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Role of Islamic Finance in Fulfilling SDGs and Serving Communities: Strategy and Innovation - IslamicMarkets LIVE Briefing Note

IM Insights
By IM Insights
3 years ago
Role of Islamic Finance in Fulfilling SDGs and Serving Communities: Strategy and Innovation - IslamicMarkets LIVE Briefing Note

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  1. Leadership Series Thursday - 3 September 2020 Role of Islamic Finance in Ful filling SDGs and Serving Communities: Strategy and Innovation Interviewed by: Daud Vicary, Chairman of Advisory Board, IslamicMarkets.com MUBASHAR H. KHOKHAR Chief Executive Officer & Managing Director Bank Islam Brunei Darussalam (BIBD) The sustainable economic system is part and parcel of the DNA of Islamic finance. The industry should focus on artificial intelligence to better serve their customers. Digital banks can make a huge impact on customers’ behavior to help them achieve their social goals. I slamic Finance and the SDGs: Speaking of the role of Islamic finance in contributing to the United Nations’ Sustainable Development Goals (UN SDGs), Mubashar H. Khokhar started off the discussion with his take on how the principles, norms and ethics of Shariah-compliant systems from 1,400 years ago tied in with the works of Shefrin and Statman (1992) on the “classes of fairness” in financial markets, and is also relatable to the more recent ideas of Sustainable Development Goals (SDGs), Environmental, Social and Governance (ESG), Socially Responsible Investing (SRI), and Value-Based Intermediation (VBI). According to Khokhar, Islamic banking originated on the core principles of promoting social justice to financial intermediation. Khokhar highlighted how the concept of Zakat (a compulsory distribution of charity, calculated at 2.5% of an individual’s or organisation’s wealth) could address social issues and help to alleviate inequality as well as financial disparity across the globe. According to the World Health Report, global household wealth in 2019 stood at USD 360 trillion. Khokhar assessed that USD 9 trillion (2.5% of global household wealth) was around 22 times more than the USD 400 billion per year required by the UN to fulfill its fifteen-year goals for 59 countries of the World’s Lowest-Income Countries. Khokhar then went on to what he considered the “true litmus test”, where a study conducted by Refinitiv was discussed. According to the study, an analysis of 6,554 companies showed that Shariah-compliant companies in the finance industry commanded a 5.9% higher average ESG score compared to non-Shariah compliant financial institutions. This number stood at 10% for non-financial institutions. In Khokhar’s view, this proves that sustainable economic systems form a part of the DNA of Islamic finance. Industry Readiness: Considering industry readiness in terms of both the necessary processes and the intellectual capital required to drive innovation and sustainable growth, Khokhar’s view was positive, affirming that the state of Islamic finance today was rather well-equipped to go forward. Khokhar stated that people were now realising the importance of Islamic finance principles and that the industry has come a long way in a short span of 44 years, with USD 2.4 trillion in assets, compared to the 566-year old conventional financing industry which has USD 100+ trillion in assets. Daud Vicary echoed these views and stated that since the discussion of SDGs erupted around five years ago, there has been a greater understanding globally of the core values underpinning Islamic finance. In addition, the Islamic finance industry too has had several opportunities to provide greater clarification on these core values. However, Khokhar noted that there was a gap in terms of intellectual capacity, urging researchers, practitioners, regulators and consumers globally to move towards a common platform to achieve the target of USD 67.3 trillion assets under management (AUM) by 2023, from a base of USD 30.7 trillion currently. According to Khokhar, this was essential in order to kick-start the Islamic finance industry and to allow the sector to capitalise on the opportunities presented by this strong growth potential. In particular, Khokhar highlighted that the wealth management segment of the Islamic finance industry was one where growth was yet to come in. Banking In The New Norm: Mobile banking, digitisation, globalisation and artificial intelligence were the key innovations impacting the banking industry in general with the on-set of COVID-19, according to Khokhar. Research has shown that the smartphone adoption rate within the 45-65 year age group stands at 90% today, compared to 60% in 2013. Another interesting statistic cited by Khokhar was that by 2025, 72% of internet users would access web pages via their smartphones. According to Khokhar, this was therefore a good opportunity to put banking in the hands of the customer. Khokhar also explained the importance of data as a key contributor to artificial intelligence, stating that the effective use and management of data could assist in providing that "convenience” factor to the existing and potential customers. In Khokhar’s view, convenience was the next relative competitive advantage in the world. Speaking of challenges in the future, Khokhar was very clear in saying that it was crucial for industry players to realign and reinvent themselves to keep up with the radical changes in the banking industry especially that competition is coming from non-financial organisations. He also affirmed that digital banking can create a huge social impact and enable clients to set and meet their personal financial and impact goals. Khokhar stated that being young, the Islamic finance industry had many advantages over its 566-year old conventional financing counterpart. This would allow the Islamic finance industry to navigate through the future with ease, moving ahead with agility and speed. In concluding remarks, Khokhar embraced an all-inclusive model, stating that it was crucial for Islamic finance products to be able to be used across the globe, spreading the idea of ethics, sustainability and community well-being, as its core value framework. Watch again on IslamicMarkets.com
  2. Sustainable and Ethical Universe Right to Equal , Accurate & Adequate Info Freedom from Riba Freedom from Impulse Freedom from Gharar (Excessive Uncertainty) Right to Equal Processing Power Freedom from Coercion Freedom from Qimar (Gambling) Right to Transact at Fair Prices Right to Equal Bargaining Power Freedom from Maysir (Unearned Income) Right to Contract Freedom from Price Control & Manipulation Good Health & Wellbeing Zero Hunger Gender Equality 4 3 Right to Equal Information Freedom from Darrar (Detriment) Quality & Education Freedom from Misrepresentation Right to Trade at Efficient Prices Clean Water & Sanitation 5 6 Affordable & Clean Energy 2 7 No Poverty 1 8 Decent Work & Economic Growth 17 16 Industry, Innovation & Infrastructure 9 15 10 Reduced Inequalities 11 14 12 Life Below Water Responsible Consumption & Production Natural resources Waqf properties/assets Renewable energy and energy efficiency Community and economic development Peace, Justice & Strong Institutions Life On Land 13 Sustainable Cities & Communities Partnership for The Goals Climate Action Empowerment of local communities by social finance Investment Account Platform Peer-to-peer financing Crowdfunding