Dr. Md. Touhidul Alam Khan :
In a world grappling with pressing challenges like poverty, inequality, and environmental degradation, the need for innovative and ethical solutions has never been greater. The United Nations’ Sustainable Development Goals (SDGs) provide a roadmap for addressing these issues, but progress has been uneven, with many targets lagging. Amidst this backdrop, Islamic finance emerges as a powerful and transformative force, offering a unique blend of ethical principles and practical solutions that align effortlessly with the SDGs. Embedded in Shariah law, Islamic finance emphasizes fairness, inclusivity, and social welfare, making it not just an alternative to conventional finance but a beacon of hope for sustainable development. This article explores how Islamic finance, with its emphasis on ethical investment, risk-sharing, and community welfare, can play a pivotal role in achieving the SDGs and building a more equitable and sustainable future for all.
In 2015, the United Nations introduced the 2030 Agenda for Sustainable Development, a global initiative aimed at eradicating poverty, safeguarding the planet, and fostering prosperity for everyone. At the heart of this agenda are the 17 Sustainable Development Goals (SDGs), which act as a guiding framework for creating a more just and sustainable world. However, as we approach the decade mark, progress has been inconsistent. The Sustainable Development Goals Report 2024 reveals a concerning reality: only 17% of the targets are on course to be met, while more than a third have either stalled or moved backward. This troubling trend highlights the critical need for fresh, innovative approaches to tackle global challenges. This is where Islamic finance comes in – a system grounded in ethical principles that aligns with the SDGs and offers a promising and transformative way forward.
The limits of conventional finance
The conventional financial system, which dominates the global economy, operates on principles of interest, risk, and return. While it has driven economic growth and development, it is not without its flaws. Profit maximization often takes precedence over social and environmental considerations, speculative practices can lead to economic instability, and marginalized populations are frequently excluded from accessing financial services. These shortcomings highlight the need for a more inclusive and ethical financial system – one that prioritizes the well-being of people and the planet over short-term gains.
Islamic finance: A system built on ethics
Islamic finance, guided by Shariah principles, offers a compelling alternative. At its core, it emphasizes fairness, equity, and the welfare of the community. Unlike conventional finance, which relies heavily on interest-based transactions, Islamic finance prohibits riba (interest) and instead promotes profit-and-loss sharing, asset-backed transactions, and risk-sharing. This ethical foundation ensures that financial activities are not only economically viable but also socially responsible.
One of the most attractive features of Islamic finance is its inclusivity. By design, it seeks to provide financial services to all segments of society, including those often excluded from the conventional system. Instruments like Mudaraba (profit-sharing partnerships) and Musharakah (joint ventures) encourage entrepreneurship and economic growth without burdening individuals with debt. Similarly, Sukuk (Islamic bonds) finance large-scale infrastructure projects, creating jobs and stimulating economies while ensuring tangible, asset-backed outcomes.
Bridging finance and social welfare
Islamic finance goes beyond mere economic transactions; it is deeply intertwined with social welfare. Take Zakat, for example – an obligatory form of almsgiving that requires Muslims to donate a portion of their wealth to those in need. When effectively managed, Zakat has the potential to lift millions out of poverty. Similarly, Sadaqah (voluntary charity) and Waqf (endowments) provide sustainable funding for social programs, from education to healthcare. These mechanisms not only address immediate needs but also foster long-term resilience within communities.
The principles of Islamic finance also align seamlessly with the SDGs. For instance, its emphasis on equitable wealth distribution directly supports SDG 1 (No Poverty) and SDG 10 (Reduced Inequalities). By promoting ethical investment and prohibiting speculative practices, it advances SDG 12 (Responsible Consumption and Production). Moreover, innovative instruments like Green Sukuk are specifically designed to fund environmentally sustainable projects, contributing to SDG 13 (Climate Action) and SDG 7 (Affordable and Clean Energy).
A call to action
The potential of Islamic finance to drive sustainable development is immense, but realizing this potential requires collective effort. Governments, financial institutions, and civil society must work together to create an enabling environment for Islamic finance to thrive. This includes developing robust regulatory frameworks, raising awareness about its benefits, and fostering collaboration between conventional and Islamic financial systems.
Professional Accountancy Organizations (PAOs) also have an important role to play. By setting standards, promoting transparency, and ensuring Shariah compliance, PAOs can help build trust in Islamic finance and enhance its credibility. Furthermore, they can drive research and education to deepen understanding of how Islamic finance can contribute to the SDGs.
As the world confronts the intertwined crises of inequality and environmental decline, Islamic finance emerges as a source of hope and a pathway to meaningful change. Its ethical principles, inclusive approach, and alignment with the SDGs make it a powerful tool for building a fairer and more sustainable future. By embracing Islamic finance, we can move closer to achieving the vision of the 2030 Agenda – a world where no one is left behind, and prosperity is shared by all. The time to act is now. Let us harness the potential of Islamic finance to create a legacy of peace, equity, and sustainability for generations to come.
(Dr. Md Touhidul Alam Khan, FCMA, CSRA, is a seasoned banking professional with expertise in financial management, corporate governance, sustainable banking, and strategic planning. He also holds a Postgraduate Diploma in Islamic Banking and Insurance from the Institute of Islamic Banking & Insurance (IIBI) in the United Kingdom)
