Global Finance Youssef Khalawi, Secretary General of Al Baraka Islamic Economics Forum, spoke about the role of Islamic finance and economics as a comprehensive and sustainable framework for all economies.
Global Finance: Against the backdrop of rising debt and geopolitical and economic instability, how is the role of Islamic finance evolving to address emerging global challenges?
Youssef Khalawi: Despite its centuries-old heritage, Islamic finance is still a relatively young industry. In its modern version, it is actually only half a century old. The sukuks, for example, are less than 20 years old, making them relatively new compared to Western bonds.
The challenges you refer to are not just local or regional, but rather global in nature, and we see huge potential for innovation in Islamic finance to address many of these challenges. Take climate change, for example. Last year’s floods in Pakistan were not the result of local or even regional actions; This is a global problem that can affect any part of the world.
Islamic finance has tremendous potential to develop new solutions to this type of challenge, and this is precisely the focus of the Al Baraka Forum, as it seeks to spread Sharia principles outside the Islamic community.
gf: Where are the greatest growth opportunities?
condition: Beyond the major global centers of Islamic finance, such as Malaysia and the GCC countries, Egypt, Pakistan, Indonesia and Nigeria in particular represent huge growth opportunities for Islamic finance.
Financial inclusion is one way to unleash this potential. In the case of Nigeria, Pakistan and Indonesia, the population of each of these Muslim-majority countries exceeds 200 million. If we look at the rate of financial inclusion in these countries, the potential of Islamic finance becomes clear.
Türkiye also has great promise. The penetration of Islamic finance there is less than 10%, so raising this percentage to just 20% would mean doubling the current penetration rates – which confirms the great potential of Islamic banking there.
gf: What role can Islamic finance play in promoting a more sustainable global economy?
condition: The field of Islamic non-profit finance represents a wide range of opportunities for sustainability, ESG. If we want to transform the practice of zakat from an individual practice to an institutional practice, for example, the sky is the limit. This would help organizations focus on issues of inequality – just one of many 2030 Sustainable Development Goals that we are still far from achieving, with only six years to go. Adapting the concepts of waqf and zakat at the institutional level can bring about a great deal of change, especially in the least developed countries of the world.
Broader concepts and criteria for Sharia-compliant investment inherently fit the sustainability agenda. Investing in alcohol, tobacco or military activities is prohibited in any case because these activities are inconsistent with the well-being of individuals.
The basics of Islamic finance have a lot to offer the entire investment industry. Even one of the world’s largest funds, the $1.6 trillion Norwegian sovereign wealth fund, is moving closer to Islamic fundamentals. There is huge potential to explore this further on a global level. Many Islamic finance CEOs focus only on the needs of Muslims seeking Sharia principles, but the potential is much greater.
gf: Do the basic principles and objectives of Islamic economics present a challenge for communicating with younger generations? How does Generation Z view Sharia principles?
condition: This is a great question. Connecting with younger generations is key. Consider Turkey, where the penetration rate is still less than 10% in a country where 99% of the population is Muslim. Why is this?
Twenty years ago, how many bank CEOs were talking about ESG? As new generations become more ethical, we increasingly hear about the circular economy, green economy, and ESG. In the fashion industry, for example, there was no consideration for the environment just a few years ago. Now, there are many brands – mainly European – whose models are entirely based on the circular economy.
We must take these factors into account when communicating with Generation Z. We must understand that they are looking for a digital economy, that ethical issues are important to them, and that they are guided by values more than brands. A lot of research has been done on this topic, and it is a great development to take into account.
Among the forum’s upcoming initiatives, scheduled to be launched in 2025, is the establishment of the first center dedicated to strategic communication frameworks for Islamic finance. The new microsite will provide downloadable assets for anyone interested in exploring opportunities in Islamic finance.
