KUALA LUMPUR: Islamic finance has significant global growth potential in line with the growing worldwide movement towards environmental, social and corporate governance (ESG), given their commonalities.
Bursa Malaysia Bhd chairman Tan Sri Abdul Wahid Omar said instruments that meet Shariah principles also meet with ESG requirements due to their common criteria, including legitimate underlying transactions, not speculative in nature and not harmful to mankind, the society and the environment.
"There are a lot of opportunities in Islamic social finance as we exit the COVID-19 pandemic.
"I don’t think Islamic Finance is competing with the ESG, it is very much complementary (in nature); and when ESG gains traction, so will Islamic Finance,” he said at the virtual 2021 APAC Summit today.
Abdul Wahid said embracing ESG principles and committing to net-zero carbon emission goals are no longer an option but a must for corporates’ survival, noting that more than 130 countries are expected to commit to net-zero carbon emissions goals by 2050-2060.
With the continued efforts by the United Nation Principles for Responsible Investment, Principles for Responsible Banking and Principles for Sustainable Insurance, all businesses would eventually get on board the net-zero carbon emissions movement, he said.
"Given the neutrality of ESG, we hope the financial institutions would start to offer Shariah-compliant ESG products, which will then appeal to both Shariah funds and non-Shariah funds as well,” he said.
The global Islamic asset under management (AUM) has grown by 2.3 times over the last decade to reach US$140 billion (US$1=RM4.18) as at end-2020.
Abdul Wahid said the increase in the scale of funds might be an indication of the flow of funds into emerging markets’ fixed-income funds, as a result of the search for yield and increased global liquidity.
He added Islamic funds continues to remain concentrated by domicile in three core markets, namely Saudi Arabia, Malaysia and Iran, constituting around 81 per cent of the total Islamic AUM.
Malaysia alone accounts for 29.3 per cent of the AUM, he said, noting that there is also a tremendous growth potential for Islamic funds in Indonesia as its economy would grow significantly in the next few years.
Abdul Wahid also added that in Malaysia, Shariah funds grew by 41.5 per cent over the past two and a half years to RM225 billion, equivalent to 24 per cent of the total AUM of RM947 billion. - Bernama