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Does doing good pay off?

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Abstract

Purpose – The purpose of this paper is to examine the world’s first social impact bond (SIB) and the lessons that can be learned for the Islamic finance industry to fulfil its true objectives. Design/methodology/approach – The Peterborough SIB was recently announced to be successful in achieving its targeted social and investment outcomes, reducing recidivism by 9 per cent and paying back investors a 3 per cent pa return. The paper compares Peterborough SIB with socially responsible investment (SRI) sukuk in terms of form and substance, and finds that there are various lessons from the Peterborough SIB that can be useful for future development of Islamic financial products. Findings – Innovative social financial tools such as SIB exemplify the true spirit of risk sharing and social responsibility, which is arguably missing in current practices of the Islamic finance industry. With the growing interest towards SRI strategies and increase in socially motivated investors, such financial tools may not only help the sustainable growth of the Islamic finance industry, but also fill in the gap between its theory and practice. Practical implications – As such, the paper also proposes a social impact sukuk model which integrates the key aspects learned from Peterborough SIB. This includes prioritising social impact, measurable success indicators, data and management systems, flexible contracts, third sector integration, risk sharing and fostering the culture of innovation. Originality/value – The findings can offer some practical insights in dealing with the issue of Islamic finance practice being overly concerned with its formal adherence with Islamic legal rules whilst neglecting its true fundamental values.

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  • Marwan, Syed & Haneef, Mohamed Aslam, 2019. "Does doing good pay off?," Islamic Economic Studies, The Islamic Research and Training Institute (IRTI), vol. 27, pages 23-37.
    • Handle: RePEc:ris:isecst:0180
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    1. Renneboog, Luc & Ter Horst, Jenke & Zhang, Chendi, 2008. "Socially responsible investments: Institutional aspects, performance, and investor behavior," Journal of Banking & Finance, Elsevier, vol. 32(9), pages 1723-1742, September.
    2. Adam Ng & Abbas Mirakhor & Mansor H. Ibrahim, 2015. "Risk Sharing and Social Impact Partnerships," Palgrave Studies in Islamic Banking, Finance and Economics, in: Social Capital and Risk Sharing, chapter 0, pages 133-156, Palgrave Macmillan.
    3. Adam Ng & Abbas Mirakhor & Mansor H. Ibrahim, 2015. "Social Capital and Risk Sharing," Palgrave Studies in Islamic Banking, Finance and Economics, Palgrave Macmillan, number 978-1-137-47605-0, June.
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    Cited by:

    1. Mohamed Aslam Haneef, 2021. "COVID-19: An Opportunity to Re-Think Islamic Economics كوفيد-19: فرصة لإعادة التفكير في ماهية الاقتصاد الإسلامي," Journal of King Abdulaziz University: Islamic Economics, King Abdulaziz University, Islamic Economics Institute., vol. 34(1), pages 93-102, January.

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    More about this item

    Keywords

    Social impact bonds; SRI sukuk; Social impact sukuk; Social responsibility;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • M14 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility
    • P34 - Political Economy and Comparative Economic Systems - - Socialist Institutions and Their Transitions - - - Finance
    • P43 - Political Economy and Comparative Economic Systems - - Other Economic Systems - - - Finance; Public Finance

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