Kuala Lumpur (Malaysia): The growth of responsible investments over the last decade from USD4 trillion to nearly USD70 trillion signifies a huge interest in ethical investing post financial turmoil, says former Bank Negara Malaysia governor, Dr Zeti Akhtar Aziz.
"These funds manage assets where the United Nations Principles for Responsible Investing (PRI) and environmental, social and governance (ESG) considerations are applied", she said.
Zeti also said that financial schemes and funds set up under ethical financing practices have reached nearly USD23 trillion just two years ago.
“The broad strategies adopted by these forms of finance have been to develop financial products, funds, markets and institutions that adhere to principles, practices and objectives of providing value to the economy, society and the environment,” she said.
She said greater interest in responsible financing emerged after the 2008 financial crisis, which was advantageous to Islamic banking as it shared similar principles to ethical financing.
Zeti said the next stage for Islamic finance should be to provide a framework to assess economical impact. She also said that proposed future financing should also be value-adding and value-based.
“It needs to go beyond shareholder value, it needs to focus on impacting the economy, well-being of the society and environment,” she said.
Zeti said there needs to be a set of performance parameters or matrices to measure these results.
“It also encompasses addressing the wider societal problems such as reducing the carbon footprint, strengthening the surrounding communities with economic empowerment and inclusion as well as improving lives by bringing basic amenities to the community", she said.
"In addition to that, financial intermediation should also be simpler and easy to understand to reduce prospect for complex and opaque financial engineering", she said.
Zeti said there needs to be more collaborative efforts by training and research institutions from different jurisdictions.
"These collaborations can work on designing and offering capacity building modules. Multiple jurisdictions can also share different expertise towards adopting best practices and harmonisation of Shariah practices and policy development", she said.
The potential for growth in Islamic finance is strong as it is now practised in 12 jurisdictions, where Islamic banking assets make up more than 15% of total banking assets.
Last year, Islamic banking global assets hit USD1.5 trillion, while global sukuk had surged to USD400 billion in the same period. Islamic finance assets are expected to cross the USD2 trillion mark.
Zeti was delivering a lecture after being conferred the Royal Award for Islamic Finance 2018 (Royal Award). The award was given by Sultan Nazrin Muizzuddin Shah, the Sultan of Perak and the Royal Patron for Malaysia's Islamic Finance initiative.
The former bank governor was honoured for her achievements and exceptional leadership in expanding the frontiers of Islamic finance in the domestic and global financial arena.
The award presentation ceremony was held in conjunction with the Global Islamic Finance Forum 2018 (GIFF 2018). Established in 2010, the Royal Award is a biennial award jointly organised by Bank Negara Malaysia and the Securities Commission Malaysia under the Malaysia International Islamic Financial Centre initiative.
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