Islamic finance can help eliminate debt and facilitate a move to sustainable finance, said Director Islamic Finance at the State Bank of Pakistan (SBP) Ghulam Muhammad Abbasi on Tuesday.
He opined that since Islamic financing is asset-backed, it assures that the transaction is less vulnerable to debt crises and that the funds are employed for the designated purpose, thus minimizing defaults. It focuses in particular on social and ethical considerations, risk and reward sharing, and the avoidance of excessive ambiguity.
According to Abbasi, Islamic financial institutions have yet to align their business models because the Islamic climate financing industry is very small and accounts for just 2 percent of the worldwide financial services market.
He remarked that only a few Islamic financial institutions have participated in significant global initiatives, such as the United Nations principle of responsible banking, responsible investment, and responsible insurance, which embeds sustainability at the strategic, portfolio, and transaction levels in business.
Abbasi said Pakistan is one of the top ten countries hardest afflicted by climate change. As a responsible financial system regulator, the SBP has undertaken a number of efforts, not just for financial inclusion but also for green and sustainable finance.
Meanwhile, former SBP governor Dr. Ishrat Husain said at the conference that the goal of Islamic finance is to help people with less income live decent lives. He suggested that Islamic financial institutions separate their products from traditional banking to help boost market penetration.