islamic finance for global goals -...
TRANSCRIPT
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National Seminar, 28 September 2019, Universitas Gunadarma
Islamic Finance for Global Goals
Greget Kalla Buana
UNDP Islamic Finance Specialist
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On the ground in about 170 countries and
territories, UNDP works to eradicate poverty
while protecting the planet. We help
countries develop strong policies, skills,
partnerships, and institutions so they can
sustain their progress.
United Nations Development Programme
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GlobalCountry
Level
Indonesia
Context
SDGs requires additional
investment of $5-7 tn per
year up to 2030 (ICESDF),
developing countries needs
$3.3-4.5 tn per yer
(UNCTAD), financing
shortfall of about $2.5 tn
(World Investment Report
2014 – Investing in the
SDGs).
Government alone cannot
be responsible for domestic
financing, leaving
opportunity for increased
and more effective
philanthropic giving and
social finance.
Domestic public and private
investment accounts for
more than half of all
financing for development.
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SDGs Financing: Problem or trillion $ opportunity?
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SDGs Financing Gap in Indonesia
Source: BAPPENAS (2018), Preliminary analysis for draft of RPJMN 2019-2024.
Source: Indonesia’s Development Assessment (DFA) supported by UNDP
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Assets expected to exceed $3 trillion by 2020.
Annual Islamic finance industry expansion 10-12%.
Embodies socially responsible & sustainable development.
Engaging with religious organisations crucial for peace,
development, promoting tolerance.
Islamic Finance and SDGs
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Striking Commonalities between SDGs and Maqasid Sharia
Maqasid Sharia (MS) is very
systematic and it attempts to
address human welfare and
wellbeing in a comprehensive
way in a systemic manner.
17 SDGs are important for the
world community and for the
Muslims as well because:
a. They are good in
themselves.
b. Not in direct conflict with
Islamic percepts, and
c. Have been agreed by world
community in general.
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Proof of Concept
Harnessing Catalyzing Convening
UNDP receives grants
from Islamic finance
stakeholders to
implement projects.
UNDP helps Islamic
finance stakeholders
align their activities with
the SDGs.
UNDP presents at public
or inter-agency events
on its engagement with
Islamic finance.
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SDGs Country Platform
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Baznas commits zakat funds (US$350k) for
micro-hydro energy in rural Sumatra
leveraging CSR from Bank Jambi. The
collaboration is continued with local
economic development programme.
Zakat for SDGs
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UNDP Indonesia is engaging with
Indonesian Waqf Board to develop
waqf digital platform through
blockchain technology with support
from AID:Tech.
Waqf Digital Platform
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Conventional Impact Investing
Global Impact Investing Network (GIIN), impact
investments are investments made into companies,
organizations, and funds with the intention to generate
social and environmental impact alongside a financial
return.
Characteristics:
a. Intentionality
b. Return expectation
c. Range of return expectation and asset classes
d. Impact measurement (Financial, e.g. ROE/ROA/ROI;
Social, e.g. outreach, output, outcome, impact)
Standards: ESG
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ImpactOutcomeOutputOutreach
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Islamic Impact Investing
Basic tenets:
a. Application of screen and filter
b. Risk sharing by both financier and client
c. Money has no inherent value alone
d. Clear contractual terms
e. Zakat (Charitable Giving)
Key structures of investments:
a. Sukuk
b. Murabaha
c. Ijarah
d. Istishna
e. Musyaraka/Mudaraba
Infrastructure readiness: regulation and innovation
Financial intermediaries: investment platforms, banks, MFIs
a. Pakistan Voluntary Islamic Pension
system. Studied by Thompson Reuters.
b. Tax treaty effects on Islamic investing
markets and investments. Studied by
KPMG.
c. Oman regulatory framework. Permitted
Islamic banking in 2012 and developed
comprehensive, systematic framework
for Islamic financing. Studied by E&Y.
d. Wasil Foundation. Non-profit MFI in
Lahore, Pakistan that is offering only
Sharia compliant products like
Musharaka and salaam. Studied by
CGAP.
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Success value of sukuk in Indonesia has increased from
US$59,7 million in 2013 to US$1 billion in 2016.
Budget Tagging for Climate
Change MitigationIssued in 2018 & 2019
UNDP Contributed to the Issuance of Green Sukuk
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Indonesia is the world’s largest archipelago comprising over 17,508 ISLANDS. Covering an area of about
790 million hectares with a total coastline length of 95.181 km and a land territory of about 200 million
hectares. Therefore, Indonesia is highly vulnerable to the adverse impacts of climate change.
Data collected on the
average temperature
variation across the
entire region of
Indonesia for the past
years shows a trend of
increasing temperature
level.
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The financial gaps between funding needs and currently available financial resources to support
GoI commitments in financing climate change activities is apparent.
Financial resources allocated
for both mitigation and
adaptation actions 2015 -
2019, are $55.1 billion
Estimated cost of climate
change mitigation and
adaptation actions
2015-2020 are $81 billion
Source: NDC, 2017 Source: TNC, 2017
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In 2018 & 2019, RoI has issued Green Sukuk of
(~IDR 30 trillion)
• The world’s first sovereign green sukuk
• First sovereign to issue green bond/sukuk
twice consecutively
Green bonds market developed quite rapidly in recent years.
Globally there is, up to now, USD1.45 tn climate aligned bonds
with USD389 bn alone in green bond. (CBI, 2018)
SOVEREIGN GREEN BOND CLUB:
POLAND, FRANCE, FIJI, INDONESIA, NIGERIA, BELGIUM
• Sukuk is bonds that comply to Islamic law/securities based on Islamic principles. What is Sukuk?
•Sukuk represents proportionate ownership of an asset, while bonds indicate a debt obligation. In
other words, sukuk is backed with tangible assets not debt.
•The assets that back sukuk are compliant with Sharia.
•The returns of bonds in in the form of interest payments, while returns on Sukuk is periodical
payments -> rent/profit.
How is Sukuk different than Bond?
• Regulation from the National Islamic Council (DSN MUI) No 01/DSN-MUI/III/2012.How is it being regulated in
Indonesia?
• Innovative financial instruments where the proceeds are invested exclusively to finance or
refinance green projects that generate climate or other environmental benefits, including
mitigation, adaptation and biodiversity.
What is Green Bond/Sukuk?
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Climate Change Budget Tagging (CBT) is a tool to identify and track how much the Government
has spent on climate change mitigation and adaptation by tagging all of the spending that fits into
the GoI’s climate objectives. CBT has been developed and implemented since 2014 with the
support from UNDP.
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Supporting Blue Economy is also already in Government regulation and SDG:
1. Undang Undang Republik Indonesia Nomor 32 Tahun 2014 Tentang Kelautan
2. Sustainable Development Goals 14 – Life Below Water
3. Rencana Aksi Nasional Tujuan Pembangunan Berkelanjutan – Perpres Nomor 59 Tahun 2017
The utilization of Marine Resources:
a. Fishery
b. Energy and mineral resources
c. Coastal and small islands resources
d. Nonconventional resources
The exploitation of marine resources:
a. Marine industry
b. Marine tourism
c. Sea transportation
d. Sea building
Sustainable fishery
Marine renewable energy
Sustainable aquaculture
Coastal protection, restoration and blue carbon
Waste management
Marine Technology
Tourism
Definition: Translated to Sectors:
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Blue Financial Instrument
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Initial liftHelp people move beyond survival to security & growth
Revolving fund for the micro-
entreprises; investment in waqf
land
Promote inclusive, sutainable
economic growth
ZakatIslamic
MicrofinanceCash &
land WaqfSukuk
Complementarity of Islamic Finance
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Youth Co: Lab and Incubation
UNDP Impact Accelerator
SDG Impact Fund
Incubator for very early stage
start-ups. A RBAP Initiative. We
work with local partner of
Hubud and the Creative
Economy Agency (BEKRAF).
The Impact Accelerator
program is designed to provide
social entrepreneurs with access
to the knowledge, networks,
and resources they need to
grow their businesses and their
impact.
A blended finance fund to
invest in companies that have
the intention to generate a
measurable and beneficial
social or environmental
impact.
SDG Impact
Framework –
Islamic
Impact
Framework
Pipeline development Scale-up capital
UNDP Strategy in Impact Investment in Indonesia
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Thank you
Contact: Innovative Financing Lab