to resilience and conflict prevention. We have a proven track record of developing and managing a large portfolio of development projects, and can support Islamic Finance organisations to align with the SDGs, monitor, report and communicate development impact, as we are already doing in Indonesia and other countries. We look forward to your ideas today to guide our future engagement, and help governments to leverage the new sources of financing needed to significantly advance their progress towards sustainable development.