Context

Following the end of the Millennium development agenda in 2015, the UN and development institutions made a balanced sheet and realized many problems are still plaguing the world. So, phase 2 of the development agenda called Sustainable development goals was introduced.

The Sustainable Development Goals are a universal call to action to end poverty, protect the planet, and improve the lives and prospects of everyone, everywhere. The 17 Goals were adopted by all UN Member States in 2015, as part of the 2030 Agenda for Sustainable Development which set out a 15-year plan to achieve.

A couple of problems among which the climate crisis, covid 19, and recently Russia’s war in Ukraine have hindered the achievements of the SDGs. Thus, there was a need for a model which could facilitate the achievement of SDGs.

The billion-dollar question is; Is Islamic finance the right tool for the achievement of the SDG?

Islamic finance has been receiving increased global attention and has emerged as an effective mode of financing sustainable development. Islamic finance, through its principles, instruments, and institutions, can facilitate resilient growth, generate a positive social outcome, promote financial inclusion, and strengthen the financial sector’s resilience by sharing a common ground for efforts in sustainability and development.

Islamic finance instruments for the achievement of SDGs

Zakat. Zakat is a religious tax that every Muslim with a stable source of income is called upon to give for social causes. And, Zakat is the third pillar of Islam. There exist 2 types of Zakat: Zakat al fitr( raised during Ramadan), and Zakat al-mal (2.5% of Muslims earning). There are 8 beneficiaries of Zakat among which are the poor, the needy, the slave, reconverted Muslims, the Zakat manager, etc. Therefore, a smooth mobilization and distribution of Zakat can achieve SDG1, SDG2, SDG4, and SDG12.

Qard hasan: This is an interest-free loan given by a lender(bank) to a borrower to meet shortcomings. Qard hasan achieves SDG1, SDG2, etc.

Al Waqf: Waqf is an endowment made by Muslims to a religious, educational, and charitable cause. Waqf for the construction of schools, and hospitals help in the achievement of SDG3, SDG4, and SDG5

Istisna: Istisna is generally a long-term sales contract between a customer and the bank, whereby an Islamic Bank agrees to construct and deliver an asset at a pre-determined future time, at an agreed price. Istisna is a perfect instrument for infrastructural projects like road, bridge, and dam constructions. Thus this instrument can achieve SDG7, SDG9, and SDG11

Green Sukuk: Green Sukuk is a green Islamic bond where the proceeds are used to fund specific environmentally sustainable infrastructure projects. Green Sukuk achieves SDG6,SDG7,SDG13,SDG14,SDG15,etc

In a nutshell, we can say that Islamic finance is indeed the model required to achieve the SDGs