Islamic Finance

Aligning Maqasid al Shariah and impact investing objectives key to growth of Islamic sector

The global impact investing industry has grown rapidly, with total investments exceeding $60 billion in 2015. While Islamic finance has experienced tremendous growth to reach an estimated $1.8 trillion in assets in 2015, Islamic impact investing is a relatively nascent industry that is only now beginning to gain traction. The key to its growth, say experts, is to align Maqasid Al Shariah and the objectives of impact investing.  


You are an awqaf institution seeking to generate returns and have a positive social impact. 

What is impact investing and how can it be pursued in a Shariah-compliant manner?

What is the aggregate asset size and growth trajectory of impact investments globally?
To what extent does Islamic finance cater to driving high social impact?
What are the developments in Islamic impact investments and which institutions are geared to driving this industry forward?


The past decade has witnessed a huge increase in socially responsible investing (SRI) and consumption. Just over the last few years, total global SRI assets surged from $13.3 trillion in 2012, according to Malaysian ratings agency RAM, to over $21 trillion in 2014, according to KPMG. In the United States alone, SRI account for $1 out of every $6 invested, according to U.S.-based investment manager PNC Capital Advisors.

One type of SRI that has grown especially quickly has been impact investing. Impact investing is defined as “investments made into companies, organizations, and funds with the intention to generate social and environmental impact alongside a financial return,” according to U.S.-based non-profit organization Global Impact Investing Network (GIIN).

The sector’s growth has been impressive during the past few years—from $4.4 billion in assets under management in 2011 to $60 billion in 2015, according to GIIN’s estimate of a group of nearly 60 large-scale impact investors around the world.

A recent GIIN and JP Morgan survey found that private debt and private equity account for 40 percent and 33 percent of impact investment assets under management, respectively, with 89 percent of investors reported performance that was either in line with, or that exceeded, their expectations.

Impact investments can take the form of grants, loans, equity or debt investments and are typically made into sectors such as food and agriculture, education, and affordable housing.

If current levels of growth continue, it is projected that total impact investments could reach $1 trillion by 2020, estimated JP Morgan.

It is clear that although impact investing is still in its adolescence, it is primed for massive growth and greater sophistication in the years to come. Prominent impact investors today include:

UK-based Bridge Ventures LLP, established in 2002, is a fund manager that specializes in sustainable and impact investing, with a focus on health and well-being, education and skills, sustainable living and under-served markets. It has over $800 million in assets under management as of this writing.

Switzerland-based Vital Capital Fund, established in 2011, is an impact investment and private equity fund focused on improving the lives of under-served communities, primarily in Sub-Saharan Africa. Its fund size is $350 million, according to its website.

U.S.-based Reinvestment Fund, set up in 1985, is a Community Development Financial Institution investing in low-income neighborhoods around the U.S. mainly in affordable housing and small and medium business development. As of today it has invested over $1.7 billion and currently manages $864 million.


Islamic finance as an industry has seen massive growth in recent years.  Industry assets over the last few years jumped from an estimated $1.65 trillion in 2013 to over $1.8 trillion in 2014, and are projected to reach $3.2 trillion by 2020. The industry itself encompasses a wide variety of sectors including Islamic banking, which holds the lion’s share of global industry assets at $1.35 trillion in 2014.

Other, more socially-oriented, sectors such as awqaf, zakat and sadaqah, are also part of the whole Islamic financial ecosystem. Like Islamic banking, takaful, and sukuk, they, too, have seen massive growth in recent years, with a number of Islamic social initiatives that have recently emerged.

The more socially-oriented initiatives include crowdfunding platforms such as Narwi, which facilitates the financing of small and micro enterprises throughout the Middle East and North Africa, as well as a host of social enterprises, including Saahtain Foods, a company that distributes halal meals through its humanitarian-focused subsidiary, Tayyib Foods, to charities, the needy, and large corporations with a CSR component.

Within the profit-making Islamic finance industry, Malaysia’s state investment arm Khazanah issued the world’s first Malaysian ringgit-denominated SRI Sukuk in 2014 worth $240 million, and the World Bank-linked International Finance Facility for Immunisation Co. (IFFIm) has issued two ‘vaccine sukuk’: the first was a benchmark-sized $500 million issue in December 2014 and the second was a smaller $200 million sale in September last year.

Although Islamic banks and financial institutions employ a certain measure of social responsibility in their operations in addition to using ethical screening criteria when selecting investments (these are still largely negative screening), Islamic impact investing itself has not followed a similar growth trajectory to either Islamic finance or impact investing and is still very much in infancy.

The major difference between Islamic finance and impact investing is that the latter requires a proactive dedication to have a positive social or environmental impact and monitoring post-investment to ensure the impact has been achieved.


By its sheer size–awqaf institutions worldwide are estimated to have $1.9 trillion assets under management, according to the Islamic Development Bank--there is tremendous potential for the awqaf sector to drive not only the growth of Islamic impact investing but also the overall global Islamic finance industry.

Awqaf institutions traditionally have held assets in the form of real estate, including land and buildings, and have not proactively invested in higher-return assets, which have limited the scale of their social impact. They are now turning to financial investment to ensure the sustainability of their own operations and the communities they serve, such as the Islamic Development Bank’s Awqaf Properties Investment Fund (APIF), established in 2003, which to date has approved over $1 billion in commercial and residential projects.

The main challenge, according to Kavilash Chawla of U.S.-based international consulting firm Bâton Global LLC, is ensuring compatibility of Islamic finance and impact investments. “One of the inhibitors to growth of impact investment opportunities with Shariah-compliant investors is the fact that many impact investments have not been evaluated for their Shariah compliance,” he said.

“A key growth driver for impact investing and Shariah-compliant investing is from a Maqasid al Shariah perspective.  If impact objectives and Maqasid al Shariah objectives can be aligned, that could create real opportunity for alignment and growth,” added Chawla.  

This process has already begun. Inspired by the Sustainable Development Goals, the Islamic Development Bank, alongside the United Nations Development Programme’s Istanbul International Center for Private Sector in Development (IICPSD), has established the Global Islamic Finance and Impact Investing Platform (GIFIIP), which aims to connect Islamic financiers with impact investors and impact enterprises, in addition to acting as a hub to promote knowledge sharing, policy dialogue and advocacy.


Determine your objectives: Outline what social challenges you seek to address – this will frame how you screen potential impact investment opportunities

Ascertain your allocation and return targets: Determine how much capital you’d like to keep in “safe investments” versus higher-risk or lower-return impact investments

Outsource or in-source: Determine whether you have the internal capacity to make investments directly– including the relevant expertise especially in Shariah advisory and compliance certification– or whether finding a fund manager would be more appropriate

© 2016


Impact investing
Socially responsible investing
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Usama Al-Za’tari, DinarStandard