Islamic Finance Forum Promotes Capital Markets for Sustainable Growth

The Global Forum of Islamic Economics and Finance (GFIEF) 2024 recently hosted a dynamic panel session titled “Fostering Finance at Scale through Capital Markets,” shedding light on the pivotal role of capital markets in fostering diversified and inclusive economic growth. The discussion emphasized the significance of sustainable bonds and sukuk instruments in facilitating credible climate transitions, with substantial investments directed toward decarbonizing the energy, real estate, and transportation sectors. Additionally, the rise of social stock exchanges was highlighted, showcasing their potential to enable ethical investors to channel high-quality capital toward impactful social initiatives. This Islamic Finance Forum demonstrated the critical importance of innovative financial instruments in driving sustainable development and ethical investment.

Islamic Capital Market’s Growing Influence

Tan Sri Wahid Omar, Chairman of Bursa Malaysia, revealed that the Islamic capital market now accounts for RM2.5 trillion, representing 63% of the overall market. He noted the continuous growth of the Shariah-compliant equity market post-pandemic and introduced innovative platforms like Bursa Suq Al Sila (BSAS), a commodity trading platform that facilitates Islamic liquidity and financing.

A remarkable achievement is the introduction of the Bursa Carbon Exchange (BCX) in 2022, the world’s first Sharia-compliant voluntary carbon market. This platform allows companies to offset their emissions and meet climate goals, underscoring the need for coordinated efforts to develop purpose-based financial instruments aligning with the Sustainable Development Goals (SDGs).

Challenges and Opportunities in Islamic Finance

Mohamad Safri Shahul Hamid, CEO of the International Islamic Liquidity Management Corporation (IILM), discussed the impressive progress of the capital market. However, he noted that Islamic finance still constitutes a small fraction of the global financial market. Safri encouraged the younger generation to pursue careers in Islamic finance, highlighting the industry’s vast potential for future growth.

He also pointed out the challenges Islamic finance faces, particularly in gaining broader acceptance within developed markets and major economies like the G20. With only five sovereigns in the Islamic finance world rated A and above, there is a pressing need for continuous efforts to position Islamic finance not just as an alternative, but as a mainstream and ethical financial system.

Advancements in Sustainable Sukuk

The session explored advancements in sustainable sukuk, tracing its evolution from the world’s first green sukuk in 2017 to various notable issuances by governments and corporations. These instruments have funded a diverse range of projects, from solar power initiatives to educational programs, demonstrating their versatility and socio-economic impact. Looking ahead, the forum anticipates more innovative financial structures, diversified Shariah contracts, and the integration of digitization and tokenization in capital markets.

Mobilizing New Classes of Investors

YM Raja Amir Shah Raja Azwa, CEO of HSBC Amanah Malaysia Berhad, discussed the potential of mobilizing new classes of investors, such as impact investors, philanthropic funders, and zakat agencies. These investors can support projects with significant social and environmental benefits. He emphasized the importance of creating appealing propositions to ensure that these investments generate measurable impacts alongside financial returns.

Dr. Ramaswami Balasubramaniam, Chairman of the Social Stock Exchange Advisory Committee at the Securities and Exchange Board of India, shared insights into India’s efforts to integrate social impact into financial markets. He highlighted innovative instruments like zero-coupon and zero-principal bonds and the establishment of comprehensive frameworks for social impact measurement. Dr. Balasubramaniam emphasized the need for transparency, accountability, and capacity-building to foster a robust social finance ecosystem.

The panel session concluded with a call to action for policymakers, market participants, and investors to collaborate in driving capital market innovation. The goal is to align financial practices with broader social and environmental objectives, promoting economic transformation and shared prosperity on a global scale.