Faith Based Finance

UNDP and the National Zakat Board (BAZNAS) join forces to harness the full potential of zakat to achieve the SDGs in Indonesia, which was formalized in the signing of the MoU in April 2017. It was followed by the launch of a joint (UNDP-BAZNAZ) report on The Role of Zakat in Supporting the SDGs in June 2017. BAZNAS contributed zakat funds ($350,000) to implementing a micro-hydropower plant project in four districts in the Jambi Province of Sumatra, which we believe is the first time a zakat organization has committed to supporting the SDGs anywhere in the world. The provincial state-owned Bank Jambi has also contributed to the partnership through CSR funds ($281,357). The micro-hydro initiatives are part of a bigger Global Environment Facility (GEF) project to support renewable energy in Indonesia. To date, five installations have been in operation in five villages and have been completed and inaugurated by the Ministry of National Development Planning, benefiting more than 4000 beneficiaries.

The partnership has been extended to a broader synergy in disaster recovery in quake-hit West Nusa Tenggara and Central Sulawesi. BAZNAS contributed $142,000 in zakat funds. New partners have joined forces, along with BAZNAS (i.e., Principal Asset Management with its Islamic Philanthropy Fund and Ammana Fintek Syariah), to scale up MSMEs through the sharia fintech platform. The disaster recovery program benefitted almost 10,000 people in Sambik Elen village in Lombok and Tuva village in Central Sulawesi. UNDP knows that COVID-19 brings multiple burdens to people in disaster-affected areas. This new initiative falls under the Local Economic Development for Resilience Community (LEDRC) project, covering Jambi, West Nusa Tenggara, and Central Sulawesi.

Waqf is most commonly known as a donated plot of land or building typically used for schools, mosques, and graveyards, although much land remains idle. Cash waqf is less well known but is growing at a faster rate. Waqf comprises land in Indonesia five times the size of Singapore in hundreds of thousands of locations and is valued at US$27 billion. In January 2018, UNDP Indonesia signed an MoU with the Indonesian Waqf Board (Badan Wakaf Indonesia/BWI) to collaborate on SDGs and develop a digital waqf platform to encourage waqf contributions.

As part of an effort to mainstream climate action and gender-responsive budgeting, UNDP Indonesia works with Anwar Muhammad Foundation to pilot a project using an Islamic blended financing mechanism by combining waqf and shariah-compliant impact investment to support smallholder farmers. In addition, UNDP is currently exploring the potential of green waqf with the Green Waqf Community and Waqf Center for Indonesian Development and Studies (WACIDS). Together with BWI and IPB University, UNDP developed Green Waqf Framework.

The Centre of Excellence in Islamic Finance for SDGs is a joint initiative between UNDP Indonesia, Universitas Islam Internasional Indonesia (UIII), and Islamic Development Bank (IsDB). The idea is based on the Islamic finance portfolio successfully undertaken by UNDP, UIII, IsDB, and partners and the need to deepen further research and knowledge sharing in the region. The Centre's primary objective is to set a path for the stakeholders to enhance Islamic finance and promote sustainable development in productive and sustainable ways, ranging from economic, social, and environmental standpoints. It also assists the Government of Indonesia in alleviating poverty and improving green and inclusive growth and prosperity. The Centre notably undertakes (1) developing joint initiatives to promote Islamic finance to support the achievement of SDGs within a broader environment, (2) contributing Islamic finance and SDG insights to each other's plans, programs, publications, and thought pieces, (3) advisory support on strategy and communication for Islamic finance on SDGs.

UNDP, IsDB, and ISFD collaborate to empower NGOs through the "IsDB-ISFD NGOs Empowerment for Poverty Reduction Program". The program targets 500 CSOs/NGOs in 57 Organization for Islamic Cooperation (OIC) Member Countries. Indonesia is among the seven pilot countries (Kazakhstan, Lebanon, Morocco, Somalia, Tunisia, Turkey) and the only one in Asia-Pacific.

In Indonesia, the Program was launched in October 2020 with 200+ participants. It was followed by nearly a hundred Indonesian CSOs registered in Tadamon Community. UNDP Indonesia, the Ministry of Finance, and Kitabisa are at the forefront of supporting the program at the national level. The Academy has also partnered with Kaya Platform, a global learning platform of the Humanitarian Leadership Academy. 19 SDG-related crowdfunding campaigns launched on Kitabisa attracted people to donate, reaching nearly $300 million (over $20,000) from around 10,000 donors

UNDP works with Anwar Muhammad Foundation to explore the Islamic Blended Financing model, which aims to support smallholder farmers’ climate resilience. In the case of climate change, the vulnerable groups are considerably more prone to adverse impacts. As such, a collaboration targeting low-income communities, people in rural areas, and those underserved by the formal financial sector must be leveraged. There is a need for innovation and further efforts to mainstream innovative financing instruments that connect traditional, Islamic, and green investors to reduce carbon emissions, strengthen climate resilience and adaptation, and contribute to sustainable development.

With the support of available innovative finance, of which Islamic Blended Financing is to be applied, creating a sustainable financial ecosystem in financing the impacts of climate change may come true. Therefore, a concise and convincing model of Islamic Blended Financing to increase farmers' climate resilience and adaptation capacity inclusively and sustainably is necessary.