Islamic capital market still has potential to expand reach to broader stakeholder economy - SC chairman


KUALA LUMPUR: There is still "tremendous potential” for the Islamic capital market (ICM) to expand its reach to the broader stakeholder economy through sustainable initiatives.

Securities Commission (SC) chairman Datuk Syed Zaid Albar said that with growing interest to invest responsibly, efforts will be made to enhance investor access to shariah-compliant companies with environmental, social, and corporate governance (ESG) practices.

This is to encourage companies and the relevant stakeholders to consider their impact on society and the environment in their business decision, which will further elevate the socially responsible and ethical values of shariah-compliant companies.

He said the guidance is essential to incorporate shariah requirements and ESG standards for investors and companies. This guidance will leverage on the SC’s shariah screening and internationally-recognised screening methodologies.

"To have a greater impact on Malaysia’s socio-economic development, the SC will look into expanding the use of the ICM framework as a reference point, and its products and services as funding sources for further development of the Islamic social finance sector,” he said in his keynote address at the inauguration of the virtual International Islamic Capital Market Summit 2021 (ICMS2021), organised by the Centre for Research and Training (CERT).

Moving forward, Syed Zaid said there may be opportunities to integrate impact assessments with Islamic social finance instruments to enable investors to measure whether the capital invested has achieved its desired outcome.

"Impact investing is a model that Islamic markets can potentially expand on as it is a natural fit with Islam's views on the nobility of doing permissible business and returning profits to society,” he said. "While ESG seeks to identify non-financial risks that may impact the valuation of a company, impact investing on the other hand seeks to make a measurable, positive environmental or social impact.”

He noted that this entails knowledge sharing, research capabilities, and coordination with impact stakeholders through a facilitative regulatory and developmental environment for social finance innovation.

Syed Zaid also shared that innovations in segments such as Sustainable and Responsible Investment (SRI) sukuk and waqf have demonstrated how the ICM facilitates capital formation for commercial purposes, while also contributing to positive environmental and societal outcomes.

These outcomes, he said, facilitated the first SRI social sukuk issuance to fund trust schools in 2015 and the world's first green sukuk in 2017 to address global funding gaps in green financing.

This was followed by an increase in the volume of SRI sukuk issuances for projects such as solar power plants, green buildings, hydropower, and affordable housing.

"On Jan 21, 2021, the SC announced an expansion of the SRI Sukuk and Bond Grant Scheme to assist issuers in defraying up to 90 per cent of the external review costs.

"As of end-November, it has benefitted 12 issuers with a total issuance of US$1.3 billion (US$1=RM4.23),” said Syed Zaid.

In addition, he said the SC has taken steps to empower investors through a variety of strategies, one of which was to widen investment options through accessible and high quality investment advice.

This is addressed through the use of robo-advisers or digital investment managers (DIM).

Since the introduction of the DIM framework in 2017, and the issuance of the first Islamic DIM licence in 2019, he said DIM entrants have contributed significantly to the growth of asset under management (AUM).

There are currently eight licensed DIMs, one of which offers dedicated Islamic fund management services. Collectively, they manage an estimated RM16 billion of funds.

This year, the eight licensed DIM holders have opened 90 per cent more DIM accounts compared to last year, he said. - Bernama
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