Islamic finance to lessen Covid-19 impact

There’s opportunity to collaborate with stakeholders to use Islamic financing tools to help the vulnerable populations, says World Bank

by ASILA JALIL / pic by MUHD AMIN NAHARUL

DEVELOPMENTS of the Islamic financing instruments could help lessen the financial impact of the Covid-19 pandemic on the vulnerable populations.

World Bank Group East Asia and Pacific VP Victoria Kwakwa (picture) said as part of the “Building Back Better” agenda, which focuses on recovery and actions needed to be taken after the pandemic, there is an opportunity to collaborate with relevant stakeholders to use Islamic financing tools to alleviate the impact of Covid-19, as well as support the realisation of the 2030 Sustainable Development Goals.

“While Malaysia is an acknowledged global leader in Islamic finance, additional efforts could be exerted to allow the Islamic finance industry to flourish even further, and to innovate and take advantage of new developments and digital technology to reduce costs and expand outreach at a much faster pace,” said Kwakwa in her opening remarks at the launch of the World Bank Sustainable and Inclusive Finance Forum webinar yesterday.

She said the pressure from the pandemic that led to a limited physical interaction caused an increased adoption of digital financial services, which is happening at a much faster rate than the bank had initially envisioned.

The rapid adoption of digital financial services provides new opportunities for more financial inclusion, said Kwakwa, which will also improve the efficiency and inclusiveness of financial services used by lower income groups and their families.

She also said it is vital for nations to adopt an integrated approach to bringing together financial sector stakeholders, both public and private, to accelerate the transformation towards a sustainable and inclusive financial system.

An integrated approach enables the development of policy cohesiveness across ministries, central banks, financial regulators and private financial actors to help focus national policies and efforts towards achieving particular goals, said Kwakwa.

“I would like to reiterate that there is substantial opportunity to boost sustainable and inclusive finance in Malaysia and beyond.

At the same time, we must also recognise that, without financial stability and resilience, recovery from Covid-19 will be compromised.

“This region, like others, will have to remain vigilant and monitor trends for signs of financial crisis, streaming from a surge of non-performing loans caused by rising insolvencies,” she added.

Bank Negara Malaysia governor Datuk Nor Shamsiah Mohd Yunus said the pandemic has provided an impetus for a reset and reprioritise resources to reconstruct the country’s economy and financial systems to be more sustainable and inclusive.

She also said Malaysia continues to be the forefront of green sukuk, which caters to the needs of investors who prefer investments with a positive environmental impact, mainly those that go towards funding activities or technology that support a low-carbon and climate-resilient society.

“Institutionalised forms of social finance, which blend social dividends with financial returns, are also being pursued to fill the gap in financing businesses and government initiatives.

“This is an area where Islamic finance has made important headways given its emphasis on improving social justice through wealth distribution and fair financial dealings,” said Nor Shamsiah.