Islamic Finance and the SDGs – UK Update
With Covid-19 exposing the fragility of people and the planet the Sustainable Development Goals (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.
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.
A new high-level international taskforce to engage the Islamic finance industry with the SDGs was launched late last year. The taskforce, which is anchored in London and run by the UKIFC with the support of the UK Government, aims to promote understanding and encourage adoption of the SDGs amongst Islamic financial institutions.
Commenting on the launch Economic Secretary to the Treasury, John Glen MP, said: “This Taskforce will bring together the global Islamic finance community so it can help us meet our international, environmental and sustainability objectives – using UK expertise in sustainable finance to drive forward innovation around the world.”
The inaugural meeting was scheduled for March 2020, and recently took place virtually after a postponement, attended by leading Islamic finance institutions along with the Bank of England, John Glen MP and Islamic Development Bank President, HE Bandar Hajjar.
The UKIFC, in partnership with Malaysia based International Shari’ah Research Academy for Islamic Finance, recently launched the first report in a thought leadership series that aims to assist and encourage active engagement in support of the SGDs 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 report highlights:
- The limited participation from Islamic finance sector in leading UN initiatives such as Principles for Responsible Investment (PRI), Principles for Responsible Banking (PRB) and Principles for Sustainable Insurance.
- That 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.
- An opportunity for Islamic finance to tap into emerging global liquidity pools seeking SDG-aligned products.
- Aligning 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.
In terms of practical action in 2016, DDCAP became one of the first Islamic financial sector signatories to the PRI thereby demonstrating a commitment to aligning responsible investment practices with the SDGs. The UK is also leading the way in relation to the Islamic finance sector’s engagement with the PRB. The principles offer the first SDG-aligned global framework that helps banks to integrate sustainability across their operations at the same time as enhancing their positive impact. In February 2019 the UKIFC became the first advisory body dedicated to Islamic finance to formally endorse the principles and Gatehouse Bank was the first fully Shariah compliant bank amongst the founding signatories when the principles are launched at the UN General Assembly in New York in September 2019.
Elsewhere UK-based Cogneum, in partnership with Bahrain Institute of Banking Finance and Innosoft Solutions, working to develop and launch the world’s first Shariah Governance software platform that links an Islamic bank’s activities to Maqasid al Shariah as well as the SDGs.
With assets expected to reach US $3.8 trillion in 2022, through its adeptness at innovative financial structuring, the global Islamic finance sector has the opportunity to take a leading role in driving capital towards the SDGs and UK organisations are well placed to contribute and support.
OTHER UK DEVELOPMENTS
All Party Parliamentary Group On Islamic Finance (APPGIF)
The APPGIF was re-constituted on 4th February 2020 with the continuing aim of promoting the understanding and development of Islamic finance both domestically in the UK and overseas as well as looking at the role Islamic finance can play in the wider ethical finance sector. It is an active body with 9 officer holders and a further 5 supporters from across the parties and from both sides of the house.
In 2014 the UK became the first country outside the Islamic world to issue sovereign Sukuk. The 5-year £200 million issuance received very strong demand, with orders totalling around £2.3 billion, and allocations made to a wide range of investors including sovereign wealth funds, central banks and domestic and international financial institutions. Following a “value for money assessment” in June 2019 former Chancellor Philip Hammond announced the UK will be issuing a second sovereign sukuk.
Other than the aforementioned the Debt Management Office announced in November 2019 that HSBC and Clifford Chance LLP were appointed on 4 November 2019 as structuring and legal advisors and, as yet, despite the procurement notice indicating that the contract would end on 3rd May 2020, there has been no announcement on the appointment of Structuring Bank(s). With the coronavirus pandemic causing great volatility in financial markets it remains to be seen whether the Sukuk will be issued this year.
By issuing a sovereign Sukuk the Government sought to pave the way for other public and private sector organisations to follow suit. However, Al Rayan Bank, which issued a public Sukuk for £250m in early 2018 to become the first bank ever to issue an Islamic bond in a non-Muslim country, has been the only other UK entity to enter the Sukuk market.
Shariah compliant student loans
As far back as 2013, when the UK hosted the ninth World Islamic Economic Forum, former Prime Minister David Cameron announced that “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”. Despite the Government commitment a shariah compliant student loan product is still not available to prospective and existing UK students. Whilst progress has been made a wider review of student finance, as well as the coronavirus pandemic, have caused delays and the solution, which we believe to be based upon a Takaful model, has yet to be formally launched.
Shariah compliant real estate investment in Scotland
Pre-coronavirus as the real estate market in the Middle East stabilised, Gulf investors have sought to diversify their property portfolios and select the UK as a preferred investment destination. Whilst London continues to dominate the strong yield projections in other UK cities (including Manchester, Liverpool and Leeds) has driven the trend for Gulf real estate investment to flow northwards. There has been significant activity in Scotland where there is a separate and distinct legal basis for structuring shariah compliant deals. Over the last 2 years, supported by organisations such as BDO, Gatehhouse Bank, Ocorian and Shepherd + Wedderburn, over £250million of Shariah compliant real estate deals have been concluded for properties in Aberdeen, Edinburgh and Glasgow.
The UK Islamic FinTech Panel, an independent group of Islamic finance and fintech practitioners, continues to focus on connecting entrepreneurs with government, and building international connections with the inclusion of participants from Bahrain, Dubai and Pakistan. Fintech success stories in the UK include Yielders, an Islamic crowdfunding platform for UK property that allows investors to buy shares in houses that it buys and lets, Wahed Investment who have launched their US robo-advisory halal investments platform into the UK and Niyah, a mobile-only Islamic banking solution providing an interest-free banking experience. Kestrl, an ethical banking fintech, is set to launch in the UK later this year.