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Islamic Finance
@ Halal | November-December . 2022
Developing a sustainable finance ecosystem Financial institutions should leverage Islamic finance to encourage the adoption of sustainable finance
BY FATIHAH MANAF
ISLAMIC finance has been around for over three decades in Malaysia , starting with the introduction of Islamic banking , takaful and Islamic capital market in the 1980s . Since then , many developments have taken place . Malaysia now has a well-developed Islamic finance ecosystem with many players , products and services and frameworks that govern the operations of Islamic finance in the country .
In conjunction with The 2022 United Nations Climate Change Conference ( COP 27 ), Capital Markets Malaysia organised a panel discussion at Malaysia Pavilion in Blue Zone , Sharm El Sheikh , Egypt , titled ‘ Malaysia ’ s Experience in Leveraging Islamic Finance to Develop a Sustainable Finance Ecosystem ”. The session , moderated by Datuk Zainal Izlan Zainal Abidin , Deputy Chief Executive , Securities Commission Malaysia , featured five speakers discussing how Islamic finance can work together with sustainable finance to address sustainability challenges globally .
“ When we were looking at the next phase of development for the Islamic capital market in 2013 or 2014 , we were looking at how we can create another driver for the Islamic capital market in Malaysia as well as globally ,” shared Zainal .
“ At the time , sustainability was not a big theme as we have seen today or in the last few years . But there was already some emergence of discussions on sustainability , or what we call sustainable and responsible investing or SRI in Malaysia . It is a term that we use to capture this segment . And with that came the birth of the first framework that integrated Islamic finance with sustainable finance , the SRI Sukuk framework .”
Islamic finance facilitates the transition to sustainable finance
Jefferi Hashim , CEO of CIMB Investment Bank , said the SRI Sukuk framework was instrumental . The framework helps Malaysia ’ s transition to sustainable finance easier . He noted that other Muslim countries also experienced the same scenario .
“ Unfortunately , most Islamic assets are still concentrated within Muslim countries . The challenge for Islamic financing is how it will work in non-Muslim countries . There ’ s plenty of growth for us to do locally and in Muslim countries . The growth is rapid . As we do that , eventually we ’ ll reach critical mass , which will be a viable alternative source of capital for others to emulate .”
Fad ’ l Mohamed , CEO of Maybank Investment Bank , emphasised that financial institutions should leverage Islamic finance to encourage sustainable finance adoption . He pointed out the synergy and alignment between Islamic and sustainable finance . He shared that sustainability considerations were complementary to Shariah-investing principles and had the potential to improve investment returns and outcomes .
“ Financial intermediaries should leverage
to harmonise aspirations and encourage large base clients within the growing Islamic finance market to go a little further and start thinking about potential eligible projects that they can adopt from the existing activities to see how that can be aligned with sustainable objectives ,” Fad ’ l elaborated .
When asked how to encourage Islamic finance to fund some infrastructure projects , Raja Amir Raja Azwa Shah , CEO of HSBC Amanah , said the ground was always fertile to use Islamic financing . However , people will always come to the tension between what is durable and not durable from a cash flow perspective .
Bursa Malaysia ’ s initiatives Dr Wei-nee Chen , Executive VP , Head of
Carbon Market , Bursa Malaysia , shared that a framework released by Bursa Malaysia in September required companies to disclose some common sustainability matters with the appropriate indicators .
“ But moving in the longer run , the financial year ending 2025 , we are encouraging private limited companies ( PLCs ) to align their climate disclosures with the Task Force on Climate-related Financial Disclosures ( TCFD ).”
From her experience working in a carbonintensive oil and gas sector , Chen said the indices introduced by Bursa Malaysia had helped push a company to thrive even in challenging times to achieve a four-star rating .
Encouraging sustainable financing
Touching on the readiness level of corporates in pursuing sustainable agenda , Faroze Nadar , Executive Director of UN Global Compact Network Malaysia & Brunei , shared some findings from the Malaysia Businesses Sustainability Pulse Report ( SPR ) 2022 .
“ From the surveys , one-third of 261 Malaysian companies indicated they had no plan for sustainable finance . Surprisingly , corporations were less inclined than SMEs . However , 42 per cent showed positive interest in learning about sustainable financing , and 24 per cent are ready to embark on such an initiative . Looking at the SME space , 40 per cent of them said it was irrelevant .”
Faroze said the organisation wished to play a role in sustainable and Islamic finance and work with more corporates to let them know the whole organisation approach can be made through a sustainable financing approach .
Fad ’ l added : “ Given Malaysia ’ s track record of global leadership in Islamic capital markets , we ’ re very well positioned to innovate further in this space . We must advocate for Islamic finance potential to address the challenges faced by conventional sustainable finance space . Doing so can further boost the Islamic sustainable finance industry .”
( From left ) Datuk Zainal Izlan , Jefferi Hashim , Raja Amir Raja Azwa Shah , Faroze Nadar , Fad ' l Mohamed and Dr Wei-nee Chen .