Socially responsible investment (SRI), which is fast gaining currency in the global market place, will have a “significant appeal” to Islamic finance, particularly in the context of the recent global financial crisis, according to Bank Negara Malaysia (BNM) governor Tan Sri Dr Zeti Akhtar Aziz.
“Beyond financial returns, SRI also accords primary consideration to the impact on economic activity and on the broader society, thereby incorporating the important dimensions of environmental sustainability, social responsibility and governance.
“This is in close parallel with the inherent principles of Islamic finance, in which financial transactions must be underpinned by real economic activities, and its operations guided by the principle that money should also be used to create social good,” she said in her opening speech at the 2nd ISRA Colloquium 2012 in Kuala Lumpur yesterday.
Dr Zeti noted the need for financial products and services that manifest the value propositions of Islamic finance, and that such products are marketed with simplicity so as to facilitate a greater understanding of the main benefits of the products.
“In relation to this, Islamic finance presents significant appeal to the growing Socially Responsible Investment, sustainable investments and ethical finance. This is particularly relevant in the context of the recent global financial crisis.
“It has brought to the forefront the need for the financial system to be linked to the economy and for the need for greater and improved levels of transparency, fairness, ethics and social responsibility in modern finance,” she said.
She added that the SRI market is “fast growing” and is expected to become a mainstream asset class by 2015, reaching a projected total of more than US$26 trillion (RM79.17 trillion) of asset-under-management, accounting for 15%-20% of the global market.
“This recent growth has largely been driven by the demand from institutional investors which are increasingly prioritising the consideration of sustainability and social responsibility in their business conduct and institutional value system.
“Indeed, the ongoing economic challenges in the major advanced economies have resulted in the re-emphasising of the importance of growth that is sustainable and responsible. In the emerging economies, this is also important, given that rapid economic development also needs to ensure that the progress will be sustainable,” she said.
The one-day colloquium was organised by the International Shariah research academy for Islamic Finance (ISRA), an outfit that was set up with a generous endownment from the central bank in 2008.
The function was meant to provide a venue for young Islamic finance scholars to exchange views on how to develop the industry. Three doctorage students at International centre for education in Islamic Finance (Inceif ) presented papers at the function.
In his speech, ISRA executive director Dr Mohamad Akram Laldin said the forum was meant to bridge the gaps among the Islamic finance academic community and to enhance understanding on different practices of Islamic finance from different parts of the world.
“The challenge remains whether Islamic finance is able to address the challenges in the challenging economy that we are currently facing and whether Islamic finance is able to rearrange modern financial practices in line with Shariah principles and requirements and elegantly offer a better approach and direction for the financial industry,” he said.
Dr Beebee Salma Sairally presented on Islamic liquidity management, Mohammad Mahbubi Ali on a framework to deal with Shariah non-compliance transactions, and Muhammad Ali Jinnah on takaful benefits protection from the Shariah perspective. INCEIF chair of Islamic finance Prof Dr Abbas Mirakhor presented a keynote address.
(The Malaysian Reserve / 28 Nov 2012)
Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com