Islamic Finance, Sustainable Development and Developing Countries

Dr Mohammed Alshaleel, Lecturer in Law at the University of Essex, has published a book chapter on ‘Islamic Finance, Sustainable Development and Developing Countries: Linkages and Potential‘.

This chapter considers the role of Islamic finance in promoting the Sustainable Development Goals (SDGs) in developing countries. The SDGs require unprecedented mobilisation of funds to support their implementation. Given the social and moral ethos and emphasis on prohibition of interest (riba) and asset-backed financing, Islamic finance offers an effective non-traditional means of financing for sustainable development activities and projects in developing countries. This chapter demonstrates that the ideology of Islamic finance, its attributes, principles, products, instruments and institutions all tend to be well-suited to boosting the SDGs. It also shows that Islamic finance has great potential in supporting developing countries efforts to finance the SDGs agenda.

Divided into seven sections, the chapter outlines sustainable development from an Islamic perspective, and the principles of Islamic finance, before assessing the role of Islamic financial institutions, sukuk (Islamic bonds), and Islamic social finance (zakat and waqf) in promoting the SDGs.  

The chapter concludes that despite the remarkable growth in Islamic finance and its role in promoting the SDGs, further steps should be taken to maximise its potential. Islamic finance should promote innovative products that encourage people to use Islamic financial services, without needing to mimic conventional instruments and products, given that mimicry can cause public concern about sharia compliance.

Furthermore, one of the main challenges to Islamic finance solutions is variations in the legal frameworks of countries, such as the variation in collection and distribution of zakat, in which it could be deployed. This means that more work is required on the standardisation of legal frameworks and guidelines, to aid the structuring of Islamic financial products and institutions. Finally, it is important to raise awareness about Islamic finance products and institutions.

The chapter appears in Onyeka Osuji, Franklin Ngwu and Dima Jamali (eds), Corporate Social Responsibility in Developing and Emerging Markets Institutions, Actors and Sustainable Development (Cambridge University Press, 2019).