Islamic finance now capable to lead from the front - Sultan Nazrin

The Sultan, who is also the Royal Patron for Malaysia's Islamic Finance Initiative, said the great potential of Islamic finance to lead in an equitable, global economic recovery is demonstrated by the actions of the Islamic Development Bank (IDB) during the pandemic itself.

"Of all the Multilateral Development Banks (MDB), the IDB may have had the greatest positive impactduring the pandemic, with a few of its initiatives. After the World Bank, the IDB has the second-largest subscribed capital of any MDB, at US$70 billion (US$1=RM4.19).

"What we must seriously consider (now) is how to inculcate Maqasid values into the very architecture of operational Islamic financial services," he said in his special keynote address at the 12th SC-OCIS virtual roundtable today.

He believes that the philosophy of Maqasid has yet to be fully embraced across all operations of the sector, in order to bridge the age-old gap between "God and mammon".

"We now have to be even more proactive, by developing a common set of Social Goals for the sector, based not only on global best practices but also on Maqasid.

"This will enable us to deliver the real social impacts that are so sorely needed," he said.

The Sultan said the urgency of the challenges confronting humanity cannot be overstated, with the Islamic system of economic and financial intermediation, based on the principles of Maqasid al-Shariah, has become more relevant than ever.

"It is my fervent hope that the industry will embrace this vital challenge and set out a strong and practical agenda for Maqasid-based transformative change," he said.

Sultan Nazrin said currently, the era is characterised by populist and increasingly polarised politics, by growing inequalities, racial and gender-based discrimination and violence, and inter-generational tensions over climate change.

"There are many such flashpoints of potential conflict, all of which have been exacerbated by the pandemic. What they reflect is an underlying fraying of the existing social contracts, which may no longer be fit for purpose.

"There is a growing sense that our systems are too heavily skewed against the interests of the majority. Too many people feel that they are only scraping by in the harsh new climate, or worse, that they are being left behind. Existing resentments and divides are deepening," he said.

Luckily, in the Islamic finance sector, the Maqasid philosophy provides the ideal template to address these troubling dynamics, Sultan Nazrin said.

"It gives us a foundation for forging an agenda for transformative change that aims to heal these divisions and bridge these divides. It is now up to us to deliberate, consult, and formalise this common agenda," he said.

Sultan Nazrin said this agenda must combine the rule of law; shared values; risks and rewards; and equal opportunities, in order to harness the resources and talents of everyone in pursuit of the greater good.

"This agenda should introduce 'Maqasid Social Goals' as the norm towards which all our financial institutions should strive.

"These goals, developed in consultation with regulators and industry bodies, should be incorporated into the constitutions of all the companies and institutions involved in the Islamic finance space," he said.

According to Sultan Nazrin, the Social Goals should include, among others, adopting an 'Impact Investment' approach, by ensuring all transactions and products contribute to the greater social agenda and strengthening mechanisms for good governance and oversight, in order to minimise damaging corruption and cronyism.

The goals should also be addressing inequality, by improving access for minority groups and women toeducation, employment and services of all kinds, as well as by ensuring decent wages and working conditions.

It also has to harness fintech and digitisation, so that all operations are implemented as efficiently as possible, thereby maximising positive social impacts as well as promoting new connections between finance and philanthropy, for instance, through public-private partnerships (PPPs).

"PPPs are a key area where financial and philanthropic goals may coincide for the greater good. They play a particular role in funding infrastructure investment.

"Having been brought to a near standstill during the pandemic, infrastructure development now has the potential to serve as an important driving force in post-pandemic economic recovery. One estimate puts the current pipeline of global infrastructure projects at US$12 trillion, with rail and renewables the leading sectors," he added.