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Last August, I had the honor of facilitating a training on impact investing at the Institute of Business Administration in Karachi (Pakistan) along with experts from the United Nations Development Program, the Islamic Development Bank and IDA Capital (Turkey). The main takeaways from the training and the interaction with the participants are as follows:
- Closing the gap between finance and sustainable development.
According to the Sustainable Development Solutions Network, 1.5-2.5% of the global GDP may be needed to finance the achievement of the SDGs in all countries. The public sector alone will not be able to close such important gap especially in developing countries. The active contribution of the private sector is contingent upon the availability of effective impact investing tools.
There is clearly a timely opportunity for Islamic finance. It will allow the industry to clarify its genuine value proposition based on its core values, serve customers’ expectations and channel funds to address social and environmental challenges especially in OIC countries.
- Leveraging conventional impact investing experiences
Islamic impact investing does not need to start from a white sheet. In fact, impact investing has been successfully applied in various sectors (green energy, education, health, food…), in both developing and developed countries and with diversified financial instruments. Such a rich conventional impact investing experience has to be leveraged and, if needed, adapted to the Islamic finance requirements
For instance, the Global Impact Investing Network (GIIN) has developed a toolkit designed to help investors navigate the landscape of impact measurement and management tools. This open source knowledge, which comprises systems, methods, data and indicators, can be easily used in an Islamic impact Investing context.
- Empowering Waqf & Zakat
Waqf and Zakat can bring value to impact investing. For example, directing cash waqf funds to support social entrepreneurs can generate a much higher social return compared to simple cash donations. Cash waqf use include co-financing, subsidizing or guaranteeing equity investments.
- Thinking globally and acting locally
Relying on international best practices is important but adapting them to the local context is critical. For instance, copy pasting a Malaysian social sukuk structure in Maghreb countries may not necessarily work because the social, economic and legal contexts are not identical.
- Building ecosystems
The development of Islamic impact investing requires a supportive ecosystem that comprises assets owner (Islamic finance institutions, high net worth individuals…), assets managers (investment advisors, government investment programs…), demand side players (social enterprises, cooperatives…) and service providers (consultants, auditors, research institutions…). Building the ecosystem will naturally take time but the industry has to start somewhere
- Embracing Fintech
It is hard to image the emergence of Islamic impact investing without a strong focus on technology. Today, technology provides tremendous possibilities to make financial services affordable, scalable, customizable and effective (smart phones, peer-to-peer platforms, Blockchain, artificial intelligence…)