The UN estimates developing countries will need 2.5 Trillion USD a year to achieve the Sustainable Development Goals by 2030 and that the vast majority of these funds must come from non-government sources. There is an urgency for new financing sources that complement the ongoing financial strains.
Of recent times, we are finding the emergence of a number of new financing models, growing both concerning their market size, their operations and the way they serve those in developing countries, as a new alternative. These innovative finance instruments are projected to unlock private capital and help further leverage public funding to mobilize various new sources of investment for public policy, social services and development goals, while at the same time realigning interests of multiple partners and creating new investment opportunities.
Mainly, the role of Islamic Finance in economic development has already unlocked tremendous potential and in its social dimension offers a more significant opportunity in bridging the financing gap to meet the Sustainable Development Goals. Every year between US$200 billion and $1 trillion are spent in “mandatory” alms and voluntary charities across the Muslim world. In 2015, Islamic Finance had an estimation of US$ 2 trillion; this figure could reach US$3.5 trillion by 2021. Further, advancements in financial technologies (fintech) offers data-driven insights to improve efficiencies at scale. Yet, despite the hype across the sector, we found that explorations so far seem to barely scratch the surface in how they understand the applicability, potential and most importantly the principles that underpin these financing methodologies.
What does this mean for the Red Cross and Red Crescent?
Last year the IFRC established together with British, Canada, Denmark and Kenya National Societies a Global Innovative Finance Team (GIFT). with the aim of collaboratively structuring new financial mechanisms and adapting technologies to accelerate learning and meet humanitarian and development financing needs.
As a first-ever milestone, we co-designed an international Zakat financing instrument in support of Kenya’s Drought Assistance Programme. In response to the need, a Malaysian State Zakat Council (MAIPS) pledged CHF 1.17 million in zakat financing. The project implemented by Kenya Red Cross has already impacted more than 1.2 million lives, and with a mechanism for refund of CHF 500,000, additional communities stand to benefit. The model recently showcased at the Responsible Financing and Investment Summit in Zurich demonstrated the transformative impact of zakat and value of Islamic Social Financing for communities in need.
A second initiative comes from understanding the challenges of ineffective management and lack of transparency as it currently exists in ISF and extending more widely across social finance. We co-designed a blockchain application with AID Tech that helps address these challenges, providing traceability and transparency to individuals and organizations to track their donations on an easily accessible platform. In early 2018, the application won the global competition for fintech in ISF, organized by the Islamic Development Bank and IE Business School, recognizing its potential and helping gain credibility in the ISF space.
A third initiative is focused on encouraging Islamic Social Finance dialogues to showcase its immense potential across countries and sub-regions. Contemporary ISF is nascent and is yet to gain sufficient prominence at global dialogues for it to develop into structured and more sophisticated development instruments. We organized a first-ever global Islamic social finance consultation in Malaysia in partnership with INCEIF convening humanitarians, financiers and scholars to leverage ISF for sustained impact.