ISLAMIC FINANCE MUST LOOK INTO SUSTAINABILITY, TECHNOLOGY AND INNOVATION GOING FORWARD -- BNM

KUALA LUMPUR, Dec 6  -- Islamic finance sector must look into supporting climate change actions and the sustainability agenda, facilitating trade and investment and responding to Asia’s evolving consumer landscape going forward as these offer enormous value creation prospects for the sector, according to Bank Negara Malaysia.

Assistant governor Adnan Zaylani Mohamad Zahid said firstly, growing interest from private capital offers a silver lining to the region’s predicament and rising demand for sustainable investments spearheaded by increasing national commitments, shifting investment mandates and eco-consumerism have started to move the needle in private sustainability finance.

“The maturity of the Islamic finance sector allows the industry to offer a wide array of solutions, of which some are the first of their kind. It is heartening to see key Islamic finance markets actively supporting this cause,” he said in his welcoming remarks at the IFN Asia Forum 2021.

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Adding to its innovative offerings are sustainability-linked Islamic financing facilities and with preferential rates offered upon meeting pre-determined sustainability targets, the Islamic finance industry is able to facilitate its customers to transition towards sustainable practices, he added.

Secondly, Adnan Zaylani said the Islamic finance sector should also focus on facilitating trade and investment as the region is an attractive foreign direct investment (FDI) destination.

“As the world’s economic activity gravitates towards the east amid changing global geopolitical landscape, we have witnessed growth and expansion of the consumption market, formation of extensive trade networks, and the creation of a business-friendly environment within the region.

“Positive FDI inflows despite suppressed global investor sentiment during the pandemic is a testament to the region’s economic strength and Asia’s proposition as a trade and investment hub. This trend is expected to continue when the Regional Comprehensive Economic Partnership agreement comes into effect in January 2022,” he said.

Thirdly, he said the sector must respond to Asia’s evolving consumer landscape, which would be driven by demographic changes and technological advancement.

“New market-specific consumption trends offer enormous opportunities for Islamic finance to innovate solutions, leveraging the diversity of shariah contracts.

“Islamic finance players can utilise alternative shariah contracts such as ijarah or wakalah to serve this emerging need,” he said.

He emphasised that there remains ample opportunities in the micro, small and medium enterprise (MSME) segment for Islamic finance to support, with Asia accounting for 45 per cent of the global MSME financing gap and is widening due to the pandemic.

Meanwhile, Asia offers an attractive testbed for innovative solutions, given its high proliferation of technology and large financially underserved population.

Islamic fintech has gained significant traction in this space, offering alternative finance solutions to close the financial inclusion gap. The high growth of Islamic fintech transactions is expected to reach US$128 billion by 2025 or 21 per cent annually, which benefits the majority of the unbanked population.

-- BERNAMA