Islamic finance and socially responsible investing (SRI) share ethical values, promoting social welfare, transparency, and sustainable development. Both support investments in healthcare, education, and poverty alleviation, aligning with the UN Sustainable Development Goals (SDGs). However, while Green Sukuk have thrived, Social Impact Sukuk (SIS) face challenges due to limited regulatory incentives and difficulties in impact measurement.

This paper explores the potential of SIS in addressing socio-economic challenges (refugee crises and forced displacement, climate change and natural disasters, deficits in infrastructure and social services, and economic impact and inequality), while examining case studies of SIS implementation. Additionally, the paper analyses the barriers to growth of SIS compared to Green Sukuk.

Finally, several strategy recommendations are presented for promoting SIS in Malaysia. Strategies include the strengthening of: market infrastructure; governance; regulatory and policy framework; and financial structuring, as well as improving liquidity and positioning Malaysia as a global SIS hub. By leveraging SIS lessons and aligning regulatory frameworks with international standards, Malaysia can position itself as a leader in social finance innovation. Sharing of best practices and promoting partnership would also ensure the long-term sustainability of SIS, benefiting both investors and communities by addressing systemic issues such as poverty, inequality, and access to education and healthcare.

The whitepaper was authored by Dr. Ziyaad Mahomed, Associate Professor at INCEIF University and SC-OCIS Visiting Fellow to Oxford, UK.

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