JEDDAH — Islamic finance could contribute to meeting some of the sustainable development goals adopted by the UN General Assembly under its 2030 agenda, said Standard & Poor's Ratings Services in a
report published Monday titled “Islamic Finance Could Aid Modestly In Achieving Sustainable Development Goals.”
Agreed on in September 2015, the UN General Assembly set 17 sustainable development goals (SDGs) and 169 measurable targets centered on five pillars: people, planet, prosperity, peace, and partnership.
The UN has stressed that striving for sustainable development will require a revitalized global partnership between all stakeholders.
"Islamic finance could play a role – a modest one at least – in meeting some of the SDGs, particularly those that are in line with the core principles of
Islamic finance," said Mohamed Damak, Standard & Poor's Global Head of Islamic Finance.
Some sukuk issues by global multilateral lending institutions over the past few years illustrate this point, although their overall amount remains small compared with multilateral lending institutions' (MLIs) conventional debt issuance.
"Still, Islamic finance will likely remain a moderate contributor due to the industry's small size and the issues it has yet to resolve to unlock its global potential," added Damak.
Looking at the UN SDGs and the principles of Islamic finance, we consider that there are some similarities. For example, the principle requiring underlying assets in each Islamic financial transaction makes Islamic finance a good match for the financing of infrastructure.
Another example comes from the parallel between the prohibition of financing certain sectors such, as weapons and armaments, and aiming to promote peaceful and inclusive societies.
Islamic finance also uses some specific products that can be used to finance SDGs. The first two SDGs aim to end poverty in all forms, and halt hunger and achieve food security in the world. Although these two objectives could probably be dealt with through the use of concessional loans from MLIs or bilateral loans from developed countries,
Islamic finance has its own forms of concessional lending, specifically:
l Qard Hassan, consisting of a loan granted for welfare purposes or to bridge short-term funding requirements where the borrower is required to repay only the principal.
l Zakat, which is one of the five pillars of the Islamic religion and is similar to a tax that is levied on wealth that exceeds a certain threshold. Zakat is used for social welfare purposes without any expectations of repayment or remuneration.
l Waqf, consisting of a donation of an asset or cash for religious or charitable purposes with no intention of reclaim.
Lastly, the principle of profit and loss sharing inherent to Islamic finance could, if implemented properly, will contribute to reducing inequality and easing the negative impact of economic swings. — SG
