Malaysia and UK Partner in Islamic Finance to Drive Green Investment

In the face of a growing global emphasis on sustainability and ethical investing, Malaysia and the United Kingdom are taking bold steps to deepen their financial partnership. The recent MIFC-UK Business Forum in London provided a platform for key financial stakeholders from both nations to discuss and strategize how to leverage Islamic finance for green investment opportunities. As the demand for sustainable, responsible finance continues to rise, the forum emphasized the importance of fostering Malaysia-UK investment connections, particularly in the expanding green sector.
>

A Strategic Collaboration for Sustainable Growth

The forum, jointly organized by Bank Negara Malaysia (BNM) and the Malaysia Islamic Finance Centre (MIFC) Leadership Council (MLC), was held in collaboration with the Islamic Finance Council United Kingdom (UKIFC), TheCityUK, and the UK Islamic Finance – Halal Economy Hybrid Group. This partnership underscores a shared vision to create pathways for investment that are both ethical and sustainable, tapping into Islamic finance’s potential to drive green economic growth. This meeting is part of a larger effort to capitalize on Malaysia’s role as a global gateway for Islamic finance, serving Asia and the Organization of Islamic Cooperation (OIC) markets, and the UK’s position as a global financial hub.

A significant aspect of this collaboration is the implementation of the Memorandum of Cooperation signed at the Global Forum on Islamic Economics and Finance (GFIEF) in May 2024. This agreement aims to enhance cooperation between Malaysia and the UK, with a focus on knowledge exchange, cross-border trade, and innovative financial instruments that align with sustainable development goals.

Islamic Finance and Green Investments: A Natural Alignment

His Royal Highness Sultan Nazrin Muizzuddin Shah, Royal Patron of Malaysia’s Islamic Finance initiative, delivered the keynote address. His Royal Highness emphasized that Islamic finance, deeply rooted in principles of ethical practices, fairness, and equitable risk-sharing, offers unique solutions for sustainable investments. “Islamic finance provides a framework that naturally aligns with sustainability and offers diverse funding options, including blended and social finance. It is well-positioned to address funding gaps that impede global progress and can serve as a tool for channeling resources to where they are needed most,” His Royal Highness said.

The Sultan’s words reflect the growing realization that Islamic finance is not just a niche market but a global force capable of addressing modern financial needs. Its focus on social welfare, transparency, and environmental stewardship makes it a compelling avenue for green investments, a sector poised for exponential growth in the coming decades.

Malaysia’s Ambitious Green Investment Agenda

Malaysia’s commitment to sustainability is reflected in its ambitious targets for green investment. To build a sustainable economic landscape, the country’s funding requirements for green investments are expected to reach approximately RM1.2 trillion to RM1.3 trillion by 2050. This significant financial need is driven by efforts to achieve Malaysia’s Net Zero target and to transform its economy in line with environmental considerations.

Islamic finance instruments, such as sukuk (Islamic bonds) and shariah-compliant investment funds, are positioned to play a crucial role in meeting these funding requirements. Already a leader in Islamic finance, Malaysia has a robust legal and regulatory framework that encourages the development of green financial products. For example, the issuance of green sukuk is a growing trend in Malaysia, providing a shariah-compliant means to finance environmentally friendly projects.

Dato’ Seri Abdul Rasheed Ghaffour, Governor of Bank Negara Malaysia, emphasized the country’s commitment to sustainability during the forum. “Malaysia is taking decisive steps towards achieving our Net Zero target in 2050, guided by strategic frameworks such as the National Energy Transition Roadmap, the Hydrogen Economy and Technology Roadmap, and the New Industrial Master Plan. With its underlying intrinsic values, Islamic finance is poised to address the funding needs and support our vision of balanced, sustainable, and inclusive economic growth,” he stated.

Role of Malaysia-UK Investment Partnerships in Promoting Green Finance

The MIFC-UK Business Forum served as a crucial platform for both countries to explore how they can collaboratively promote green investments and drive economic growth through Islamic finance. The roundtable discussions delved into key areas for development:

1. Industry Collaboration in Green Finance: Both Malaysia and the UK seek to strengthen cross-border trade and financing activities. This includes fostering partnerships to fund green investments, promote private equity, and finance large-scale infrastructure projects. By working together, the two countries can share expertise and best practices in sustainable finance.
2. Innovative Islamic Finance Solutions: With sustainability at the forefront of global priorities, there is a strong focus on developing innovative Islamic finance instruments to support green transitions. Shariah-compliant financial products, such as green sukuk and impact investment funds, offer alternative funding avenues that align with environmental and social goals.
3. Capacity Building and Knowledge Exchange: Recognizing the need for continual growth, both Malaysia and the UK are investing in capacity building, research, and knowledge-sharing initiatives in Islamic finance. This includes developing educational programs and resources to promote a deeper understanding of how Islamic financial principles can be applied to support sustainable investments.

The UK’s Growing Interest in Islamic Finance

The UK, home to one of the largest Islamic finance markets outside the Middle East and Asia, is positioning itself as a key player in the global halal economy. London, as a global financial center, has embraced Islamic finance over the years, issuing sovereign sukuk and supporting Islamic financial institutions.

Tan Sri Azman Mokhtar, Chairman of the MIFC Leadership Council, highlighted the potential of this partnership. “Malaysia’s leadership in Islamic finance, coupled with the UK’s robust global financial presence, forms a dynamic alliance ready to tackle significant global challenges. At MLC, we are committed to enhancing this partnership through innovative Islamic financial solutions that are essential for sustainable, long-term economic growth,” he stated.

The UK’s involvement in the Islamic finance sector has been growing steadily, with a focus on developing ethical investment opportunities. The City of London is increasingly looking at how Shariah-compliant finance can contribute to sustainable growth, with a particular interest in green investments that align with Islamic principles of stewardship and social responsibility.

Building a Sustainable Future Together

The MIFC-UK Business Forum concluded on a positive note, with participants reaffirming their commitment to strengthening the Malaysia-UK investment partnership. Both nations aim to leverage technology and innovative financial solutions to enhance Islamic finance services, creating a framework for impactful investments that drive sustainability and economic inclusion.

The forum drew over 140 participants, including government officials, financial sector regulators, fund managers, international investment banks, and other business practitioners. This diverse attendance underscored the growing interest in leveraging Islamic finance as a tool for sustainable development and green investments.

Through continued collaboration, Malaysia and the UK are well-positioned to set a global standard for sustainable, responsible investing. By harnessing the power of Islamic finance, the two countries are paving the way for a future where economic growth aligns seamlessly with environmental and social objectives, ensuring a prosperous and sustainable future for all.

In the coming years, as Malaysia continues to pioneer innovative Islamic finance instruments and the UK solidifies its role as a global financial leader, the partnership between these two nations will likely serve as a model for ethical and sustainable investments worldwide. With strong political will, strategic roadmaps, and a shared vision for sustainability, the Malaysia-UK investment partnership stands as a powerful testament to the potential of Islamic finance in driving green economic progress.