In 2015, with representatives 193 country attending, the UN declared the Sustainable Development Goals (SDGs), which are to be reached by 20301. These goals are a blueprint for achieveing peace and prosperity, both right now and in the future. SDGs recognize that reducing poverty must go hand in hand with improving health, education, reduce inequality, and preserving the environment. This highlights the importance of sustainability within the global community.

Islam plays a large role in global sustainability, as the current second largest religion and the one with the fastest growth2. Furthermore, as many high poverty areas are located within Muslim countries, Islamic Finance has an important role in improving financial inclusion. This article looks at the alignment between Islamic values and sustainability, and how Islamic Finance support sustainability, both in theory and practice.

1. Islamic Values And Sustainability


Sustainable development is defined by the UN in 1987 as “development that meets the need of the present without compromising the ability of future generations to meet their own needs”3. There are 3 dimensions of sustainability which must grow in harmony, which are social, economic, and, environmental4. Kuhlman and Farrington (2010)4 had proposed to replace the social and economic dimensions of sustainability with well-being, which reflects present needs, as distinction between social and economic dimensions are difficult to make.

The concept and objective of human well-being is aligned with the Maqasid, or goals of Sharia, and is the goal of Islamic Economics as a whole5, 6. According to ISRA, sharia scholars agreed that Islamic principles is aligned with SDGs, and there are very few contradicting issues7. This makes Islamic finance a potential sector in financing SDGs, as both Islam and SDGs possesses similar goals, such as supporting socially inclusive, environmentally friendly, and development-promoting activities8.

On the environmental dimension, Humans are god’s viceregent on earth, meaning that humans are obligated to consume resources sustainably5. Furthermore, in Islamic law, growing the environment, even by simply growing a tree for animals to eat, is considered charity. Prophet Muhammad himself prohibits wasting resources, even for ablution using river water, further showing the importance of environmental sustainability.

On the social dimensions, Islam has multiple forms of almsgiving known as Islamic Social Finance. Charity is strongly advocated within Islam and forms an essential pillar of its economic system, the word being mentioned 167 time in the Quran. The main form is an obligatory wealth tax towards certain types of wealth called zakat, which serves as a redistribution mechanism, and directly reduces economic inequality as the poor is one of the main beneficiaries of zakat9. Islam also has other forms for charities such as waqf, which provides public goods through endowments9.

The economic dimension is achieved through Islamic Business ethics and prohibitions of certain transactions, such as interest and gharar/uncertainty. Islam promotes sustainable business ethics like justice, fair price, and freedom from harm10. One of the main goals of prohibiting of interest is preventing the accumulation of wealth to a minority, and replaces it with risk-sharing transactions which are more equitable8. Speculative transactions and sale of debt, which creates economic bubbles crises are also prohibited. The direct link between finance and real assets which promotes productive business ventures, are a major feature of Islamic finance8, 11.

We can see that Islamic values are in line with the concept of sustainability in all three dimensions, and therefore IFIs (Islamic Financial Institutions), which operates within Islamic principles, should be highly sustainable.

2. Islamic Finance As A Sustainable Industry

If the values of Islam can be fully implemented to the practice of IFIs, they have a potential to have a transformative role in Financing SDGs8. Profit and loss sharing products linked to the real economy would improve economic stability and resilience, as risks are shared. Profit sharing financing would also improve efficiency, as resources would be allocated toward productive businesses12. Sharia-compliant products would improve financial inclusion, especially among muslims, and this is especially important as many high poverty areas are located in muslim majority countries.

Penggunaan alat Keuangan Sosial Islam dan Asuransi Islam, atau Takaful, akan mengurangi kerentanan masyarakat miskin dan mengurangi risiko kerentanan, sekaligus secara langsung mengurangi ketimpangan dan kemiskinan8, 9. Menerapkan tujuan syariah yang lebih luas dan berkelanjutan dalam praktiknya juga akan membuat LKS lebih fokus pada masalah lingkungan dan sosial dan meningkatkan dukungan mereka dalam pembangunan infrastruktur8.

The use of Islamic Social Finance tools and Islamic Insurance, or Takaful, would reduce vulnerability of the poor and mitigate risks, while directly reducing inequality and poverty8, 9. Applying the broader, more sustainable sharia goals in practice would also make IFIs focus more on environmental and social issues and improve their support in building infrastructure8.

Another tool to help IFIs realize sustainability is technological innovations, applied in fintech in all of its forms. According to McKinsey, Fintechs can apply technology to improve financial inclusion, reduce costs, decrease inefficiency, improve productivity, and connect the real and financial sector, among other benefits13. These innovations is particularly effective in the context of Islamic Finance, as the global Muslim population is young and digitally savvy14.

According to the World Bank14, Islamic Fintechs can extend the reach of IFIs beyond its core market, through methods such as using digital banking, targeting customer base with AI, and technological collaboration with banks. Fintechs would also improve financial inclusion through creating tech-based solutions for SME and unbanked retails, or innovating new payment solutions. Finally, fintech can help deliver Islamic Social financing to drive achieving global SDGs, reducing the potential of fraud through blockchain, and opening new tech-based channels for collection and payment.

3. Critics On The Sustainability Of Islamic Finance

However, the current sustainability practices of IFIs has earned critics, as IFIs has not been able to fully integrate Islamic values in practice. Ahmed et al. (2015)8 stated that even though the principles of Islamic Finance supports economic inclusion, environmental sustainability, and development, in practice, IFIs had been below potential. Researches indicate that Islamic banks have little disclosure regarding CSR and environmental issues, and has no indication to prefer socially driven and environmentally friendly projects15, 16.

Khan (2019)17 stated that as currently constructed, Islamic Finance is only a halal subset of the existing linear economy paradigm. This paradigm does not consider the environment as a resource, while it considers wealth creation as necessary and sufficient by itself for the interest of the economy and future generations. Therefore, existing global IFIs has had little ESG (Economic, Social, Governance) and SDG implementation, and are designed to function inside the linear economy, similar to conventional financial institutions.

Critics also state that Islamic Finance is mostly driven by prohibitions instead of values, and are currently unable to fulfill its social goals and filling a positive role in the economy18. As IFIs focuses more on debt-based contracts instead of the more equitable profit loss-sharing contracts, there are concerns that they only mimic conventional banking products and does not fulfill sharia values19. This product mimicry may lead to a similar crisis which happened to its conventional counterpart, and this eventually would damage trust and confidence in IFIs20.

In order for the Islamic Finance industry to drive sustainability and achieve SDGs, the industry mindset should shift from being prohibition-driven to promoting Islamic values18. Islamic Finance should be a value-based proposition which is not only shaped by Islamic legal rules, but also by Islamic moral values, which aims for development beyond economic growth, including sustainability5. Therefore, sharia governance should be reformed from only being focusing on sharia compliance, to include ethics, maqasid, ecological and social concerns, and internalizing non-profit institutions17.


In conclusion, The values of sustainability highly aligns with the values of Islam, whether it is on the social, economic, or environmental dimension, as both values aim to promote the well-being of people. Therefore, Islamic Finance, which applies the values of Islam in its practice, potentially would be a highly sustainable and supportive sector towards achieving SDGs. However, there are critics on the sustainability practice of the Islamic Finance sector, and Islamic values and moral values should be more internalized to the practice of IFIs.