ISLAMIC FINANCE CAN ACCELERATE PACE OF SUSTAINABLE, INCLUSIVE ECONOMIC GROWTH -- ECONOMISTS

By Sharifah Pirdaus Syed Ali

KUALA LUMPUR, May 30 (Bernama) -- Islamic Finance can play a prominent role in accelerating the pace of economic growth particularly that which is sustainable and inclusive, said economists.

Juwai IQI global chief economist Shan Saeed said financial markets need stability and norm.

The ructions in the markets are of a magnitude not seen in generations, whereby uncertainty, nervousness and jittery behaviour are putting the market valuation in jeopardy, he noted.

Shan said the alchemy of the global financial markets has changed dramatically in the last 16 to 17 years.

“So there are more deliberations in the market on which system can bring stability and equality in the economic landscape. Islamic banking has provided an alternative solution to provide peace of mind to the valued clients.

“More and more global investors are parking funds in Islamic banking and assets are growing at appreciable rate,” he told Bernama.

He said Islamic banking had provided solutions to all major trade and services with less risk compare with conventional banking, with ample liquidity, stable rate structure,and zero speculation being the key factors in Islamic banking’s success.

The value of Islamic finance assets stands at US$4.5 trillion according to Islamic finance development report February 2024.

 “In my opinion, from 2024 to 2027, global economy will witness more transactions in Islamic financial markets with assets meandering around US$6 trillion to US$7 trillion. The future of banking rests with Islamic finance which provides stability and secure way of transactions for the clients,” he said.

Addressing the Global Forum on Islamic Economics and Finance (GFIEF) on Tuesday, Prime Minister Datuk Seri Anwar Ibrahim said the Islamic finance ecosystem needs to evolve progressively.

It needs to place greater emphasis on value-based finance, transcending the profit-driven motives or embracing a higher purpose where wealth is not just accumulated among the few but circulated to uplift communities, and investment carries a balanced promise of prosperity.

In its commitment to foster innovations, the government had announced RM100 million to seed such innovations with two new blended finance innovations including a pilot programme on Green Halal Businesses and Project Hassan.

Commenting on this, Bank Muamalat Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said the Green Halal Businesses signify the importance of going green in doing business even among the halal enterpreneurs.

“Certainly there could be gaps among the halal enterprenuers which would require technical know-how to transition themselves into an eco-friendly business practice,” he said.

As for Project Hassan, he said it comprises a key element of food security especially in respect to self sufficiencies in rice which has been on a declining trend.

“Lembaga Zakat Negeri Kedah has demonstrated its efforts to empower the asnaf for the production of paddy in Kedah and it can be an inspiration to other states.

“The project addresses two issues, one is the supply of rice and the other is the livelihood of the asnaf that engage in the paddy production business,” he pointed out.

In the grand scheme of things, he said Islamic finance has evolved quite significantly since the 1980s with the creation of the first Islamic bank in Malaysia, namely Bank Islam Malaysia Bhd.

While there is a clear need to transition, there could be a need for capital expenditure as shifting into new business model would certainly incur cost, he said.

“We have seen the share of Islamic banking assets has risen from 14.4 per cent of total assets in 2006 to 36.3 per cent in 2023.

“So, the struggle for non-riba Islamic finance is working and continues to grow. The next journey is to inculcate the risk-sharing concept which was embeded in the Islamic Financial Services Act 2013 where the creation of investment account is the key development to fund Islamic assets,” he noted.

Thereafter, he said was about how Islamic finance would spearhead the philantrophy aspect where the proliferation of waqf and sadaqah can be significant tools that can complement the fiscal policy especially in the provision of public goods.

“In that sense, Islamic finance is extremely comprehensive and inclusive and benefits the whole of mankind. I think that’s the spirit that our Prime Minister tried to convey in this event,” he said.

On another note, Putra Business School economic analyst Associate Prof Dr Ahmed Razman Abdul Latiff viewed that it was commendable that Anwar has announced various initiatives and programmes to reinvigorate Islamic finance.

This includes collaboration with many internal and external agencies, where some of these programmes are very innovative and crucial in the development of Islamic finance and sustainability of Malaysian economy and its people.

The empowerment of waqf institutions is vital to diversify the source of funding from the traditional financial institutions, he said.

“However, there is room for further exploration of Islamic programme that could further strengthen the Malaysian economy.

“Among them the Qardhul Hassan programme, alternative financing to businesses such as mudharabah and musharakah, home financing such as musharakah mutanaqisah, muqassah or netting system and commodity backed central bank digital currency,“ he added.

-- BERNAMA