Russia – East: Synergy of Responsible and Islamic Finance for Shared Prosperity

Organiser: Sberbank of Russia

Venue: SBER zone, Lounge A, 1st floor

Time: May 19, 2023, 14:40–16:00

Moderator: Tatiana Zavyalova, Senior Vice President for ESG of Sberbank PJSC.

Speakers:

Sergey Shvetsov, Chairman of the Supervisory Board, Moscow Exchange;

Sirajuddin Suhaimi, Deputy Director General of the State Agency for Islamic Development, Malaysia;

Khondamir Nusratkhuzhayev, Member of the Financial Accounting Council, Organization of Accounting and Auditing for Islamic Financial Institutions (AAOIFI);

Muhammed Abdul Khalid, Economic Adviser to the former Malaysian Prime Minister Mahathir Mohamad, Malaysia.

Tatiana Zavyalova proposed the topic of synergy prospects between Islamic banking and ESG. Addressing Muhammed Abdul Khalid, the moderator invited him to describe the methods of Islamic banking management in Malaysia.

Muhammed Abdul Khalid noted that ESG is a new concept. He said: “In Malaysia, rather than from the pure need for growth, we also proceed from the understanding that growth should benefit everyone. We make extensive investments in education, in healthcare, in the social sphere. We started it in 1963, and have achieved a significant result.” Despite the fact that initially investing was not popular among the Muslim population, this problem has been solved. Firstly, it is necessary to keep an eye on the uniformity of income distribution. Secondly, the financial sphere workers shall be professionals, not politicians.

He also stressed that the system of Islamic finance shall not yield to pressure from Western institutions. The management system shall focus on social matters, be transparent and take into account the interests of own country.

Sergey Shvetsov noted that, while directing efforts to attract Western capital to Russia, the Eastern vector was underestimated, and now it is needed to overcome this lag at a heavy rate. This makes it necessary to rebuild the Russian financial market taking into account the interests of Eastern investors.

An important role here is played by digital financial assets that, unlike conventional securities, are not perceived as haram. He also voiced the idea of financing social programs in Moscow based on a model compliant with the rules of Islamic financing.

Khondamir Nusratkhuzhayev shared the practice of Islamic financing synchronized with ESG. In fact, it was the Middle East that pioneered the development of ESG programs. Thus, there is no reason to blindly copy the Western ESG practices; it is necessary to take into account own interests in the ESG financing.

Discussing the idea of combined efforts in the area of responsible and Islamic finance, he mentioned the lack of uniform standards and comparable reporting for Islamic banking and ESG financing. Khondamir Nusratkhuzhayev emphasized that standardization reduces the flexibility of financial mechanisms and makes it difficult to account for specific features; however, synchronization of the relevant concepts and reporting is necessary for the adequate assessment of the ESG investing effect. Eastern countries and Russia alike could adopt own rules in this sphere.

Sirajuddin Suhaimi shared the experience of Islamic ESG investment integration in the operations of the Malaysian Carbon Exchange. He noted that in Malaysia ESG is customarily viewed in a broader context. The main goal of any strategy is to protect public interests.

Muhammed Abdul Khalid stressed that Islamic finance and ESG are, in fact, the same thing. Both follow the principle of separation and prohibit harm. Therefore, ESG can produce meaningful results, provided that the government takes an active part in this program. Here are some examples. In Malaysia, where Muslims account for just 2 percent of the population, 40 percent of finances are Islamic. The central bank’s leading role in the implementation of this strategy makes it possible to ensure sustainable development. Islamic instruments shall not necessarily be intended for Muslims. They present a particularly good alternative to traditional banking; for example, the issuance of sukuks is getting ready in Germany.

Sergey Shvetsov stressed that it shall be efficient to solve these tasks within a single platform; while certification is hardly unifiable, discussion streams can be combined within the framework of a single track.

According to Khondamir Nusratkhuzhayev, the lack of Islamic banking in Russia hinders efficient investing. Islamic finance is not a rite of worship that is exclusively available to Muslims. Stereotypes restrain development.

Sirajuddin Suhaimi noted that ESG and Islamic finance are like two sides of the same coin in the sense that they cannot be separated from each other.

Rounding off the discussion, Tatiana Zavyalova stressed that the synergy of ESG and Islamic finance will in its turn strengthen both streams.

*ESG stands for Environment, Social, Governance. It is an English acronym. This development strategy provides for transparency in management, care for the environment and people affected by the company. The definition was introduced in 2004 – it was formulated by Kofi Annan, the then UN Secretary General.