Innovative Financing for the SDGs: The Role of Islamic Finance
Organized by:
The Side-Event will be co-hosted by Indonesia, Bangladesh, UNDP, and the Islamic Development Bank.
Background:
The realization of ambitious 2030 Agenda for Sustainable Development requires the mobilization of resources from multiple sources with the right scale and mix of financing. The United Nations estimates a gap of $2.5 trillion between the annual investment needs of $3.9 trillion and current annual investments of $1.4 trillion on SDGs. Interestingly, this gap is not due to lack of funds, but rather to their misallocation. According to World Bank estimates, over $42 trillion are currently invested in short-term securities with negative or very low yield, indicating an opportunity to fund long-term investments. However, this requires a departure from the tradition risk-transfer approach to a more inclusive risk-sharing framework.
Islamic finance, based on equity participation and risk sharing principles, can be one of the vital sources of innovative financing solutions for the SDGs. In contrast to conventional finance, in which investments focus on risk and return, Islamic financing has a strong social value component. The vision of Islamic finance is to offer itself as a source of stability against the dangers of over-leverage and short-termism in the current global financial system. In addition to its compassionate principles, , the institutions of Zakat and Awqaf can help reduce income disparity, especially among the poorest. Together, these principles can potentially promote entrepreneurship and risk-taking in global financial systems. Furthermore, Islamic finance principles and funds can be applied beyond the Islamic community.
The Islamic finance industry has expanded rapidly over the past decade, growing at a rate of 10-12% annually. Global assets in Islamic finance have grown from about US$ 200 billion in 2003 to US$ 2 trillion in 2015 and are expected to reach US$ 3.5 trillion by 2021.[1] While Islamic finance is currently limited to the banking sector, with increased awareness and an appropriate enabling environment, it could generate a significant contribution from capital markets towards financing SDGs. For instance, ‘Sukuk,’ an Islamic bond, has been increasingly used to provide an alternative solution for infrastructure financing. Furthermore, ‘Zakat’ and ‘waqf’, as solidarity-based Islamic finance mechanisms, have the potential to promote new financing sources for the poor.
Event Objectives:
- Raise awareness on how Islamic finance can be leveraged for financing for the SDGs.
- Reflect on how Islamic finance principles of equity participation and risk-sharing can enhance long-term funding for development, and share recent country experiences;
- Suggest how the use of “Zakat” and “Awqaf” can provide a solution to the challenges of extreme poverty and income disparity (shared prosperity);
- Best experiences and lessons learned from examples of Islamic finance supporting the implementation of SDGs.
- Formulate policy recommendations to enable member states to meet their long-term funding needs for the SDGs.
Related information:
Contact:
rsvpindonesia@indonesiamission-ny.org