Green Finance for the SDGs: The Potential of Islamic Finance

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By Dr Dalal Aassouli

The financial industry can play a critical role in building a stable and prosperous economy when it is managed with accountability. This requires redirecting investments into economic activities that deliver a good balance between economic, environmental and social objectives in order to promote human well-being and mitigate global challenges such as climate change, biodiversity loss, or inequalities. Many analysts are now taking a closer look at a ‘green economy’, which promotes economic growth while also achieving sustainability objectives.

The 2030 Sustainable Development Goals (SDG) agenda and the Paris Agreement on Climate Change were two major turning points in advancing global action to promote the transition to a green economy and tackle climate change. Their implementation has contributed to the growth of environmental awareness and embedding sustainability in the financial industry, suggesting a paradigm shift in the way financial intermediation is conducted and monetary transactions are structured. In turn, new investment products and financial instruments labelled as green, climate-related or sustainable and responsible were developed. Among them are green bonds and green and Sustainable and Responsible Investment (SRI) sukuk.

Challenges and Opportunities in Implementing the SDGs

The United Nations Development Programme (UNDP) estimates a $2.5 trillion annual gap for achieving the SDGs while the implementation of renewable energy solutions requires an additional net investment of $1.4 trillion, or about $100 billion per year on average between 2016 (when the SDGs were adopted) and 2030 according to the International Renewable Energy Agency (IRENA).

On the other hand, a recent report by the Global Commission on the Economy and Climate highlights that the transition to a low-carbon, sustainable approach to growth could lead to an economic boost of $26 trillion up to 2030 and help create more than 65 million new jobs.

This rising awareness has promoted the development of new asset classes that could be classified under the umbrella of sustainable finance. Activities labelled under this category take into account environmental and social considerations. Other related or sub-categories include climate finance, ethical finance, responsible finance and green finance.

What is Green Finance?

The Organization for Economic Co-operation and Development (OECD) defines green finance as being finance for ‘achieving economic growth while reducing pollution and greenhouse gas emissions, minimizing waste and improving efficiency in the use of natural resources’.

For the past decade, the global green finance market has witnessed a rapid growth, with the development of financial instruments such as green labeled and unlabeled bonds; green loans; green investment funds; green insurance; and recently green sukuk. Although the first green bonds were issued in 2008, the market has significantly developed to mobilize financing for the 17 SDGs with more innovative structures, taxonomies and governing frameworks.

The Infrastructure Development Finance Company (IDFC) estimates green finance at $134 billion. According to Thomson Reuters, in 2019, a total of $185.4 billion in green bonds were issued, which are debt market instruments where the proceeds are allocated to green eligible projects that target climate mitigation and adaptation activities as well as other environmental issues involving energy, water, transport, water, waste, or construction.

Islamic Finance

Considered as an ethical, inclusive and socially responsible finance because it connects the financial sector with the real economy and promotes risk sharing, partnership-style financing and social responsibility, Islamic finance has emerged as an effective tool for financing development worldwide. This explains its increasing significance as an alternative mechanism in infrastructure financing. In an Islamic financial system, transactions must be asset-linked, which increases the financial sector’s stability, and be based on a set of Islamic legal contracts that promote profit and loss sharing. In addition, the principles of social justice, solidarity and mutuality are promoted and investments in sectors that are considered unethical are prohibited.

Islamic finance has the potential to bridge the finance gap required to achieve the SDG agenda and the transition to a green economy. This justifies its identification by participants of the third International Conference on Financing for Development in Addis Ababa in July 2015 as a promising alternative to traditional sources of funding and the recommendation for its utilization to realize the SDGs.

The Islamic financial industry comprises four key segments: Islamic banking, Islamic funds, takaful(Islamic insurance) and the sukuk market. While the four segments can contribute to financing the SDGs, the sukuk segment attracted greater attention recently with the development of green and SRI sukuk. Sukukalso enable the targeting of a wider, global investor base comprising both conventional and Islamic investors.

Sukuk

The Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) defines sukuk as certificates of equal value representing undivided shares in ownership of tangible assets, usufructs and services or (in the ownership of) the assets of particular projects or special investment activity.

The sukuk market is one of the fastest growing segments in the Islamic financial industry with about 24.2% of the total global Islamic financial assets and new issuances amounting to $93 billionin 2018 according to the Islamic Financial Services Board (IFSB).

Often qualified as Islamic bonds, sukuk represents an innovative instrument for financing green projects. Their asset-backing requirement facilitates their link to the real economy and therefore widens the scope of environmental sectors that can be financed. In addition, sukuk can be structured in various ways using single or hybrid Islamic contracts such as agency, partnership and leasing contracts. This flexibility facilitates financial innovation in addressing specific financing needs.

Green sukuk can contribute to achieving nine of the SDGs. These are Good Health and Wellbeing (SDG3), Quality Education (SDG4), Clean Water and Infrastructure (SDG6), Affordable and Clean Energy (SDG7), Decent Work and Economic Growth (SDG8), Industry, Innovation and Infrastructure (SDG9), Sustainable Cities and Communities (SDG11), Responsible Consumption and Production (SDG12) and Climate Action (SDG13).

We first saw the impact of sukuk in 2017 when the world’s first green sukukwas issued by Malaysian-based Tadau Energy to finance a solar power project in Malaysia. Since then, the market has developed significantly with the amount of green sukuk issuance reaching$5.38 billion at the end of 2019, representing 58 issues by nine issuers, mainly led by corporates in Malaysia and the GCC.

The green sukuk market development was also supported by the implementation of enabling frameworks such as the Malaysian Securities Commission’s SRI Sukuk Framework and the recent Indonesia green bond and green sukuk framework.

Towards Green and Blended Finance

The OECD defines blended finance as the strategic use of development finance for the mobilization of additional finance towards sustainable development in developing countries. This requires reconsidering other sources of financing while leveraging the limited public and development finance funds.

A good example to consider is Islamic social finance. The Islamic social finance sector broadly comprises traditional Islamic institutions such as zakat (almsgiving) and waqf (endowments), as well as Islamic microfinance. These segments usually target the bottom of the pyramid populations, who lack access to basic safety nets such as education, appropriate health systems, food and other basic needs.

Zakat and waqf are at the heart of the Islamic economic system as they promote the principles of social justice, solidarity, brotherhood and mutuality whereas microfinance enables small businesses that usually cannot access traditional financing modes, to access financing for small projects that generate income and therefore reduces their reliance on charity.

Zakat and awqaf institutions have played a significant role in the cultural, socio-economic and religious life of Muslims for centuries. Today, many scholars are calling for the revival of these institutions to address contemporary development challenges including environmental issues. Zakat and waqf could be used in green blended finance transactions to address several SDGs and develop inclusive green solutions for smallholder farmers, rural access to clean energy and cooking solutions, water treatment and sanitation solutions, etc.

In conclusion, the widespread transition to a green economy will ultimately require a sustained focus on continuing the growth of the global green finance market and further development of these key financial instruments as promising alternatives to traditional sources of funding.

Top 5 Challenges for the Global Halal Industry

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The global halal industry, which refers to the production, distribution, and consumption of goods and services that are compliant with Islamic law, is a rapidly growing sector. According to the Global Islamic Economy Report, the halal industry is valued at over $2.3 trillion and is expected to continue expanding in the coming years.

However, despite its growth, the halal industry faces several challenges that must be addressed in order to continue its development. Here are some of the key challenges currently facing the global halal industry:

  1. Lack of standardization and certification: One of the major challenges facing the halal industry is the lack of standardization and certification. Different countries and organizations have different definitions of what constitutes halal, and there is no single internationally recognized certification body for halal products. This can lead to confusion and mistrust among consumers, as well as difficulties for producers trying to access new markets.
  2. Insufficient infrastructure: Another challenge facing the halal industry is the lack of infrastructure to support its growth. Many countries do not have the necessary infrastructure, such as slaughterhouses, processing plants, and distribution networks, to meet the demand for halal products. This can lead to shortages and higher prices for halal products, which can be a barrier to their adoption.
  3. Marketing and branding challenges: The halal industry also faces challenges related to marketing and branding. Many consumers are not familiar with halal products, and there is a lack of awareness and understanding of what constitutes halal. Additionally, the lack of a consistent, cohesive branding strategy makes it difficult for halal products to stand out in the marketplace.
  4. Limited access to financing: Another challenge facing the halal industry is limited access to financing. Many halal businesses, especially small and medium-sized enterprises, struggle to secure financing from traditional sources, such as banks and venture capital firms. This can make it difficult for them to scale up and expand their operations.
  5. Political and regulatory challenges: Finally, the halal industry can be subject to political and regulatory challenges, such as changes in government policies and trade regulations that can affect the availability and affordability of halal products.

In order to address these challenges and continue the growth of the global halal industry, it is important for industry stakeholders to work together to establish clear standards and certification processes, invest in infrastructure, develop effective marketing and branding strategies, provide access to financing, and advocate for supportive policies and regulations.

Islamic Coin wins ESG Crypto at The Middle East Blockchain Awards

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Islamic Coin plans to offer several services, including a wallet and a super app, and will soon be available on exchanges.  Islamic Coin, the native currency of the Haqq ecosystem, plans to offer the larger Muslim community as well as others a Shariah-compliant financial instrument for the digital age.

The Middle East Blockchain Awards, which honored Web 3.0 and Blockchain accomplishments alongside some of the major players in the region, were hosted on November 18 in Abu Dhabi. Because it promotes ethical and sustainable conduct and meets ESG requirements, digital currency won the reward category. Mohammed AlKaff AlHashmi, a co-founder and executive board member, accepted the honor.

Targeting 1.1 billion Muslim web users

The one-of-a-kind configuration of Islamic Coin ensures that 10 percent of each issuance is deposited into the Evergreen Decentralized Autonomous Organization (DAO) for further investment into religious businesses or charity, thereby delivering direct monetary benefit to the global Muslim community and beyond. The team has already engaged in sustainability initiatives and recently presented at the WGGO Youth International Conference in New York, supported by the United Nations.

Islamic Coin fully complies with Shariah laws and capitalizes on a vast international market. By 2024, the value of Islamic finance is expected to reach $3.69 trillion; by 2025, the value of ESG assets is expected to reach $53 trillion.

“We have a digital currency that not only makes social contributions through charity but is also good to society because it uses a proof-of-stake system that requires the purchase of tokens to be part of the network, a process that saves significant amounts of energy,” explained Andrey Kuznetsov, Islamic Coin’s co-founder and chief technology officer.

Islamic Coin aims to reach 1.1 billion Muslim internet users worldwide and supporters of fair and transparent finance. Already, the cryptocurrency has garnered attention from prominent figures in both traditional and Islamic finance and has secured support from royal families in the UAE.

Royals and leading experts lend support

Leading Islamic Coin’s Shariah Board is Sheikh Dr. Nizam Mohammed Saleh Yaquby, who is referred to as “The Gatekeeper” of a $2 trillion market for Islamic financial products. Sheikh Yaquby is a member of the Shariah boards of several major global financial organizations, including HSBC, Lloyds TSB, and Barclays, as well as Citigroup, BNP Paribas, and French bank Credit Agricole.

The Executive Board is composed of influential individuals from both conventional and Islamic finance. One of the important figures in the establishment of Dubai Islamic Bank, the first fully-fledged Islamic Bank in the world, is Hussein Al Meeza, an award-winning banker with over 45 years of experience in the Islamic banking, finance, and insurance sectors.

Khamis Buharoon AI Shamsi, who previously worked for the Central Bank of the UAE as an assistant director in the finance division and an assistant director in the internal audit division, is now a member of the board.

Additionally, Greg Gigliotti, the company’s CEO, chief investment officer, and founding partner, has joined. Gigliotti is a reputable fund manager who has experience working for Goldman Sachs and other multinational companies. Throughout his tenure, he oversaw a portfolio worth more than $16 billion.

Islamic Coin plans to offer several services, including a wallet and a super app. Its product offerings will soon be available on exchanges.

Delegation briefed about immense opportunities in Salalah Free Zone

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Muscat: The existing and potential investment opportunities and the world-class infrastructure that meet the requirements of investors, were conveyed to a delegation on their visit to the Salalah Free Zone and Port.

The media delegation comprising reporters of Arab and foreign news agencies were also acquainted with the transport system, the logistics sector and the available business opportunities in Dhofar Governorate.

The visit comes within the delegation’s visit to the Governorate to promote economic, investment and tourism projects.

During the visit to Salalah Free Zone, the delegation was briefed by Ahmed bin Said Tabook, Director General of Commercial Affairs at Salalah Free Zone.

The location of Salalah Free Zone is close to the ports which help in motivating multi-media communication and ensures smooth movement of goods and creation of opportunities for integration of the value added chains, he said, adding that the location also provides access to the international markets.

He said that the Salalah Free Zone provides several incentives and facilities to investors, including   tax exemption and  freehold projects. The port enjoys sixth place out of 351 ports at the world level in the operations capacity.

The free zone is close to Salalah Airport and international shipping lines qualified as free zone to play a vital role in the supply chain and logistics services sector, he said.

The Salalah Free Zone is spread over an area of approximately 2.6 million sq. metres for the chemicals sector companies, he said, adding that the said area hosts a number of companies in the petrochemicals sector such as OQ Methanol, OQ Liquified Petroleum Gas, Octal and other companies.

The media delegation toured a number of projects at Salalah Free Zone, including Al Jood Food factory, one of the largest factories at Salalah Free Zone,  established in May 2019.

The delegation also visited USG Company’s factory which produces gypsum sheets meant for export to other countries.

On the visit to Salalah Port,  the delegation was briefed by Mohammed bin Aufait Al Masha’ani, CEO for Corporate Affairs at Salalah Port on the logistics services , facilities, projects and investment opportunities the port offers.

Al Masha’ani pointed out the role the Salalah Port plays in international shipping by receiving an increasing number of container vessels.

He also pointed out that the port possesses a general goods/cargo terminal established in 1976.

He said that Salalah Ports Services Company operates in the field of management and its operation is in accordance with a concession agreements signed with the Government of Oman.

The company also manages the Salalah Port in coordination with the management of Salalah Free Zone and other companies operating in the zone.

He said that Salalah Port secured the second place in the container ports performance index (CPPI) in 2021, issued by the World bank and Standard & Poor’s Global Market Intelligence and sixth place in the CPPI for 2020.

IsDB Group announces a USD 10.54-billion package for Food Security Response Program (FSRP) to respond to the global food security crisis in its member countries

IsDB Group announces a USD 10.54-billion package for Food Security Response Program (FSRP) to respond to the global food security crisis in its member countries

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Jeddah, Kingdom of Saudi Arabia, 28 July 2022 – The Islamic Development Bank (IsDB) Group held today an extraordinary joint meeting of the IsDB Board of Executive Directors, the Board of Directors of the Islamic Solidarity Fund for Development (ISFD), and the Board of Directors of the Islamic Corporation for the Insurance of Investment and Export Credit (ICIEC), chaired by IsDB President and Group Chairman, H.E. Dr. Muhammad Al Jasser. The joint meeting endorsed a USD 10.54 billion comprehensive Food Security Response Program (FSRP) package that will support member countries in addressing the ongoing food crisis and, most importantly, scale up the Group’s continued efforts to contribute to strengthening its members’ resilience to food security shocks in the future.

As part of the IsDB Group comprehensive package, the IsDB will contribute up to USD 5.7 billion in total financing to member countries, comprising new approvals worth USD 4.0 billion and fast-tracking of disbursements for existing projects worth USD 1.7 billion. In addition, as part of its “One Group-One Goal” approach, the program involves significant and direct contributions by IsDB Group entities as follows: (i) ITFC: USD 4.5 billion in trade financing; (ii) ICD: USD 269 million in private sector development operations; (iii) ISFD: USD 75 million in loans, grants, and capital resources; and (iv) ICIEC: USD 500 million in political and credit insurance coverage. To complement the financial package of the IsDB Group, the Islamic Development Bank Institute (IsDBi) will provide critical data, analytics, and evidence-based support for effective and impactful decision-making.

To jump-start the program, the financing package is expected to provide immediate financing of up to USD 3.2 billion (over the coming 18-month period) for short-term interventions by providing (i) emergency food and agricultural supply and (ii) social protection and livelihood support to the most vulnerable populations.

The primary focus of the program and the bulk of the financing envelope of the remaining USD 7.3 billion, which will span over the next three years, will be on developing innovative medium- and long-term interventions to address structural weaknesses and root causes of food insecurity in the member states. These include low productivity, rural poverty, climate change, and weak resilience of regional and national agricultural and food systems through six (6) key initiatives: (i)  building agricultural resilience to climate change; (ii) food and input value-chains; (iii) smallholders’ productivity and market access; (iv) rural livelihood support; (v) livestock and fisheries development; and (vi) building resilient food supply systems.

The total IsDB Group’s financing support for agriculture and food security currently stands at USD 20.6 billion, comprising 1,538 operations.

Indonesia’s special economic zones attract over 4 billion USD

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Jakarta (VNA) – Special economic zones (SEZs) in Indonesia have attracted a combined investment of 60 trillion rupiah (4 billion USD) following the approval of the Omnibus Act on job creation, an official from the Coordinating Ministry for Economic Affairs has said.

Elen Setiadi, an expert on regulation, law enforcement and economic resilience at the ministry said the act has partially changed the SEZ Law.

According to Setiadi, after the approval of the Omnibus Act on job creation, four new SEZs were established, including Gresik SEZ in East Java province, Lido SEZ in West Java province, Nongsa SEZ and Batam Aero Technic SEZ in Batam city in Riau province.

Currently PT Freeport Indonesia company is developing a metallurgical plant in Gresik SEZ, while MNC Land is looking to develop a tourist attraction in Lido SEZ. A project at SEZ Lido is expected to be completed in September or October.

Setiadi also said that a Hong Kong-based company has set up a data centre worth 7 trillion rupiah at Nongsa SEZ, while Lion Air Group is looking to expand its business at Batam Aero Technic SEZ.

Earlier, Indonesian Coordinating Minister for Economic Affairs Airlangga Hartarto said that Indonesia owns a total of 19 SEZs, of which 15 are active.

In order to promote the development of the SEZs, Indonesia has recently issued a decree which sets a target of attracting over 50 billion USD of investment in the zones in the next decade./.

BARMM Seeks to Establish More Economic Zones and Halal Hubs

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BARMM Seeks to Establish More Economic Zones and Halal Hubs

 

The Bangsamoro Autonomous Region in Muslim Mindanao (BARMM) Economic Zone Authority (BEZA) is seeking to establish more economic zones, especially for Halal hubs in the region, which is composed of six provinces and three cities. Philippine Economic Zone Authority (PEZA) Deputy Director General Aleem Siddiqui Guiapal, who represented PEZA during the 1st Multi-Stakeholders Forum for the Development of Polloc Freeport and Economic Zone (PFEZ) on December 6, said the national agency is behind BEZA in promoting more ecozone developments in the region. Guiapal, PEZA’s point person for BEZA, raised the possibility of collaboration between PEZA and BARMM in investment promotions, especially in the establishment of Halal hubs in the region.

Bangsamoro Chief Minister Ahod Balawag “Al-Hajj Murad” said a day before the forum that PEZA will help in the Bangsamoro government on how to benefit from special economic zones (ecozones), which are known to be effective in catalyzing economic activities, generating jobs, and attracting foreign investments. Read more…

Agribusiness: Meeting Unprecedented Challenges

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Agribusiness: Meeting Unprecedented Challenges

By Thomas Monteiro

A perfect storm hit the global agricultural market this year—or, in some places, a perfect drought. The war in Ukraine; global post-pandemic supply-side disruptions; record droughts in Europe and China; frosts in Brazil; Hurricane Ian in Florida; and unusually heavy rains and floods in India, Pakistan and Australia combined in 2022 to test the limits of the current production and retail chain of food supplies. “Several issues affected supply, but three years of La Niña and the war in Ukraine are the two major factors there,” says Carlos Mera Arzeno, head of Agri Commodities Markets Research at Rabobank.

The current challenges add to the strain on an already strained market. In 2012, the Food and Agriculture Organization of the United Nations (FAO) estimated that by 2050 we will need to increase food output by 60% based on a business-as-usual scenario. “The global food market faces the challenge of feeding a growing population, which should reach 10 billion people by 2050. It is not a trivial task,” explains Christiane Assis, director of investor relations at food processing company JBS. Read more>>

The Islamic Development Bank (IsDB), during its 344 Board of Executive Director’s meeting of 13 February 2022, approved Projects for Cote d’Ivoire, Guinea, and Senegal

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1. Phase 3 of the Hydro-Agricultural Development Project in Upper Sassandra and Fromager Regions will contribute to increasing the production of rice, market garden and fishing products in the two regions. The project will improve the transformation and marketing capacities of value chain actors.

2. Phase 2 of the Development of Technical and Vocational Education Project (ERAM) will contribute to the development of the Training and Vocational Education (TVET) sector in line with the strengthening of the education system’s performance for human capital needs. The project will construct and equip new schools, it will develop curricula for some new trades and modernize some existing ones, and it will improve the quality of education through training of academic and administrative staff of the Ministry.

3. Construction of Dakar – Tivaouane – Saint Louis Highway Project (Mékhé – Saint Louis Section) will (i) promote economic development, mining, agriculture, fishing, trade and tourism; (ii) reduce disparities in transport infrastructure and improve social well-being; (iii) develop exchanges between Senegal, North Africa and West Africa; (iv) Reduce the transport cost and time; and (v) Ensure the safety of road users.

Training Workshop on the International Road Transport (TIR/ eTIR) and the Conventions on the Contract for the International Carriage of Goods by Road (CMR/ eCMR) for the Sub-Saharan African Countries

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Casablanca, Morocco, 28 June 2022 – within the framework of their joint capacity development program in the field of trade facilitation, the Islamic Center for the Development of Trade (ICDT), the Islamic Development Bank (IsDB) and the Secretariat of the Economic Commission of United Nations for Europe (UNECE), organize a Training Workshop on International Road and Goods Transport Conventions.

This workshop is organized for the benefit of the executives of the Ministries of Trade and Customs Administrations of 17 member countries of Sub-Saharan Africa. It will address the technical aspects of the implementation of the two conventions related to the international transport of goods.

The training workshop which will be held from 28-29 June 2022, gives the opportunity for the participants to learn about the benefits of implementing these conventions, including the reduction of customs administrative procedures and the adequate allocation of resources for proper risk assessment. The workshop will also highlight simplifying transit operations and managing data related to cross-border transport.

During this workshop, Mr. Mohammed Benaguid , Head of Logistics and Procedures Department at Ministry of Industry and Trade, Morocco delivered the opening speech along with Mr. Mamoudou Sall, Assistant Director-General of the Islamic Centre for Development of Trade (ICDT), Mr. Kadir Basboga, Senior Regional Integration Economist of the Regional Cooperation and Integration (RCI) Department at IsDB and Mr. Konstantinos Alexopoulos, Chief, Transport Facilitation and Economics Section of the United Nations Economic Commission for Europe (UNECE). In the opening speech, Mr. Kadir emphasized IsDB’s commitment to continue to work with partners to support its member countries (MCs) through the various IsDB programs including the Technical Assistance Program (TAP) for Regional and Global integration in Trade.

The subject of this workshop is of great interest to the concerned authorities as the road remains the most dominant mode of transport in Sub-Saharan Africa. The implementation of these conventions has advantages in terms of opening up several countries on the continent to international trade.