Turmoil in emerging markets, including significant currency depreciation and capital outflows, have spurred talks of adapting the global financial world’s tools to provide emergency financial support. Increasingly, discussions within Islamic finance has focused on expanding the toolbox to incorporate some of the practices within responsible finance – like Environmental, Social & Corporate Governance (ESG) – which are delivering impact and improving financial results.
As currency volatility has increased in emerging markets, international organizations like the International Monetary Fund (IMF) have begun considering short-term tools to support these markets whose currencies are under pressure but whose economies are fundamentally healthy. The IMF also announced last year that it would begin incorporating the best practices from Islamic finance in its surveillance of financial sectors. By recognizing the long-term focus of responsible finance and the value of Islamic finance to reduce overleveraging, international organizations recognize the value that Islamic finance brings to both short- and longer-term issues in emerging markets.
Meanwhile, traditional responsible finance has a role to play as well by more fully expanding its outreach into emerging markets, where to date, Islamic finance has achieved significant growth. By integrating Islamic financial approaches with traditional responsible finance, the benefits of responsible finance can be brought to markets with a significant need for impact-driven investors. Growth in responsible finance will support other efforts to bring more stability in an increasingly volatile financial world.
The Responsible Finance Summit, hosted by Bank Negara Malaysia, organised by the RFI Foundation and co-organised by Middle East Global Advisors, aims to capitalise on the growth of Islamic finance across emerging markets and on the synergies that exist between Islamic finance and global responsible finance.
By bringing two approaches together, the Summit will work expand responsible finance of all forms to facilitate long-term private sector investment in emerging markets. In doing so, it can support areas of finance focused on long-term value rather than short-term swings which contribute to volatility of capital inflows and outflows that are divorced from economic performance.
Blake Goud, CEO of the RFI Foundation explained: “Integration of ESG into investment analysis can cultivate more patient and stable sources of capital. With Islamic finance having emerged largely form within emerging markets, it is particularly important for it to encourage approaches which act as a buffer against the kind of short-term turmoil that these countries are enduring today.”