Downloaded 17 times
Uploaded bySDGsPlus
SDGs and Islamic Finance
The document discusses several global megatrends and challenges facing the world economy such as fragility and violence, shifts in the global economy, climate change, urbanization, and technological disruptions. It notes that while overall global economic growth recovered in recent years, investment growth has been weak, especially in emerging and developing economies. It also discusses the opportunities and challenges presented by the Sustainable Development Goals (SDGs) framework for countries, including financing sustainable development and leveraging opportunities in Islamic finance and other sectors.
More Related Content
Similar to SDGs and Islamic Finance
SDGs and Islamic Finance
- 1. @wbg2030 worldbank.org/sdgs Durham University February 2,2018 Mahmoud Mohieldin Senior Vice President World Bank Group
- 2. Global Megatrends andChallenges Fragility and violence Shifts in the global economy Climate and resources Commodity cycles Urbanization Source:WorldBank ForwardLook, September2017 Demographic transitions Renewed political debate about globalization Technological disruptions
- 3. Growth: a broadbased recovery 0 0.5 1 1.5 2 2.5 3 3.5 4 4.5 5 2015 2016 2017e 2018f 2019f 2020f Percent World Advanced Economies Emerging Market and Developing Economies (EMDE) Source: World Bank Global Economic Prospects, 2018
- 4. But investment growthhas been weak 0 4 8 12 16 2010 2011 2012 2013 2014 2015 2016 2017 2018 2010 2011 2012 2013 2014 2015 2016 2017 2018 2010 2011 2012 2013 2014 2015 2016 2017 2018 World AEs EMDEs 2003-07 average 1998-2017 average Percent Investment growth Investment growth in EMDEs has halved since 2010. Since capital accumulation makes a major contribution to potential output growth both directly, and indirectly via TFP, the slowdown has negative implications for future growth
- 5. The world’s economiccenter of gravity, 1980–2016, in black, at three-year intervals Reflections on the new global economy: multipolarity 1980 1989 1998 2007 2016 2049 Source: Danny Quah, 2011 Evolution of the earth’s economic center of gravity: 1 CE to 2025
- 6. The global risks landscapein 2018
- 7. The SDGs presenta major opportunity for transformation Global development agendas serve as a guide for countries to determine their national development path MDGs (2000-2015) SDGs (2016-2030) Goals/Targets/Indicators 8/21/60 17/169/~230 Priority Areas Human Development Holistic: Economic, Social, Environmental Scope Developing Countries Universal
- 8. Countries’ most frequentlyidentified priorities* require an integrated approach * Based on analysis of statements made during the UN High Level Political Forum, July 2017; in no particular order Sequencing implementation of goals within context of national priorities Working in partnership to determine national development strategy Coordinating within governments; across and within ministries Securing enough financial resources and efficiently allocating them Data availability and institutional capacity Localizing and implementing the goals at the local level Incorporating and mainstreaming gender Integrating action on climate change
- 9.
- 10. Data gaps aresignificant 0 5 10 15 20 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 “Assessability” of SDG targets in Canada Quantified SDG target Canadian national target Proxy target Not able to assess
- 11. The SDGs areinterlinked and data is critical to understand those relationships Japan’s goals interlinked to SDG 1
- 12. Data is crucialto understanding how trends are shifting
- 13. “Data is thenew oil” * Members of the Global Partnership for Sustainable Development Data
- 14. The shape ofsuccessful national data systems in the future Source: Data for Development: An Evaluation of World Bank Support for Data and Statistical Capacity, Independent Evaluation Group, World Bank, 2018 Institutions Based on Organizations that Have Data that Are Users Who Are Data Uses • Open data laws • Rights to privacy • Accountabilit y to users • Broad outreach to society • Harmonized data conventions • Budgetary autonomy • Trained staff • Adequate installations • Connected databases • Early warning systems • International partnerships • Up to date • Disaggregated • Easy to manipulate and visualize • Accessible in remote areas • Georeferenced • Contestable • From integrated data sets • Connected • Data literate • Diverse (e.g., • academics, CSOs, media, local and central governments) • Planning • Policy making • Monitoring • Targeting • Research • Advocacy • Lobbying • Citizen empowerment
- 15. The key components of financing sustainable development Source:World Bank Group, 2015
- 16. Financing sustainable development Source:World Bank, 2018 When a project is presented, apply the “Cascade”. You should ask: “Is there a sustainable private sector solution that limits public debt and contingent liabilities?” If the answer is... Promote such private sector solutions • TheWorld Bank could play an important role in supporting the government to advance appropriate private sector solutions. i.e. though analytical support, technical assistance for relevant reforms and capacity building, project identification and preparation support, project structuring, and support to the government in negotiations with the private sector Ask whether its because of: • Policy or regulatory gaps or weaknesses? If so, provideWBG support for policy and regulatory reforms. • Risks? If so, assess the risks and see whether WBG instruments can address them. YES NO
- 17. Components of asound financial sector Consumer/ Investor Protection Effective Regulations Financial Literacy Financial Innovation Mobilize Savings and Allocate Investments Legal framework to enhance trust, confidence in financial contracts and transactions 17
- 18. Several business themesprovide major opportunities in a world economy heading for the SDGs
- 19. Domestic savings canhelp reduce poverty and drive economic growth Key drivers •Influence savings behavior: introduce savings accounts for all students •Improve real income through: • increasing total factor productivity, • increasing labor efficiency, and • maintaining price stability •Reform public social security •Enhance commercial insurance systems •Mobilize digital/biometric ID systems •Realize the potential of fintech
- 20. Islamic finance supportsa number of sustainable development objectives Financial stability Financial inclusion Social Impact Infrastructure development
- 21. Can sukuk beused for infrastructure investment? Source: Naveed, Sukuk: asset securitization based on shari’a principles, 2015
- 22. Global Infrastructure Finance Islamic Finance (Sovereign direct borrowing,sovereign sukuk etc) Islamic Finance for PPP Islamic finance for infrastructure investment and PPPs • Islamic finance for infrastructure development is a niche segment in the global PPP space: • Sovereign direct borrowing, sovereign sukuk can be leveraged to attract private funding and form PPPs. • It can be leveraged to cover the massive global infrastructure financing gap
- 23. • Issuance ofvarious IF instruments, incl sukuk, which raised $700M in 2015 • Doraleh Container Terminal Project, Djibouti • Technical Assistance to various governments Examples of WBG work in Islamic finance • Financing package for Iraqi power company for $375 million • Establishment of IFC Sukuk Company; issued $100M in trust certificates in 2015 • Queen Alia Airport Project, Jordan • Hajj terminal and Madinah airport in Saudi Arabia • Provision of a $427M Sharia-compliant investment guarantee for infrastructure projects • Political risk insurance worth $450M in 2015 Different parts of the WBG support Islamic finance
- 24. Conventional instruments canbe Islamic Sources: World Bank Group Treasury, Press Release from 03/09/2017 Some instruments are structured in a manner that may be compliant with Islamic finance. World Bank Group examples include: The SDG Bonds: Equity-linked bonds that link returns to the performance of companies advancing global development priorities IFC’s Social Bond Program
- 25. 25 Source: World BankGroup Treasury, Press Release from 03/09/2017 Equity - Index Linked Bonds Step 1: Exclusion of companies Step 2: Selection of companies contributing to the SDGs Step 3: Final selection based on suitability for equity index investing The index composition follows a 3-step methodology to select companies from the overall investment universe (developed country companies assessed byVigeoEiris): 50 Companies (rebalanced annually)
- 26. Index compositio n The index consistsof 50 companies. The graph shows the current index composition mapped against each companies’ contribution to each of the 17 SDGs. Source: VigeoEiris, Solactive (For illustrative purposes only.)
- 27. IFC’s Social BondProgram Sources: IFC Social Bond Program Presentation, 2017 Projects will generally involve support for low-income populations, in the areas of: Smallholder farming More affordable health, education, utilities or housing services Goods and services Access to telecommunication and payment platforms Lending to financial intermediaries; proceeds of which must be on-lent to women-owned enterprises Bond Structure
- 28. worldbankgroup.org/sdgs Follow us ontwitter @WBG2030 Mahmoud-Mohieldin on @wbg2030 worldbank.org/sdgs Warwick Economics Summit February 3, 2018 Mahmoud Mohieldin Senior Vice President World Bank Group
- 29. lends to governmentsof middle-income and creditworthy low-income countries provides interest-free loans, or credits, and grants to governments of the poorest countries provides loans, equity, and advisory services to stimulate private sector investments in developing countries provides political risk insurance and credit enhancement to investors and lenders to facilitate FDI in emerging economies provides international facilities for conciliation and arbitration of investment disputes 1944 International Bank for Reconstruction and Development (IBRD) 1960 International Development Association (IDA) 1956 International Finance Corporation (IFC) 1988 Multilateral Investment Guarantee Agency (MIGA) 1966 International Center for the Settlement of Investment Disputes (ICSID) The World Bank Group
Editor's Notes
- #5 Sources of investment weakness. Whereas investment weakness in advanced economies mainly reflected sluggish demand and output growth, in EMDEs a broader range of factors has been at play. In commodity importers, slowing FDI inflows and spillovers from soft activity in major advanced economies accounted for much of the slowdown in investment growth after 2011. In commodity exporters, a sharp deterioration in their terms of trade (particularly for energy exporters), slowing growth in China, and mounting private debt burdens accounted for much of the slowdown in investment growth. In several EMDEs, political and policy uncertainty was a key factor in investment contractions or slowdowns (Kose et al. 2017). Investment weakness may also reflect the declining price of capital goods or a growing role of poorly-measured intangible capital, such as design, research and developments, marketing and training (Corrado and Hulten 2010; Ollivaud, Guillemette, and Turner 2016). Evolution of investment growth. Global investment growth halved between 2010 and 2016, with the investment weakness shifting from advanced economies to EMDEs over this period. Investment growth in advanced economies declined during the Euro Area crisis and, after a brief rebound, again after the oil price decline that disrupted energy sector investment in the United States. In EMDEs, investment growth slowed sharply following the global financial crisis, from double-digit rates in the immediate wake of the crisis to a post-crisis low of 3 percent in 2016. Despite signs of bottoming out in 2017, investment growth has been well below its precrisis average Consequences of investment weakness. Cyclical factors, although transitory in themselves, can have long-lasting effects on potential output growth. More than half of EMDEs in the sample suffered at least one year of investment contraction during 2013-17. In some, investment contractions were triggered by the prolonged slump of commodity prices from their peak in early 2011. In others, it was accompanied by heightened domestic political or geopolitical tensions. Such episodes typically foreshadow weaker potential growth in the three years surrounding the trough of the investment contraction (Box 3.3). Potential total factor productivity growth slowed, post-crisis, below its longer-term average and pre-crisis levels. The slowdown started well before the global financial crisis in advanced economies (AEs) and spread to EMDEs after the crisis. Weaker productivity growth has been attributed to slower investment growth, partly because of heightened uncertainty and crisis legacies, population aging, increased regulation, and maturing global value chains and information and communications technology.
- #9 Based on the presentations made during the 2017 HLPF. Could give quick overview of role of HLPF
- #10 Key constraints that the WBG can help with (or key constraints we’ve prioritized): Data gaps (use Canada as an example –to showcase how even a developed country has major data constraints to overcome) Financing/engaging the private sector Add budget analysis here
- #11 Less than half the SDG targets are considered “assessable” in Canada The analysis produces a mix of 37 directly quantified targets and 41 proxy targets that could be assessable across all advanced economies = 78/169 = 46% First, we identify which SDG targets to assess. We do this by identifying targets that are outcome-focused, conceptually relevant to Canada, and adequately quantified and measureable to be “assessable” through either the formal SDG framework or a reasonable proxy measure. Second, we identify data sources for the assessable targets, starting with the U.N. SDG statistical database as the default and supplementing with other sources where needed. Third, we classify each indicator’s trajectory relative to the SDG objective. At the time of analysis, the U.N. database contained information for 57 of the 78 assessable targets. Of those, only 20 targets had enough observations to conduct a recent status assessment for Canada 20/169 = 11%
- #13 Insightful and unexploited data exists, but is not accessible. It seems obvious but we need to make data a bigger priority. We make a lot of assumptions about what our problems are or what interventions work to address them. The capacity to process big data, decentralize the collection of data to the most remote parts of the world, use geospatial data will significantly improve our ability to make informed decisions. But more fundamentally, countries also need to put in place robust identification and statistical systems and conduct periodic household budget surveys in order to have an understanding of the facts at hand. With rapid technological advancement and an increasing role for the private sector, governments are not the only actors responsible for development data. Role of the WBG: Three areas of work: Strengthening partnerships Producing data and cross-country indicators Fostering client country data production, dissemination, and use Some specific examples of WBG support to countries include: Technical assistance on household survey programs Civil registration and Vital Statistics systems Earth observation data and geospatial mapping Identification for Development (ID4D) initiative World Development Indicators and SDG Atlas
- #14 The “open data movement” is already modifying the approach to data and initiatives, such as the Open Government Partnership creating incentives for civil society, private sector entities and governments to nurture the data revolution. Together with donors, such actors are currently building innovative partnerships to foster the use of private sector data. Examples include the World Bank working with the European Space Agency, which decided to open up access to its satellite imagery to help with the evaluation of a project at the bank. And in France, AFD is currently developing a partnership with Orange, MIT media Lab and Data-Pop Alliance to foster the use of private sector data for policy making.
- #15 Based on the presentations made during the 2017 HLPF
- #17 Based on the presentations made during the 2017 HLPF
- #21 Financial stability: Helps Islamic financial institutions to be more resilient to particular shocks May help to diffuse risk in the financial system Financial inclusion: Helps widening the range of products and services available to businesses and households Helps improving access of the underserved to financial services Social impact: Helps achieve empowerment of marginalized groups Helps access funds used for nutrition, healthcare and education Infrastructure development: Helps attract investment in infrastructure Can be leveraged to attract private funding and form private public partnerships (PPPs)
- #22 The asset-backed nature of Islamic finance makes sukuk ideal for infrastructure financing in some ways, but until now the sector has been confined mostly to handling mid-sized deals with shorter tenors. Traditionally, conventional bonds, often designed and marketed by Western banks, have been the default option for infrastructure-related debt deals. The balance sheets of Islamic banks have generally been too small to cope with very large sukuk issues with long tenors. So far, the lion’s share of Islamic infrastructure financing has been handled by the Islamic Development Bank. However, a growing and much deeper pool of capital is in the hand of private-sector Islamic investors, and the IDB is trying along with the G20 to help unlock such capital. In addition to the traditional benefits of sukuk, such as diversifying an investor base and accessing investors who do not invest in interest based bonds, a less discussed value add of sukuk is its structure, particularly the Ijara structure which to a greater deal over conventional bonds prevents the wastage of funds through corruption and theft. Taking the example of the sukuk issued by the Government of Luxembourg in 2014, three government properties – two towers of the Gate of Europe in Kirchberg and the Gutenberg building in Strassen were sold to a Luxembourg SPV for which the Luxembourg Government was the single shareholder. The SPV was securitised by means of the sukuk holders investing €200 million who whilst receiving this value back at maturity (when the Government buys back the properties from the SPV), would receive a benchmark linked profit rate of 0.436% to be generated from the rental income received by the SPV from the tenants of the three properties securitised. This asset linked profit generation means investors get to understand the underlying asset and are more involved in the project. All money raised has to be accounted for as it is used by the SPV to purchase the properties, the funds cannot go missing, or be wasted. In developing domestic sukuk markets, policy makers should use a framework similar to that of the development of conventional bond markets, that is, by establishing (1) well-functioning money markets, (2) efficient primary markets and securities-offering regimes, (3) a robust and diversified investor base, (4) a market infrastructure that facilitates trading, price transparency, and efficient clearing and settlement of transactions, (5) derivatives market and hedging tools to support risk management by issuers and investors, and (6) a credible legal and regulatory framework. In accessing the international market, the issues policy makers or potential sukuk issuers should consider include awareness of and knowledge of sukuk, legal foundation, taxation, governance, and obligors’ credit rating.
- #23 This is an example of the previous slide – how IF can support sustainable development. Islamic Finance can also play a greater role in the years to come, helping to close the infrastructure funding gap and foster more PPP arrangements. Intersection of Islamic finance & PPPs in infrastructure: Both types of investment intend to meet basic service-delivery needs and achieve social good. Hallmark of sharīʿah-compliant structures is their asset backed or asset based nature (a tangible or physical asset underlies the transaction) Interest income or guaranteed returns are forbidden in Islam, there must be a degree of risk sharing, as in the case of PPPs. Given the long-term and stable nature of infrastructure investments generally, they allow for long-term stable rates of return to investors. Co-existence of conventional and Islamic financing
- #26 Exclusion of companies + with a VigeoEiris ESG score below the regional average + involved in alcohol, armament, gambling, nuclear, pornography or tobacco, or in critical controversies about the environment, human and labour rights + that are part of the most intensive carbon emitters unless they have a robust energy transition strategy Selection of companies contributing to the SDGs + a significant part of their activity dedicated to sustainable products + or a leading sustainable behaviour in their sector Final selection based on suitability for equity index investing + liquidity filter (Average Daily Volume for1 and 6 months above 10 million USD or EUR) + low volatility filter (The 50 stocks with lowest volatility meeting diversification constraints) + geographical and sectorial diversification (max. 25% stocks from the same sector; min. 10% and max. 50% stocks from the same region - Europe, America, Asia) + equally-weighted + volatility control (10% volatility cap for USD; 8% for EUR) + adjustment factor (3% p.a.)
- #28 Offers investors an opportunity to finance IFC projects that aim to address access to essential services, income generation etc. to underserved target populations The program incorporates the four core components of the Green Bond Principles as recommended by the Social Bond Guidelines: I.Use of proceeds -Investments in companies that source directly from smallholder farmers; provide utilities that provide for low-income households; offer affordable health services, education, or housing to low-income people, lending to financial intermediaries with the requirement that the proceeds of IFC’s loan be on-lent to women-owned enterprises II.Process for project evaluation and selection -selected from IFC’s loan portfolio by specialists III.Management of proceeds –proceeds segregated and invested by IFC’s Treasury in accordance with IFC’s liquid asset management investment guidelines IV.Reporting -On an annual basis, IFC will publish the list of projects which have received funding from social bond proceeds in the previous year. Subject to confidentiality approvals Eligible Projects will generally involve investments in: Companies that source directly from smallholder farmers Utilities (e.g. Electricity, gas, water) that provide low-income households with better access to services Companies that provide health or education services, or housing to low-income populations in more affordable ways Companies that provide goods and services to low-income populations Companies that provide access to telecommunication and payment platforms in markets that include the low-income segment Lending to financial intermediaries with the requirement that the proceeds of IFC’s loan be on-lent to women-owned enterprises
- #29 How to meet development objectives, in short Avoid bad ideas Implement the list of policies adopted by countries with sustained high growth Adopt one or more of the global development paths: SDGs OECD Accession World Bank twin goals Data, finance, and implementation are the key Data: strengthen capacity; support data revolution Finance: maximize impact of each type of finance: public; private; domestic; international. Ensure private sector participation. Establish a SWF Expand financial inclusion, in particular savings Implementation: Invest in people Invest in inclusive growth Invest in resilience Development happens at the local level: ensure that
- #30 The World Bank Group offers multiple channels and instruments to encourage the private sector to seek opportunities and engage in developing countries. These include: Creating markets and matching opportunities Building new markets for non-financial firms Promoting investment opportunities for financial institutions Supporting small- and medium-sized enterprises/promoting innovation and high-growth entrepreneurship: SME Lines of Credit Partial Credit Guarantee Schemes Early-Stage Innovation Finance IDA Private Sector Window Advisory services on trade and investment policies, supply chains, and improved financial infrastructure, A global network of business-incubation centers, Investing with the IFC Asset Management Company: Engaging with business leaders and philanthropies: Building relationships to advance common goals