Is­lamic banks slowly em­brace green fi­nance

Kuwait Times - - BUSINESS -

Is­lamic banks are grad­u­ally em­brac­ing so­cially re­spon­si­ble fi­nance, from re­new­able en­ergy to mi­cro­fi­nance ef­forts, help­ing un­lock new fund­ing sources for en­vi­ron­men­tally-friendly projects, an in­dus­try sur­vey shows. The two sec­tors have de­vel­oped sep­a­rately from each other, but green projects could ben­e­fit from tap­ping Is­lamic banks in coun­tries like the United Arab Emirates and Malaysia, where they now hold a quar­ter of to­tal bank­ing as­sets.

Around two-thirds of fi­nanc­ing in Saudi Ara­bia fol­lows Is­lamic prin­ci­ples, which for­bid in­vest­ing in gam­bling, to­bacco and al­co­hol. This re­sem­bles the screen­ing method­ol­ogy used by eth­i­cal funds in Western mar­kets. Com­mon­al­i­ties could help con­verge two fast­grow­ing bond mar­kets: Moody’s In­vestors Ser­vice es­ti­mates is­suance of Is­lamic bonds, or sukuk, will reach $70 bil­lion this year, com­pared to over $80 bil­lion for green bonds.

Green fi­nance is in­creas­ingly im­por­tant for Is­lamic banks seek­ing to dif­fer­en­ti­ate them­selves from their con­ven­tional peers, the Bahrain-based Gen­eral Coun­cil for Is­lamic Banks and Fi­nan­cial In­sti­tu­tions (CIBAFI) said in a re­port. Is­lamic banks want to im­prove their con­tri­bu­tion to lo­cal economies with job cre­ation, in­fra­struc­ture and SME fi­nanc­ing as top pri­or­i­ties, a sur­vey con­ducted by CIBAFI be­tween May and Au­gust shows.

The sur­vey drew in­put from 86 Is­lamic fi­nance in­sti­tu­tions across 29 coun­tries mainly from the Mid­dle East and South­east Asia, as well as Africa. Around a third of small Is­lamic banks cited a mod­er­ate ex­po­sure to the green and re­new­able en­ergy sec­tors, com­pared to 15.5 per­cent for large Is­lamic banks.

In Malaysia a lo­cal lender has in­tro­duced green mort­gages to fa­cil­i­tate installation of so­lar sys­tems, while an Is­lamic bank in Jor­dan is de­vel­op­ing al­ter­na­tives to medium-term loans to fund en­ergy ef­fi­cient and re­new­able en­ergy projects. —Reuters

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