The Role of Islamic Banking and Capital Market in Promoting the Sustainable Development Goals (SDGs): The Case of Malaysia

Abstract

Since the launch of the Sustainable Development Goals (SDGs) by the United Nations (UN) in 2015, the global financial markets have strongly inclined towards being more ethical, responsible and value-based investing. Similar with the conventional counterparts, the stakeholders in Islamic finance have initiated its efforts and thrives in manifesting and incorporating the global sustainability agenda into its business operations and product innovations. Given that the principles of Islamic finance fundamentally support socially inclusive, environmentally preserved and economically prosper, the potential for Islamic finance to play a role in realizing and translating the SDGs into practical approach is extensively explored in this paper. This paper reviews the role of Islamic finance industry, specifically the Islamic banking and Islamic capital market in Malaysia, in contributing the realization and manifestation of the SDGs in its day-to-day business activities by analyzing few existing products in the local market namely, Islamic microfinance, Islamic green financing, green sukuk and ESG Islamic fund. The discussion presented in this paper predominantly derived from a comprehensive analysis conducted through literature review approach. The paper concludes that Islamic finance industry in Malaysia is still on the right track in terms of contributing to sustainable development goals, environmental preservation and social welfare, as advocated by the United Nations. All of the key stakeholders in Malaysia also have been working hard to make sure the overall Islamic financial ecosystem is aligning with the global sustainable finance movements. This paper provides an indirect motivation and personal incentive for the policy makers to continue assimilating and harmonizing the SDG elements into the Islamic finance industry.