Islamic Finance and UN SDGs: A Customer Perspective
Two key publications highlight the nexus between Islamic Finance and the UN Sustainable Development Goals (UN SDGs). In these papers, about 2000 respondents were surveyed from different Islamic financial institutions around the world, including those in Pakistan, Malaysia, the UK, Australia, and Nigeria.
These reports were among the outputs of the Global Islamic Finance and UN SDGs Taskforce, an innovative public-private partnership that examines the potential contribution of the Islamic finance sector to closing this funding gap as well as the potential business opportunities the SDGs offer the sector.
In this blog, we discuss the main highlights of the Islamic Finance and the UN SDGs Retail Banking Customer Perspectives Global Survey 2023 and the Attitudes of banking customers towards the UN SDGs Global Survey 2023.
The first report found the following:
- Ethical Commitment: 96% of respondents emphasized the importance of their financial products aligning with their personal values and ethics emphasizing that customers are committed to ethical banking.
- Demand for SDG Products: A significant 90% of respondents highlighted the importance of their banks offering products that aligned with the UN SDGs, indicating a demand for sustainable financial offerings.
- Poverty Alleviation: Social responsibility proved to be a high priority as 95% of respondents rated reducing poverty to be of high importance.
- Sustainability Encouragement: A notable 71% stated that the alignment of financial products with sustainability would motivate them to use their bank's products more actively, hinting at the potential of sustainable finance to engage customers.
- Premium for Alignment: An impressive 87% of respondents expressed their willingness to pay a premium for UN SDG-aligned products, demonstrating a strong commitment to values-driven banking.
The second survey categorized the 17 SDGs into four core areas: Reducing poverty and hunger, Injustice and equality, Environment and climate change, and Sustainable economic development. These categories were further divided into the Global North and Global South. Global South consisted of banks in Pakistan, Nigeria, and Malaysia while the institutions in Australia and UK made up the Global North.
The key findings include:
- Regional Disparities and Priorities: While the Global North exhibited a higher response rate, it was in the areas of "Injustice and equality" and "Environment and climate change" where significant differences emerged. This suggests that economic SDGs tend to hold greater importance in the Global South, whereas social and environmental issues are relatively more critical in the Global North concerning the SDGs as a whole.
- Alignment with Core SDG Areas: Survey participants overwhelmingly endorsed the alignment of Islamic finance with the four core SDG areas (reducing poverty and hunger, equality, environment, and economic development), with over 90% considering this alignment vital.
- Terminology and Awareness: There were disparities in terms of terminologies. For instance, "Net Zero" displayed significant awareness disparities between the Global North and Global South. “Impact investing" was more recognized in the Global South, while "ethical finance" garnered higher awareness in the Global North. This indicates that respondents in the Global North may possess a somewhat higher awareness of certain trends, especially those related to sustainability.
- Alignment with Core SDG Areas: Survey participants overwhelmingly endorsed the alignment of Islamic finance with the four core SDG areas (reducing poverty and hunger, equality, environment, and economic development), with over 90% considering this alignment vital.
- Seeking Information: Finally, the survey explored how respondents accessed information, with social media and website news emerging as the primary sources in both the Global North and Global South. Facebook was the preferred platform in the Global South, while LinkedIn took precedence in the Global North.
Overall, the surveys revealed respondents across regions showed keenness for aligning financial products with the SDGs once they understood the SDGs, moderate overall awareness of the SDGs, and a substantial willingness to pay for SDG-related financial products.
The SDGs represent an opportunity for Islamic finance institutions to drive sustainability and positive change. By utilising the SDGs in communications with customers about issues of social and responsibility, Islamic finance institutions have an opportunity to increase brand value and customer engagement.
By harnessing financial innovation to expand access to values-driven products, improve financial inclusion, support renewable energy investments, and finance projects alleviating poverty, Islamic banks and financial institutions can fulfill their purpose of bringing shared prosperity in an ethical manner.
Join us this Thursday for a lunchtime chat, 1:30 - 2 pm, where we explore these findings and learn more with Sultan Choudhury OBE.
Understanding Legal Maxims in Islamic Finance
The phrase ‘legal maxims’ often connotes a ‘well-established legal idea, proposal, or doctrine, generally expressed in Latin’. Legal maxims exist in Islamic law as well and are rooted in the principles of Shariah law. In the world of finance, legal principles and maxims serve as the cornerstone of stability, providing guidance and clarity in a complex and ever-evolving industry. In this blog post, we discuss some of the fundamental legal maxims that underpin Islamic finance.
Qawaid Fiqhiyyah/Islamic legal maxims have retained a distinctive place in jurisprudence for all time and will continue to do so. Legal maxims are typically accepted as the foundation for developing Shariah opinions by jurists from all schools. This is particularly true if these maxims are founded on the Holy Quran and the traditions of the Prophet SAW. These maxims provide an accessible summary of laws that are connected to one another and supported by the Qur'an and the Sunnah while some are direct citations from Hadiths of the Prophet PBUH. For instance, the maxim “There shall be no harm nor any reciprocation of harm.”
Some legal definitions offered for al Qawaid al-Fiqhiyyah include:
- Al-Suyti for instance defines Qawaid as “a general rule which applies to all its particulars.”
- Al-Burnu defined it “as a universal legal ruling or proposition from which are understood the particular legal rulings that are derived from it.”
- Sheikah Mustafa al-Zarqa defines Qawaid as “the root maxim of fiqh dedicated in its concise text with regulatory nature, containing general rules of Law on these issues which transpired under its theme”.
- Al Hamawi defined it as “the predominant ruling which is applied to the greater part of its particular”.
Islamic finance is governed by Shariah law, which consists of primary sources like the Quran and Sunnah as well as secondary sources like ijma (scholarly consensus), qiyas (analogical reasoning), and legal maxims. Legal maxims play an important role in interpreting and applying Shariah principles to contemporary financial practices. Here are some key legal maxims relevant in Islamic finance:
- Matters are determined according to intentions/ Al-'Aqd yata'amal bi 'Umum al-lafz wa khusus al-maqasid - In agreements, emphasis is placed on intent and significance rather than on language and form. The intended meaning should always take precedence over the literal phrase of an expression where there is a contradiction between them. This implies that we should prioritise a transaction's economic above its formal characteristics when assessing its legality.
- There shall be no initiation of harm, nor any reciprocation of harm/La zarar wa la dirar – All damaging and destructive acts must not only be avoided in all circumstances, but they must also be prevented. The implication is that in Islam there is an emphasis on ensuring good and avoiding harm. It proves that harm prevention, eradication, and minimization are the goals of the law.
- Custom is a basis for judgment/ Al-‘adah muḥakkamah – Customs are established practices of any community over a typically longer period of time. According to this maxim, the shariah acknowledges and respects the social customs of society in terms of their words and deeds in the absence of textual injunctions, provided they don’t violate the Quran or Sunnah or any shariah principle; the custom is applied consistently and is prevalent in the community; was applicable at the time the activity or transaction took place; and the contractual parties have not stipulated a condition that runs counter to custom at the time of the activity or transaction.
- The origin of all rules is permissibility/ Al'asl fi al'ashya' al'iibaha – Using this maxim as a general guideline, it can be said that Islamic financial practices are initially permitted unless there is proof that they contain aspects that are forbidden, in which case the original judgment is effectively changed. Also, tand wide room for innovations for different financial tools and instruments for financial transactions. These innovations must however not conflict with the Quran or Sunnah.
- Reward begets risk/ Al-Kharaj bi al-daman - According to this maxim, no one can expect to succeed in their endeavours without taking on some level of risk or loss.
- Ambiguity cannot coexist with certainty/ La yubaru ma'al-Gharar - According to this maxim, a contract or transaction that includes ambiguity or uncertainty cannot be deemed valid. It highlights the requirement for precision and clarity in contractual provisions in order to promote justice and prevent exploitation.
The legal maxims discussed are just a few that are applicable to Islamic finance, intended to situate the role and impact that they have on modern applications. These legal maxims are still actively guiding the practice and growth of Islamic finance.
The UKIFC will be introducing Project Tayyib at the largest Islamic and ethical finance event at COP28 – Unlocking Islamic Finance Summit.
Empowering Education: The Case for Shariah-Compliant Alternative Student Finance
Access to education is a fundamental right that should be available to all individuals, regardless of their financial circumstances or religious beliefs. Financial solutions must consider different cultural and ethical factors in a varied nation like the UK.
A student loan is one area where this is especially
pertinent as it is designed by the government to widen access to higher education David Cameron as
Prime Minister in 2013 at the World Islamic Economic Forum in London stated “Never again should a
Muslim in Britain feel unable to go to university because they cannot get a Student Loan—simply
because of their religion.” The Department for Education recently announced its collaboration with
Islamic Finance Council UK (UKIFC) to develop a Shariah-compliant Alternative Student Finance
(ASF). In this blog post, we delve into the reasons why a Shariah-compliant option is essential for
fostering education and economic growth.
Central to this is the fact that Islam prohibits charging or paying interest (Riba). The fact that some of the companies that offer loans often invest in pornography, gambling, or alcoholic beverage industries also makes them prohibited under Shariah law. By offering a Shariah-compliant Alternative Student Finance (ASF), the government can ensure that all students, regardless of their religious beliefs, have access to an inclusive financial system that respects their values.
Islamic finance is built on principles of ethical behaviour and social responsibility. It emphasizes fair and just economic transactions that benefit society as a whole. By providing a Shariah-compliant ASF, the government would support students in pursuing education without compromising their faith. This initiative not only encourages responsible financial practices but also contributes to a more ethical and equitable financial ecosystem.
Access to education should not be hindered by financial barriers. According to an online survey by the Muslim Census in which nearly 40,000 Muslims in the UK responded, every year, 12,000 students are forced to pay for their own education or forgo it completely due to a lack of funding and ASF. ASF provided by the government would bridge this gap, ensuring that individuals from all walks of life have the opportunity to pursue their educational aspirations and contribute to society’s progress.
Education is not only a catalyst for economic growth, but the pursuit of higher education has also become increasingly important for career prospects and personal growth. The Muslim Census survey revealed that more than 1 in 10 qualified Muslim students do not attend university at all as a direct result of the absence of any financing options other than student loans. By investing in the education of its citizens, a government invests in the future prosperity of the nation. Shariah-compliant ASF supports this growth by enabling a diverse range of students to access quality education, thereby equipping them with the skills and knowledge needed to contribute effectively to the workforce and the economy.
A government’s commitment to diversity and inclusion is reflected in its policies and initiatives. Providing a Shariah-compliant ASF option demonstrates a proactive effort to accommodate the needs of diverse communities within the country. This, in turn, enhances social cohesion by fostering a sense of belonging and respect among various religious and cultural groups.
Although it may be argued that other alternatives to funding education exist like getting scholarships or grants, opting for work-study programmes, crowdfunding, and employer sponsorship. A response to this is that most of these options are not readily available to all. Also, some may be tied to certain conditions which may be difficult to fulfil.
Having a Shariah-compliant ASF would close a gap for Muslim students who have been at a disadvantage. The UKIFC is proud to be a partner of the Department for Education in creating a Shariah-compliant ASF.
Be a part of creating change and allowing Muslims in the UK to have access to financial products in line with their values by responding to the Call for Evidence by the All-Party Parliamentary Group on Islamic and Ethical Finance (APPGIEF) before the 18th of September, 2023.
Banking Customer Focus on UN SDGs
In the recently released joint report by the UKIFC and GEFI, banking customers discussed their perceptions regarding the UN and UN SDGs, and revealed where their values lie.
The report, Attitudes of banking customers towards the UN SDGs, took a particularly interesting approach as so often the focus is on how the UN SDGs can be integrated into a financial portfolio. Research is often framed from the perspective of the asset manager, government, or special interest nonprofit. Speaking directly to banking customers in different countries reveals the concerns of everyday people, not just industry experts.
Of the top UN SDGs that banking customers focused on, both the Global North and Global South prioritized Quality Education (Goal 4) (30% and 29%, respectively). There is an awareness of how vital it is, not only for children but for adults, to continue learning and growing as the challenges we face as a planet evolve. This goal spans generations and genders, as it highlights the importance of lifelong and gender-inclusive learning.
The top priorities for both Global North and Global South were focused around social equity and quality of life. Quality Education sets the foundation for the other goals of Zero Hunger (Goal 2), Gender Equality (Goal 5), Clean Water & Sanitation (Goal 6), and Affordable & Clean Energy (Goal 7).
Interestingly, the UN SDGs with the least amount of awareness for both the Global North and Global South are Life Below Water (Goal 14) and Life on Land (Goal 15), likely because they are broad, far-reaching goals. Both of these goals significantly impact those living in vulnerable areas such as islands or in areas sensitive to climate shifts, but they can come across as abstract concepts for people who don’t experience direct impacts of climate change in their daily lives.
The other SDGs that received the lowest engagement are Responsible Consumption & Production (Goal 12) and Partnerships for the Goals (Goal 17). Given that this survey targeted banking customers, it is likely that those particular goals seem best addressed at an institutional level. In support of this, it is worth noting that survey participants were strongly in favour of their banking institutions offering sustainability products.
The Global North and Global South agreed that Reducing Poverty and Hunger was the most important UN SDG to consumers. Of the global population, 8.9% are undernourished and roughly 8% are living in extreme poverty, meaning that these issues impact over 650 million people. With increasing environmental risks from climate change, these percentages are likely to increase as a direct result of droughts, shifting weather patterns, and planetary stress.
Recent publications from ESG Today to Reuters have stressed the importance of ‘zooming out’ to see the bigger picture beyond environmental metrics. It is important to remember that while we focus on particular issues, all of the UN SDGs are connected in one way or another. In cleaning up the oceans (Goal 6), we can create quality employment (Goals 7, 8, and 9), healthier communities (Goals 3, 11, and 12), and encourage global collaborations to unite and strengthen our sense of global community (Goals 16 and 17).
Green sukuk - outperformance or double trouble?
On 20 September, we hosted the first session in our Global Islamic Finance and the SDGs Series 2022.
Mustafa Adil, LSEG (London Stock Exchange Group) delivered an update on the state of the green sukuk market, before a panel featuring Richard de Belder, UKIFC, Raja Amir Raja Azwa, HSBC Amanah Malaysia, Hitesh ASARPOTA, Emirates NBD and Sam Dodd, LSEG (London Stock Exchange Group) debated whether green Islamic products like sukuk represented outperformance or 'double trouble'.
Mustafa's presentation explained that the market is rapidly growing, with green sukuk more oversubscribed than traditional sukuk. State and quasi-state issuers still represent the majority of the market, but corporate issuers are growing, now standing at 36%. To grow the market further, common standards are needed.
A key theme from the panel discussion was the potential for green sukuk to attract investors who would not otherwise be interested in the sukuk market, but were interested in the sustainability aspects of the product. This has the potential to increase price, making the market more attractive for issuers. Another beneficial aspect of green sukuk is that use-of-proceeds requirements can increase confidence of Shariah investors.
Sign up now for the remaining sessions on 21 September.
The best Islamic Finance Qualifications in 2022
Islamic finance has been hailed as a means to catalyze economic growth in the UK in 2022. For those of just starting out in the field- or looking to solidify our practice within it- now might be the perfect time to gain a qualification.
Islamic Finance Qualifications are a great way to integrate a Shariah and faith-based perspective to your pre-exisiting financial knowledge. Gaining an Islamic Finance Qualification represents a fantastic opportunity to learn how to implement Shariah principles in a business and insurance capacity, and to increase your subject-awareness more broadly.
Knowing what qualification to take can be a challenge, whatever stage of your career you’re currently at. To help you take your next step on your Islamic Finance journey, we have put together a directory of UK-based and remote qualifications to suit your learning needs.
UK-Based:
- Islamic Finance Msc, University of Birmingham:
Islamic Finance – MSc – 2022/23 Entry | Birmingham City University (bcu.ac.uk) - Islamic Finance Msc, University of Dundee
Islamic Finance MSc | University of Dundee - Durham: Durham Centre for Islamic Economics and Finance – Durham University
- The Islamic Foundation, Markfield Institute
- Islamic Finance & Banking Islamic Banking and Finance | Bangor University
- The Islamic Foundation, Markfield Institute
Remote Learning / Outside of the UK:
- CISI: Islamic Finance Qualification (cisi.org)
- ACCA: The Islamic Finance Qualification (IFQ) | ACCA Global
- The Global University of Islamic Finance: INCEIF | » Professional Certificate in Islamic Finance
- The Accounting and Auditing Organization for Islamic Financial Institutions: AAOIFI
The UKIFC has specialist capability in advising government agencies, regulatory bodies and financial institutions on creating enabling frameworks for Islamic finance, as well as empowering Shariah scholars and finance professionals. To find out how we can help you or your organisation, contact info@ukifc.com
New: Guidance Note for Islamic Finance Institutions
We’re delighted to announce that our latest Guidance Note for Islamic Finance Institutions reporting under the UN PRB is available now. The report was launched as part of our in-person events at COP26 in partnership with the Global Ethical Finance Initiative.
This guidance note addresses the specificities of Islamic financing modalities and providing common approaches for Islamic finance institutions (IFIs) to showcase the inherent similarities between Islamic finance principles and the UN Principles for Responsible Banking (PRB) in the PRB Reporting and Self-Assessment Template
Click here to download.
UKIFC and ISRA launch report on Islamic finance and the SDGs
The Islamic Finance Council UK (UKIFC), in partnership with Malaysia based International Shari’ah Research Academy for Islamic Finance (ISRA), has launched the first report in a 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.
The report, Islamic Finance and the SDGs: Framing the Opportunity, provides an introduction to the SDGs within the context of Islamic finance, emphasising the opportunity the SDGs present to the Islamic finance sector.
The SDGs seek to address global economic, social, governance and environmental challenges by 2030 and have been adopted by 193 countries. They recognise that ending poverty and other deprivations complement strategies that improve health and education, reduce inequality, and spur economic growth – all while tackling climate change and working to preserve our natural environment.
With a $2.5 trillion per year financing gap the UKIFC has committed to a 24 month action oriented programme of activities to address barriers blocking Islamic Financial Institutions from embracing the SDGs. The report follows the launch of a global Islamic Finance and SDG Taskforce that is supported by the UK Government and involves senior level participants from across the globe.
With Covid-19 exposing the fragility of people and the planet the SDGs is a recognised global framework upon which we can, collectively, build our social, environmental and economic resilience. With its underlying Shari’ah principles, Islamic finance is naturally aligned to, not only support but, lead the financial services sector’s efforts towards achieving the Global Goals.
TAKEAWAYS FROM THE REPORT INCLUDE:
- There has been limited participation from Islamic finance sector in leading UN initiatives (such as Principles for Responsible Investment, Principles for Responsible Banking and Principles for Sustainable Insurance) that support financial institutions to align with the SDGs.
- To achieve SDG targets, Islamic Development Bank Member Countries need annual funding of between US$700 billion and US$1 trillion which represents around 40% of the total global SDG financing gap.
- Opportunity for Islamic finance to tap into emerging global liquidity pools seeking SDG-aligned products.
- Alignment with the SDGs supports the tayyib (pure, good) concept which contends that the focus of Islamic finance products and services should be on the evaluation of wider societal impact rather than an overly legalistic analysis of Shari’ah compliance.
- With assets expected to reach US $3.8 trillion in 2022, through its adeptness at innovative financial structuring, Islamic finance is well placed to create instruments that drive capital towards the SDGs.
With a deep rooted commitment to social benefit Islamic finance should be at the front and centre of this new, sustainable economic paradigm. With the SDGs emerging as the shared blueprint for peace and prosperity for people and the planet, now and into the future, it is time for the global Islamic finance sector to step up and demonstrate its credentials for driving finance for positive change.
Executive Director of ISRA, Dr Akram Laldin, said:
“Islamic finance has a lot in common with impact investment and can play a major role in addressing the problems faced by society. It also has the potential to bring added value to the efforts to mobilize resources for the sake of realizing the SDGs.”
Richard de Belder, Advisory Board Member of the Islamic Finance Council UK, said:
“The UKIFC firmly believes that the Shari’ah principles which underpin Islamic finance make the sector well positioned to lead in promoting the SDGs to achieve global economic and social justice combined with sustainability and to drive home the point that we are all vice regents with temporary custody of the world’s finite resources and so need to act in a way that recognises this.”
Charles Haresnape, CEO, Gatehouse Bank, said:
“The environmental and social challenges facing the world impact everyone and equally we must all play our part in affecting change for the better. Islamic Finance institutions already champion fairness and ethics through Shariah principles and by working to align our business activities with the UN’s SDGs we can further solidify that commitment. As the first UK Shariah-compliant bank to become a signatory to the principles we have seen first-hand how oversight from the UN encourages us to scrutinise the impact of our activities and importantly, assess where we can improve. This is an important global scheme that we would encourage other Islamic finance providers to be part of to drive positive change.”
Stella Cox, CEO, DDCap Group, said:
“The 17 SDGs are an incredibly important resource as they provide a roadmap to address some of the world’s most pressing matters, from battling climate change to reducing social inequality and raising global living standards. Every institution, regardless of size, can and should seek to align its work with the objectives of the 17 goals. Furthermore, there is a natural alignment between the SDGs and the core values in our industry. UKIFC’s Islamic Finance and SDGs Thought Leadership Series provides us with the opportunity to call to action and inspire greater engagement of the global Islamic banking and wider financial industry in delivering against the targets set within the SDGs. We are proud to support the UKIFC’s valuable work during the publication of this important series of reports.”
Umer Suleman of UKIFC appears on BBC Radio 4's Beyond Belief
Umer Suleman of UKIFC appeared on BBC Radio 4’s Beyond Belief, to discuss Islamic finance, ethical finance and the Edinburgh Finance Declaration with presenter Ernie Rea.
“It is estimated that religious institutions own trillions of dollars’ worth of investments but some have acknowledged that their financial choices have not always reflected their principles. Can faith values help people to choose how to invest their money in ways that align with their ethics? Can new technologies like blockchain provide greater transparency and control, and where are the potential pitfalls for people looking to invest their money?
Joining Ernie Rea to discuss ethical investing are Rabbi Mark Goldsmith of the Edgware & Hendon Reform Synagogue and member of the International Interfaith Investment Group; Devie Mohan, an expert in the relationship between finance and technology; Martin Palmer President of Faith Invest and Umer Suleman a member of the UK Islamic Finance Council and a Sharia Finance Consultant.”
Listen now on BBC Sounds.
UKIFC Launches Brochure to Promote Shariah-Compliant FDI in Scotland
The UKIFC, in partnership with BDO, Gatehouse Bank, Ocorian and Shepherd + Weddernburn has launched a brochure to promote Shariah compliant real estate investment opportunities in Scotland.
With the London real estate market cooling Scotland is a strong and attractive investment destination and, with expertise in both conventional and Islamic finance, it offers competitive Shariah-compliant real estate opportunities.
A number of Shariah-compliant deals have been completed in Scotland in recent years. With a growing and stable economy, underpinned by strong yields, returns on Scottish commercial real estate exceeded the UK average in 2018. Investment reached a record level of £2.5 billion in 2018, up 46% from 2017.
With an enabling legal and regulatory framework and a network of specialist advisers and financiers Scotland provides significant potential for investors seeking Shariah-compliant commercial property structures.
Click HERE to view the brochure.