Media Release: HIGH LEVEL WORKING GROUP ON GREEN SUKUK LAUNCHED AT UN CLIMATE SUMMIT

Global finance leaders commit to unlocking US$30+ billion of capital through green and sustainability sukuk by 2025.

Glasgow, Scotland – 3rd Nov, The Islamic Finance Council UK (UKIFC), Her Majesty’s Treasury, Ministry of Finance in the Republic of Indonesia Ministry, Islamic Development Bank, London Stock Exchange Group and the Global Ethical Finance Initiative (GEFI) have come together today as founding partners to launch a High Level Working Group on Green Sukuk (HLWG).

The 3-year initiative will direct investment  to reduce  greenhouse gas emissions in  the world’s regions in most need.

The announcement follows work of the Global Islamic Finance and UN SDGs Taskforce and a recent report “Innovation in Islamic Finance: Green Sukuk for SDGs” commissioned by UNDP Indonesia in which the UKIFC estimated that an additional US$30+ billion of capital towards the SDGs can be raised by 2025 through green and sustainability sukuk. To unlock this finance the HLWG has been launched to coordinate international efforts. The report showed how  green and sustainability sukuk can be a viable financial instrument attracting billions of dollars of capital for green projects that support the delivery  of the Paris Agreement.

Islamic finance is not limited to Muslim countries and has the potential to support the delivery of the more ambitious Nationally Determined Contributions that will be agreed at COP26. This will be particularly attractive to the Organisation of Islamic Cooperation (OIC) whose 57 member states represent over 1.82 billion people (24% of the total world population) and include a number of low-income countries that are politically or culturally marginalised.

The HWLG will be a focused, high-profile group of global stakeholders that will be led by the founding partners. The UKIFC together with Global Ethical Finance Initiative will act as Secretariat. The HLWG will focus on the following objectives:

 

  • Ensuring green and sustainability sukuk is highlighted at annual COP summits up to and including 2023 to increase awareness of the instrument and proactively encourage the issuance of such sukuk by all market stakeholders (corporates, multilaterals and sovereigns) as a key Islamic financing key tool

 

  • Assist and enhance existing established global standard setting bodies and regulatory initiatives run by the UN, IsDB and others (e.g. PRI, NGFS, Transform, PRB) to encourage better alignment of the Islamic finance industry with the global green and sustainability financial movement.

 

  • Identify and address specific existing challenges for green and sustainability sukuk on the supply and demand side.

The HLWG launch was made today during the UKIFC’s Islamic Finance COP26 Programme that was held on the banks of Loch Lomond in Scotland. GEFI’s Path to COP26 campaign enabled Islamic finance experts from across the globe to come together to demonstrate the important role Islamic finance can play in supporting climate action in the global south and beyond.

ENDS

Quotes

 

 

John Glen, Economic Secretary to the Treasury and City Minister
“The UK has strong credentials in green and Islamic finance, and we’re proud to be a founding country partner of the High Level Working Group on Green Sukuk which launched at COP 26 in Glasgow. Green Sukuk offer countries and companies an important route to secure investment for sustainable projects, so it’s important we work globally to kickstart and grow this market.”

 

Sri Mulyani Indrawati, Minister of Finance, Republic of Indonesia
As a pioneer in the issuance of international Green Sukuk, the Ministry of Finance of Indonesia is honoured to be able to work together with Her Majesty’s Treasury, the UK Islamic Finance Council, the Islamic Development Bank, the London Stock Exchange Group and the Global Ethical Finance Initiative to further develop Green Sukuk market. The initiative aims to promote Green Sukuk as an alternative financing instrument, which combines two principles that are very much aligned, to a wider audience globally, and enabling issuers not to only tap Sukuk investors but also Socially Responsible Investment (SRI) investors across the world.   The Republic of Indonesia is a keen promoter of the asset class and committed to further enrich and develop Green Sukuk, as seen by our consistent effort in issuing the instrument annually, and therefore, very excited to participate in this collaboration. We hope to be able to share our experiences and provide valuable precedents to the group, whilst at the same time learn and apply best practices or initiatives for the improvement of Green Sukuk.   With the world recovering from global pandemic, it provides a momentum for nations, multilateral institutions, corporates across the world to work together to grow sustainably for future generations. We owe the sustainability and future of this planet to our children.   Through better policy management, we could ensure this obligation to ensure a brighter future. This is not a choice. This is about humanity. We have no time to ignore. This is the time for us to have a real collaboration.

Julia Hoggett, Chief Executive, London Stock Exchange plc

“The launch of the High-Level Working Group on Green Sukuk is a significant milestone for the development of Islamic Finance and sustainable finance globally. I am delighted that LSEG is a founding member to help scale green sukuk through our markets and data, allowing companies to access finance in a manner consistent with their faith and values. Green sukuk are strongly linked to assets in the growing green economy, and can help mobilise the capital needed to fund the U.N. Sustainable Development Goals.”

 

“The Islamic finance industry has a key role to play in prioritising the climate and the broader SDGs going forward. These issues are naturally aligned to the principles of Islamic finance and promoting green sukuk will be a key route that can drive industry growth.”
Omar Shaikh, Board Member, UKIFC

NOTES FOR EDITORS

The Islamic Finance Council UK (UKIFC) is a specialist, not-for-profit, advisory and developmental body focused on promoting and enhancing the global Islamic and ethical finance industry. It has helped six countries develop enabling regulatory frameworks for Islamic finance, enhancing financial inclusion to over 15 million people, established the award-winning Ethical Finance Round Table series running since 2010, launched the world’s first joint venture between Islamic finance and the Church of Scotland, and delivered development sessions to over 500 Islamic scholars across the globe. In 2020 the UKIFC, alongside the British Government’s Treasury department, established the Islamic Finance and Sustainable Development Goals (SGDs) taskforce, which will be anchored in London.

UKIFChttps://ukifc.com/

SDG Taskforcehttps://ukifc.com/sdg/

FOR MORE INFORMATION OR TO ARRANGE AN INTERVIEW PLEASE CONTACT:

Chris Tait – chris@ukifc.com / +44(0)7931 103573

 


'Faith in the SDGs Summit'- Join the UKIFC at COP26

Faith leaders have begun to take an increasingly active role in making the moral case for climate action, with the most notable recent example being the joint declaration between the Pope, the Archbishop of Canterbury and the Ecumenical Patriarch. Across the world, faith groups have always played an important role in embedding values into everyday life. Finance is not different, with faith groups among the earliest pioneers of ethical finance.

At COP26, the finance sector will confront the greatest ethical challenge it has ever faced: financing a Net Zero economy.

At the UKIFC, we believe faith-based finance has a key role in meeting this challenge, from making the moral case against climate action, to ensuring their endowments are invested responsibly.

This summit, delivered in partnership with GEFI, FaithInvest, Wahed Invest and Church of Scotland, will seek to build upon the historical role that faith groups have played in ethical finance by bringing together representatives from a number of faiths traditions. It will explore the religious response to climate change, showcasing some of the initiatives which are successfully translating faith values into financial practice and asking what more can be done by faith groups to successfully finance a transition to Net Zero.

Sign up now at https://www.eventbrite.co.uk/e/faith-in-the-sdgs-summit-tickets-181916797037


REPORT ANNOUNCEMENT: Islamic Finance: Shariah and the SDGs

With COP 26 in Glasgow just six weeks away, we’re delighted to have launched the final report in our 4-part thought leadership series ‘Islamic Finance: Shariah and the SDGs’ written in partnership with Malaysia based International Shari’ah Research Academy for Islamic Finance (ISRA). This latest report is designed to assist and encourage active engagement in support of the UN Sustainable Development Goals (SDGs) by the global Islamic finance sector.  

The report highlights the US$5-7 trillion annual funding gap to achieve the SDGs by 2030 which cannot all be obtained from government or donor agencies.  With its underlying Shariah principles, Islamic finance is naturally aligned and well positioned to lead the private financial services sector’s efforts towards funding the SDGs. 

By providing a detailed analysis the views of Shariah scholars on the alignment of Islamic finance and the SDGs the report explores the current awareness levels and captures views on SDG implementation. 

The UKIFC and ISRA have published  this report  to encourage Islamic finance institutions (IFIs) to embrace the SDGs and demonstrate that consideration for people, planet and purpose can coexist with profit and underpin  the next generation of Islamic financial products.The SDGs have a clear development agenda, relevant to the world of Islamic social finance (zakat, ṣadaqah, waqf, etc.), but this report presents a clear challenge to the private Islamic finance sector to build the achievement of the SDGs into their commitments to the fight against climate change.  

REPORT  FINDINGS : 


  • The alignment of the SDG agenda and Islamic finance  presents a clear opportunity to attract capital from across the global financial system. SDGs provide an opportunity to Islamic Banks and Financial Institutions that should be adopted as part of their business strategies. 


  • The SDGs are aligned to Maqasid al-Shariah (the objectives of Shariah) with very minor differences in certain aspects of Shariah. 


  • In pursuing SDGs in socio-economic activities, philanthropic instruments such as waqf, zakat and ṣadaqah will rank supreme due to their potential in instilling cooperation, solidarity and alternative finance. 


  • The issuance of sustainable sukuk has been part of the Covid-19 response through an alignment with the underlying principles of Islamic finance. 


  • The emergence of fintech should trigger innovations among the Islamic finance industry players and promote creativity by providing new perspectives and practices in financial transactions.  


  • Shariah scholars should understand the technical aspects of sophisticated financial instruments and the implementation of fintech in Islamic finance to keep pace with the developments that are taking place in the market. In this regard, Shariah scholars and industry players must work together to produce innovative Shariah-compliant products that fulfil the needs of the society and help in realizing the objectives of SDGs. 



You can download the full report here.


REPORT ANNOUNCEMENT: Innovation in Islamic Finance: Green Sukuk for SDGs

New report estimates an additional US$30-50bn can be raised by 2025 through green and sustainability sukuk  to deliver the United Nation’s Sustainable Development Goals.

Indonesia – 28th September 2021, United Nations Development Programme (UNDP), in partnership with the Islamic Finance Council UK (UKIFC), has today launched a pioneering report setting out the important role Islamic finance can play in delivering the finance needed across the world’s most vulnerable regions.

The UN Climate Summit (COP26) in Scotland, in less than six weeks’ time, brings together world leaders to hammer out a deal to reduce greenhouse gases and adapt to the impacts of climate change. The report shows how green sukuk bonds can provide a major part of the US$100bn in climate finance needed for developing countries.

UKIFC Managing Director Omar Shaikh presented the report’s findings to over 500 senior finance leaders at the first Islamic Finance and the Sustainable Development Goals Virtual Global Summit that took place today.

Sales of new Green sukuk bonds have grown from US$500m in 2017 to US$3.5bn in 2019. The Republic of Indonesia (ROI), in partnership with the UNDP, issued the world’s first Government  green sukuk in March 2018 (raising US$1.25bn) and the world’s first retail green sukuk in November 2019 (raising IDR1.4trn or USD$104.4m).

The report takes a detailed look at the best practice approach to green sukuk taken in ROI and other Islamic finance regions.

REPORT FINDINGS: 

  • Upfront investment is needed to develop a green framework and  independent certification to assure investors that green sukuk bonds are not greenwashing.
    • Demand from western global investors for Environmental, Social, and Corporate Governance (ESG) investments gives green sukuk bonds  the opportunity to attract  major new investors who otherwise would not have considered sukuk bonds for their portfolios.
    • Green or sustainability sukuk bonds might lower the cost of raising vital climate finance. Malaysia has seen the largest volume of sukuk issuances supported and facilitated by a number of Government initiatives.
    • Indonesia has a very limited corporate sukuk market and has not seen any corporate green sukuk issuances. There is a need to ensure sukuk have a level playing field with no additional burdens in comparison to conventional bonds; in addition, tax incentives could encourage corporate sukuk issuances.
    • The opportunity is there for Shariah scholars to positively influence ESG aspects as part of their Shariah review of sukuk issuances.
    • A challenge within the Islamic finance industry is the general lack of experience and depth of knowledge in relation to ESG matters. It is recommended organisations such as the Accounting and Auditing Organization for Islamic Financial Institutions take a lead and develop guidance for Shariah scholars.

The principles of Islamic finance are underpinned by the objectives of Islamic law and match many of the aims and objectives of the agenda for sustainable development goals adopted by all United Nations Member States in 2015 to provide a shared blueprint for an urgent call for action by all countries to end poverty, improve health and education, reduce inequality, and spur economic growth – all while tackling climate change and working to preserve our oceans and forests.

The report demonstrates how this unique alignment of the SDGs and Islamic finance provides a clear opportunity for green sukuk bonds to bridge the gap in private sector finance needed to meet countries’ climate targets and  accelerate achieving their wider Sustainable Development Goals.

You can access the report in full here.

See also:

https://ukifc.com/sdg/

https://ifikr.isra.my/library/SR/1

 


UKIFC Featured on BBC Radio 4 Money Box

On Saturday 17th July, UKIFC were featured BBC Radio 4's Money Box (around the midday mark) discussing alternative Student Finance, and why Muslim students are not getting equal access to student loans. Whilst halal student finance has been in the pipeline for over eight years, the Department of Education has still yet to deliver on the promise first set out by former UK Prime Minister David Cameron in 2013.

You can watch a short 3 minute clip outlining the need for alternative student finance models below.

https://www.youtube.com/watch?v=w5nu14XKOL0&t=1s

UKIFC launch 'Islamic Finance and the SDGs' report

The Islamic Finance Council UK (UKIFC), in partnership with Malaysia based International Shari’ah Research Academy for Islamic Finance (ISRA) and the Global Ethical Finance Initiative (GEFI), has today launched the third report in its 4-part thought leadership series that aims to assist and encourage active engagement in support of the UN Sustainable Development Goals (SDGs) by the global Islamic finance sector.

UKIFC Senior Adviser Sultan Choudhury will formally announce the report, to an audience of over 3,000 financial practitioners, at GEFI’s flagship annual Ethical Finance Summit.

The report provides an analysis of responsible banking in the Islamic finance sector, assessing the level of engagement with the Principles for Responsible Banking (PRB) amongst banks in Organisation of Islamic Cooperation (OIC) member states and analysing the approaches used by 9 Islamic finance signatories. It also features notes from interviews with Al Baraka Banking Group, Bank Pembangunan Malaysia Berhad, CIMB Group, Gatehouse Bank, Gulf International Bank (UK) and Jaiz Bank who have all shown notable leadership in responsible banking.  

The PRB, which launched in 2019, is the world’s leading framework for responsible banking and is underpinned by six Principles that help signatory banks to align with the SDGs and the Paris Climate Agreement.

With its underlying Shariah principles, Islamic finance is naturally aligned to responsible banking and is well positioned to lead the financial services sector’s efforts towards achieving the SDGs. However, whilst a small number of organisations are making significant progress the report has highlighted the pressing need to raise awareness, in OIC member states and beyond, of responsible banking and the benefits to be achieved by integrating Shariah compliance with sustainable finance strategies and becoming PRB signatories.

TAKEAWAYS FROM THE REPORT INCLUDE:

  • 49 of the 57 OIC member states do not contain any PRB signatory organisations.
  • When the PRB was launched in 2019, 14.3% of the founding signatories were based in OIC member states. Now only 10.0% of the 221 PRB worldwide signatories are based within OIC member states despite the OIC member states having a collective population of over 1.82 billion (24% of the total world population).
  • Of the 61 countries containing PRB signatory organisations, 13.1% are OIC member states.
  • Within the 8 OIC members states that contain PRB signatories there are 22 signatory organisations, located in Africa (50.0%), Europe (27.3%) and Asia (22.7%).
  • 38 PRB signatories offer Islamic finance products and services, which equates to 17.2% of all PRB signatories.
  • The majority of Islamic finance institutions that are PRB signatories, 27 of the 38 organisations, are based outside OIC member states, across Europe, Asia, Africa, Oceania and the Americas.
  • Only 3 of the 38 institutions offering Islamic finance products or services are fully Shariah-compliant, namely Al Baraka Banking Group (Bahrain), Gatehouse Bank (UK) and Jaiz Bank (Nigeria).  
  • The most popular Islamic product / service offered by non-OIC member states signatories is corporate finance, with 40.7% of signatories offering this. Amongst OIC member states the most popular product / services are personal banking and personal, business and corporate banking, at 27.3%.

PRB signatories are currently underrepresented in OIC member states, suggesting the PRB should increase its activities within OIC member states. Awareness of the PRB in OIC member states could be increased through working groups, targeted awareness and outreach activities. Given the mutual benefits of becoming PRB signatories to both Islamic finance institutions and the responsible banking industry, increasing engagement should be treated as a priority.

Download the report.


UKIFC experts quoted in Chartered Banker Magazine article 'Progressive Pakistan'

The Islamic Republic of Pakistan is by most standards a young country – its founding in 1947 was not without both complication and conflict, and historical political divisions have frequently laid obstacles in its mission to forge a path as an influential and modern Islamic republic. Today, however, the impact of decades of globalisation – along with economic growth across South Asia – puts the country in a strong position, most significantly demonstrated by its increasingly dynamic banking and finance sector.

This article originally featured in the Spring 2021 edition of the Chartered Banker Magazine - click here to download

As the world’s fifth most populous state, Pakistan is nothing if not a significant player in the South Asia region. Its current economic indicators do, however, tell a story of a country that up to now has been relatively slow to develop in its infrastructure, health and education, and business environment.

The hesitant pace of growth and development can be viewed through the lens of a challenging domestic political scene that saw the country struggle until recently to establish a more stable democracy. However, Pakistan has benefited from structural reforms in recent years that have injected new impetus into its continuing transformation as a modernising republic.

A $6.3bn cash facility from the International Monetary Fund (IMF) in 2013, for one, was designed to help Pakistan stabilise its public finances and address energy supply shortages, and measures to attract much-needed foreign investment brought inflows of $3.1bn in 2019-20 – of which the financial sector was the second-highest beneficiary.

Despite some bumps in the road, the positive consequences for banking and financial services in the country are now being felt across the board in Pakistan. The country’s central bank, State Bank of Pakistan (SBP), notes the progress made in financial inclusion across such a vast population, saying: “In June 2018, we had 64 million unique accounts in operation, which reflects a penetration of more than 50% of Pakistan’s adult population. As of June 2020, we now have 73 million unique accounts, of which 61% are active.”

These accounts are a mix of traditional branch accounts and digital/mobile platforms – the very territory that is ripe for further expansion. And, given that the Pakistan Telecommunication Authority (PTA) reports some 93 million citizens as having broadband access, the potential for further penetration looks promising.

It could be cited that there are three ways in which the country’s financial sector has managed to blossom under such a transformative environment for banking worldwide. A key piece in the jigsaw is the autonomy that SBP now enjoys in making vital monetary policy decisions. The reforms go back to 1994, with further powers being subsequently granted in 1997.

“The changes in the State Bank Act gave full and exclusive authority to the State Bank to regulate the banking sector, to conduct an independent monetary policy, and to set limits on government borrowing from SBP”, which had been enacted in the SBP Act 1956. “SBP formulates and monitors monetary and credit policy, and in determining the expansion of liquidity, it takes into account the Federal Governmentʼs targets for growth and inflation that the Bank [operates] in a manner consistent with these targets.”

Secondly, the momentum for digitisation in Pakistan means increasing the share of online banking, whether that includes retail point-of-sale payments or opening and using e-wallets issued by FinTechs. SBP has capitalised on the digital shift by collaborating with the Pakistani government to allow its citizens living abroad easy access to retail investment opportunities back home by launching the Roshan Digital Account (RDA).

“During the past four quarters, the number of registered mobile phone banking users increased by three million to reach8.9 million.”
Institute of Bankers Pakistan

But perhaps a most prominent characteristic of the financial sector here is the growth and development of a highly developed alternate – or Islamic – banking system.

The Islamic banking impact

As an Islamic republic, Pakistan is strategically and culturally well placed to develop Islamic finance products. It is one of the very few jurisdictions to enjoy explicit constitutional support for it, and this in turn has increased incentive and backing for its development from the state.

According to SBP, the government has used a number of legal and regulatory initiatives to help nurture Islamic banking. As part of the National Financial Inclusion Strategy, it is determined to increase the share of Islamic banking to 25% of the banking industry, and its branch network to 30% by 2023. SBP has enjoyed a pivotal role in promotion and development of the Islamic banking industry and, as a result, is recognised today as a stable and resilient segment of the overall sector.

Although often seen as niche banking instruments, Pakistan has been cannily nurturing a sub-sector of Sharia-compliant* products and services since the early 1980s, with the result that it has grown substantially in both appeal and reach.

SBP reports 22 Islamic banking institutions operating in the country, including “five fully fledged Islamic banks, one specialised bank and 16 conventional banks with Islamic banking branches”. In the financial year ending 2020, a further 361 branches were added to a network already spanning 3,274 branches in 122 districts. Lower-income citizens are also are part of the commitment to growth, with banks such as NRSP and MCB-Islamic offering a range of Islamic microfinance solutions.

S. Fahim Ahmad, a Karachi-based Senior Adviser to the UK Islamic Finance Council (UKIFC), has more interest than most in the positive impact of Islamic finance. A former senior banker with Citibank and passionate supporter of sustainable charities, he was asked to set up Pakistan’s representation to the Global Islamic Finance UN SDGs Taskforce, which aims to ensure that it can actively engage with the 17 UN Sustainable Development Goals (SDGs) and make Islamic finance part of this global initiative.

“The team at State Bank of Pakistan were easily convinced of the benefits of such a cause,” he explains. “They had never done this before, as their role is more that of a regulator. But they are ina position to manage the banks much better than I could.”

In November 2020, the Pakistan chapterof the Taskforce was launched, enrolling the support and participation of seven Islamic and conventional banks which it was felt could best drive forward the mission. Its four key objectives include enhancing engagement with the UN SDGs – but also to promote Principles of Responsible Banking (PRB); facilitate alignment tools that deliver on additional areas such as green financing and the Global Ethical Finance Initiative (GEFI); and share international experiences.

“This collaboration between SBP and UKIFC is a novel concept,” continues Ahmad. “The idea is to replicate this in other markets. We have had to catch up in many respects with developed Islamic finance markets, and this is a good chance to make up for that.”This level of engagement is a far cry from the early days when legal issues tended to slow the growth of Islamic banking in Pakistan.

Finally, after 2000, the founding of the country’s largest Islamic bank, Meezan, was made possible when the SBP agreed to scope out proper guidelines and a regulatory framework. Today, Islamic banks in Pakistan are so successful, they have a surplus of liquidity, which inevitably needs to find a home in investment instruments that are considered halal (permissible or lawful).

“There’s no doubt in my mind that there’s a huge demand for Islamic finance products,” adds Ahmad. “The impact of wider regional change in 1979-1980 had fundamentally changed the relationship we have since had with Islam, and the younger generation is, by extension, now more into Islamic banking.

”However, there is still no global uniformity among Sharia scholars about the acceptability of different products – and there is extensive room for growth yet. What will make Islamic banking take off in Pakistan? Ahmad argues that this will happen if the government uses it on a large scale, for example through sovereign or corporate bonds in sovereign sukuk.

“Social good is a key part of Islamic finance,” he adds. “Islamic banks hold a lot of liquidity as we know, and if they can deploy that into productive, socially impactful use, the whole economy will benefit.”

Pakistan banks on faith

A recent joint survey held by SBP and the UK Department for International Development identified an “overwhelming demand” for Islamic banking, regardless of whether or not the respondents were urban or rural. A huge majority (94.51%) came out in favour of the prohibition on interest, with 88.4% regarding contemporary bank interest as a similarly prohibited practice.Even non-banked respondents echoed the sentiment, at 98% and 93% respectively, and 62% of those who are banked would willingly pay more for Islamic banking products due to religious preferences.

As with other jurisdictions worldwide, however, the shift towards contactless and e-wallet transactions is strengthening the hand of the non-bank sector too. This has not been lost on SBP which, in 2019, responded by enabling “electronic money institutions” access to Pakistan’s payments ecosystem. It is only a matter of time before the pace of innovation injected into the sector will transform people’s payment habits across the country.

Facing the future with confidence

As the world starts to deal with the economic fallout from the coronavirus pandemic – which, in many countries, is still in full flow – Pakistan’s financial sector seems to have shown a healthy degree of resilience in the face of the shock of 2020. SBP puts this down to capital buffers put in place over the long term to strengthen the banks’ position. The higher capital adequacy ratio (CAR) of 19.5% at the end of September 2020 put Pakistan beyond the minimum local and global requirements for its banking system. Liquidity has also been uninterrupted following state interventions to support key parts of the economy during this period.

From this position of strength, therefore, Pakistan is able to focus on at least three priorities among many that will shape its financial sector into a growing force for the economy: continued digital transformation, affordable lending instruments for housing, and programmes to reduce the gender gap in access to finance.

On the digital front, the Digital Pakistan Policy and the National Financial Inclusion Strategy are two initiatives that hold promise in the battle to reduce the informal economy and make FinTechs a productive addition to the domestic market. In particular, the launch of Raast, an instant digital payment system, will be an innovative step forward in reducing citizens’ reliance on cash while making transactions cheaper.

This collaboration between State Bank of Pakistan and the UK Islamic Finance Councilis a novel concept... We have had to catch up in many respects with developed Islamic Finance markets, and this isa good chance to makeup for that.
Islamic Finance Council, UK

Long-term property lending policies – where SBP has given mandatory lending targets to banks on their housing portfolios and developers are being offered incentives – should help boost a sector badly in need of modernisation to benefit future homeowners.Third is the launch of SBP’s Banking on Equality Strategy, where a “gender lens” will be applied to the industry to ensure increased financial access for women based on a set of approved measures.

When viewed in the context of an often-turbulent history, there’s little doubting the progress made to date in Pakistan’s journey of banking and finance. The policies, commitment, and liquidity – three factors crucial to any developing economy – should herald a more prosperous and dynamic economy well into this century.

No one left behind

According to State Bank of Pakistan (SBP), women are disproportionately underserved by the country’s financial system. With only around 25% of bank accounts held in the name of women (even fewer are actually active), it has been widely accepted by government that economic development cannot be achieved without a healthier approach to reducing the gender gap. The bank has therefore created a policy entitled Banking on Equality: Reducing the Gender Gap in Financial Inclusion to ensurea manageable but proactive shift towards women-friendly business practices. The draft policy was presented in December 2020 for consultation.


The application of Maqaasid As-Shariah in achieving the UN SDGs

In simplistic terms, Maqaasid As-Sharia is defined as the “Goals of Shariah”. These encompass the 5 necessities of human existence. The preservation of: faith, life, intellect, lineage and wealth. These objectives have a great resemblance to the UN SDGs (United Nations Sustainable Development Goals). The SDGs are defined as “the world we want. They apply to all nations and mean, quite simply, to ensure that no one is left behind.”

Maqaasid As-Shariah involves realising the human well-being by enhancing welfare or benefit (maslaha) of the people on one hand, and preventing harm (mafsadah) on the other. The satisfaction of these needs is a basic human right and has been addressed under the generic term “Maqaasid As-Shariah”.

Although the SDGs have not been developed on a religious basis, most goals are nonetheless aligned with the spirit of Islamic law! Muslims are duty-bound by their religion to ensure the sustenance of the 5 necessities of Maqaasid As-Shariah. This means that the Islamic development is endogenously sustainable since preservation of life is an explicit objective of the Islamic law.

The dimensions of SDGs (the 5Ps) can also be found in Maqaasid As-Sharia as follows: People (Intellect), Planet (lineage), Prosperity (wealth), Partnership (faith) and Peace (life). When we talk about Maqaasid As-Shariah we are really talking about a guiding framework, a value system, the objectives of which are explained from the holy Qur’an. Some of these are referenced below:

  • No Poverty, Zero Hunger, Decent work and economic growth (SDG1, 2 & 8)

[Chapter 16 v 97: “Whoever works righteousness, whether male or female, while he (or she) is a true believer verily, to him We will give a good life (in this world with respect, contentment and lawful provision)…”]

  • Good health and well-being (SDG 3), Quality Education (SDG 4), Clean water and Sanitation (SDG 6)

[Chapter 7 V 160: “…Eat of the good things with which we have provided you…”]

  • Gender equality (SDG 5)

[Chapter 49 v 13: “We have created you from a male and a female….Verily the most honourable of you with Allah is that (believer) who has at taqwa (piety)…”]

  • Affordable & Clean Energy (SDG 7), Climate Action (SDG 13)

[Chapter 7; V85: ““…and do not mischief the earth after it has been set in order…”]

  • Industry, Innovation & Infrastructure (SDG 9)

[Chapter 13 v 11: “…Verily, Allah will not change the good condition of a people as long as they do not change their state of goodness themselves …”]

  • Reducing inequality & Peace, Justice & Strong Institutions (SDG 10, 16)

[Chapter 4 v 135: “Stand out firmly for justice…”]

  • Responsible consumption & Production (SDG 12)

[Chapter 7 v 31: “…eat and drink but waste not in extravagance…”]

[Prophetic advice: “The food of one person is sufficient for two, the food of two people suffices for four people and the food of four people suffices for eight”]

  • Sustainable cities & Communities (SDG 11)

[Chapter 8 v 46: “…do not dispute (with one another)…”]

  • Life below Water (SDG 14), Life on Land (SDG 15)

[Chapter 30 v 41: “…Evil has appeared on land and sea because of what the hands of men have earned (by oppression and evil deeds)…”]

  • Partnerships for the goals (SDG 17)

[Chapter 5 v2: “…help you one another in virtue, righteousness and piety (common good) but do not help one another in sin and transgression…”]

The UN SDGs are primarily intended for the well-being of human beings. As sustainable development strives for a balanced economy, society and environment, Islam too drives a balance between the 3 to maintain efficient and effective resource usage. If spirituality becomes a way of life upholding timeless moral, ethical and human values, sustainability is certainly assured and Maqaasid As-Shariah to serve as governance framework, guidelines and values.


The adaptability of Islamic Finance (IF) post Covid-19 - AAOIFI

During the recent AAOIFI webinar that took place on the 14th December 2020, much of the discussion was around the adaptability of Islamic Finance (IF) post Covid-19. The COVID-19 pandemic is an event which has provoked unprecedented reflections and shifts within the sector.

Many countries fell into economic depression despite government and central bank support, with supply chains, currencies and SMEs all affected. However, the pandemic also accelerated the set-up of the digitalisation trend - from the creation of blockchain technology platforms where users could mobilise funds in a transparent manner, to online banking, online schools, virtual meetings and more.

A study conducted by some of the participating banks in Turkey revealed that the pandemic presented some strengths where clients were giving priority to Murabaha debt to continue financing their business operations and there were no dealings in any derivatives instruments. It was also an opportunity for widening the distribution channels and increasing the number of customers. On the more challenging side, the contraction in economic activities caused a cash shortage in companies and where participating banks were not able to lend a helping hand. Participating banks had limited number of instruments for consumer credits.

In an Islamic Economic system, the gap between the real and financial sectors is non-existent. While the financial sector can move independently from the real sector (which is what happened during the financial meltdown of 2008, when profits were being made while the real economy shrank). It is evident that reform in IF is needed, and there is a huge opportunity for the industry to re-inject returns into the real economy towards the creation of employment and promoting real businesses. On the other hand, financial innovation relating to the environment such as green financing and sustainable financing is encouraged by the Maqasid Al-Shariah.

In this current climate the role of regulators is more imminent than ever in providing guidance & the necessary educational tools to Islamic Banks (IB) and the industry, especially where many Central Banks have failed to abide by Standards that are pillars to the economy. IFSB for example are working in line with Regulators in an attempt to bring together uniformity and good guidelines in the IB sector. The pandemic is placing enormous strains on corporate cash flows as business operations have temporarily ceased.

Banerjee et al (2020) estimate that 50% of firms in 26 advanced countries do not have enough cash to cover total debt servicing costs over the coming years. Some guidance for governance during the pandemic included:

  • Board & executive directors are recommended to implement crisis management plans. Such crisis management plans should cover reporting practices and governance issues.
  • Boards are recommended to emphasise stakeholders’ needs and ensure transparent reporting of transactions arising due to the pandemic (moratorium payments).
  • Boards are recommended to emphasise ethical considerations while developing strategies to handle the pandemic.
  • Sharia boards are advised to develop pro-active measures to ensure sharia compliance.

Some opportunities for IFIs included:

  • Social safety net – IFIs need to develop fiscal plans for a sustainable future.
  • Islamic Social Finance tools – e.g. Qard Hassan, Sukuk, Waqf, Zakaat are available for IFIs
  • Fintech (Mobile banking, Sharia compliant crowdfunding, Islamic micro finance & smart contracts).

Omar Shaikh delivers virtual lecture to World Muslim Communities Council

UKIFC Managing Director Omar Shaikh delivered a virtual lecture with the World Muslim Communities Council, on Saturday 5th December 2020. Entitled "Moral Economy and Green Recovery After Covid-19: Islamic Awqaf and Finance", the lecture affirmed that Islamic finance is moral financing and a means to carry out community activities and achieve human happiness. 

He added: “Islamic finance is a financing product that has a clear structure and focuses on alignment and avoids usury, because it is a green economy that achieves recovery with returns, social benefits and blessings in money, as well as it provides solutions to global challenges.”

He explained that in the face of the outbreak of the epidemic, we must seize opportunities for Islamic finance and endowments, as there are several challenges facing financing operations and traditional bank shares such as supply chains. He is stressing that the demand for products for the benefit of societies has led to an increase in profits and reduced costs for banks.

He called for a focus on ethical economics and sustainable banking through investment in markets and Sharia governance, as well as on sustainability goals by contributing to the eradication of poverty and achieving gender equality, by harmonizing Islamic finance. He is calling for rebuilding a new system of Islamic finance based on human welfare and serving the society.

During the lecture, Omar pointed out the experience of the countries of Scotland and the United Arab Emirates in being among the first countries that cared about the happiness of the individual to achieve emotional intelligence.

The World Muslim Communities Council is an international non-governmental organization, headquartered in the UAE capital Abu Dhabi.