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As we step into the dawn of 2024, the echoes of past challenges persist—be it the Russian invasion of Ukraine, the Israel-Gaza hostilities, or the ever-looming climate crisis. The new year also ushers in a multitude of elections across at least 64 nations, including the European Union and the United States. These elections hold the promise of shaping the trajectory of global politics and economies. This article delves into the key areas where Islamic finance is poised to make a significant impact, spanning climate change, social responsibility, geopolitical influences, and technological advancements.
Climate change takes centre stage: A green finance revolution
In the wake of COP28, hosted by the United Arab Emirates, the world witnessed what some might label a landmark event. The host nation achieved an extraordinary feat by steering nations, including prominent petrostates, towards a collective commitment to 'transition away' from fossil fuels. This commitment, aimed at achieving net-zero emissions by 2050, was coupled with a substantial pledge of $700 million to the new loss and damage fund. This fund is designed to assist economically vulnerable nations adversely impacted by climate change.
While skeptics question the feasibility of these commitments, what remains clear is the signal they send—the future lies in renewables, and climate finance is the new frontier. Islamic banks are quick to recognise this, with countries like Malaysia and Indonesia doubling down on their climate and sustainability agendas. As the momentum from COP28 reverberates, we can anticipate more regulatory fine-tuning in this area.
According to Razvan Dumitrescu, the sustainable finance director at ENBD Capital, "Green Sukuk are poised for growth, supported by both policymakers and private stakeholders, as sustainability climbs higher on policy agendas and investment strategies." Nevertheless, the challenge lies in navigating diverging global regulations, which could potentially lead to market fragmentation, hindering capital flow to regions where it is most needed.
Finance for social good: Addressing humanity's challenges
2024 is predicted to witness a deepening of social challenges such as forced displacement, food insecurity, and child poverty, as highlighted by various global agencies, including those from the United Nations. Escalating geopolitical conflicts threaten to widen the financial gaps required to meet the Sustainable Development Goals (SDGs). The refugee crises are expected to intensify, while disruptions in agricultural production and supply chains could lead to potential food shortages, inflation, and infrastructural destruction.
Oussama Kaissi, CEO of the Islamic Corporation for the Insurance of Investment and Export Credit, emphasises the pivotal role Islamic finance can play in addressing these challenges. "There is an urgent need for upscaling its interventions — in terms of reach, volume, size, and funding—to enhance the impact on and the resilience of countries and communities to the challenges," notes Kaissi. Social good has always been at the core of Islamic finance, with principles like Halal ingrained in its DNA. However, the focus is shifting towards what is ethical and wholesome (Tayyib) rather than merely permissible (Halal).
In 2024, we anticipate witnessing increased utilisation of Islamic social finance tools such as Zakat, Waqf, and Sadaqah to tackle pressing social issues. This shift aligns with a concerted effort by the industry, particularly the Malaysia International Islamic Financial Centre Leadership Council, to promote ethical and wholesome financial practices.
More players in the game: Global expansion and diverse markets
While Saudi Arabia, Malaysia, the UAE, and Indonesia remain formidable players in the Islamic finance landscape, there is a noticeable shift towards non-traditional markets. The Philippines, for instance, is actively implementing measures to boost its Islamic banking sector, building on the success of its Sukuk debut in November. Russia's Islamic banking pilot project has shown promising results, prompting coordinated efforts to promote participation in finance across different Russian regions.
In the African region, activities in Islamic finance are expected to expand beyond Nigeria, with countries like Tanzania, Kenya, Uganda, and Ethiopia gaining momentum. Meanwhile, all eyes are on Pakistan's ambitious endeavour to weed out non-Sharia-compliant elements from its entire financial system by 2027, a monumental task that could reshape the country's banking and financial landscape.
Tech train: The rise of Islamic digital banks
Another pivotal aspect to observe in 2024 is the emergence (or potential decline) of Islamic digital banks. Malaysia's two digital bank licensees are approaching their April 2024 deadline to launch operations. Simultaneously, Saudi Arabia's D360 Bank and Australia's Islamic Bank of Australia are expected to open their doors this year.
The impact of these digital banks, alongside Islamic challenger banks in Turkiye and those by incumbents in the Gulf Cooperation Council (GCC), will be closely monitored. The key question is whether these virtual banks can disrupt the status quo and address the needs of Muslims seeking more affordable, efficient, and accessible banking services in line with their faith.
The author is the Managing Director & CEO of National Bank Limited. He is a fellow member of the Institute of Cost & Management Accountants of Bangladesh (ICMAB) and the first Certified Sustainability Reporting Assurer (CSRA) in Bangladesh. He is also a post-graduate diploma from the Institute of Islamic Banking & Insurance (IIBI), United Kingdom.
Tech train: The rise of Islamic digital banks
Another pivotal aspect to observe in 2024 is the emergence (or potential decline) of Islamic digital banks. Malaysia's two digital bank licensees are approaching their April 2024 deadline to launch operations. Simultaneously, Saudi Arabia's D360 Bank and Australia's Islamic Bank of Australia are expected to open their doors this year.
The impact of these digital banks, alongside Islamic challenger banks in Turkiye and those by incumbents in the Gulf Cooperation Council (GCC), will be closely monitored. The key question is whether these virtual banks can disrupt the status quo and address the needs of Muslims seeking more affordable, efficient, and accessible banking services in line with their faith.
The author is the Managing Director & CEO of National Bank Limited. He is a fellow member of the Institute of Cost & Management Accountants of Bangladesh (ICMAB) and the first Certified Sustainability Reporting Assurer (CSRA) in Bangladesh. He is also a post-graduate diploma from the Institute of Islamic Banking & Insurance (IIBI), United Kingdom.
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