Language
English
English
Degree
M.Sc
Select type of work
CIS Program Old
CIS publications
No
CIS Thesis
Yes
Student Name
Lee, Hae Na
Year of Graduation
2018
QF Thematic Areas
CIS Program
Abstract
| Although the global economy has achieved substantial growth over the past decades, there are still unsettled global concerns regarding socioeconomic and environmental issues. With a strong will to build a better society, the 2030 Agenda for Sustainable Development along with 17 Sustainable Development Goals (SDGs) has been ventilated by the United Nations. These international efforts and demand have become a strong driving force of enacting supporting policies by governments and led multilateral cooperation and partnership amongst all concerned parties in the world. At the same time, the world has endeavored to devise new financing sources and paradigms for implementing concrete actions to attain the SDGs by filling the dearth of funds in demand for the socioeconomic and environmental development. Meanwhile, Islamic finance, a non-traditional finance source, has newly emerged as a financing and investment tool for the SDGs. As Islamic finance was established based on Shariah principles in which moral and ethical values are deeply embedded, it is placed in ethical finance universe and seeks to improve social welfare of all mankind under its ultimate goal. Besides, in virtue of its intrinsic features, asset-backed and risk-shared, it is considered suitable to be used as one of financial tool for socioeconomic development and inclusive growth.Nonetheless, non-Muslims are unaware of the implicit values of Islamic finance over the superficial principles, and thereby it is simply deemed as interest-free finance by conventional parties. Moreover, its controversial practices due to the similarities with the interest-based conventional finance and the little commitment to the society especially in pursuance of promoting social welfare, have brought criticisms on Islamic finance. In addition, it is rare to find contributions to innovations of Islamic financial instruments to achieve Maqasid al-Shariah. On that account, although it is one of the most appropriate financing and investment means to resolve socioeconomic or environmental matters, in practice, it is not proactively harnessed in that manner and even not fully considered as a socially responsible investing by conventional investors. Indeed, Islamic finance is currently losing its essential values and Islamic spirits.In this regard, this study suggests an opportunity to Islamic finance to achieve further development by alleviating aforementioned critical issues and realizing Maqasid al-Shariah through collaboration with another main stream of moral and ethical investing, namely, Socially Responsible Investing (SRI). Thus, first of all, this study provides an in-depth understanding of Islamic finance and SRI while demonstrating their fundamental ideas and spirits stemmed from along with the development progress and current market position. Then, it identifies commonalities and differences through analyzing and comparing these two sectors. Based on this, it finds a new opportunity to Islamic finance by filling the respective merits and flaws and seizing a new demand for the integrated realm by suggesting three types of converged forms: Prudent ESG investing, Shariah-based impact investing, and Public-Private Partnership (PPP) based on Shariah system, which are currently in a nascent or emerging but still untapped stage in the Islamic finance industry. The first converged form, Prudent ESG investing is a new advanced responsible investment form which emerged under the Prudent Ethical Investment (PEI) umbrella by integrating ESG criteria into Shariah principles. This new investment strategy will make Islamic finance proactively participate in ESG matters by directly contributing to the society but also provide SRI to attain a way of measuring prudence by adopting Shariah principles, specifically imposing a restraint on leverage. Meanwhile, the second converged form, Shariah-based impact investing will be the most appropriate form of realizing Maqasid al-Shariah since it is designed for deliberately creating positive impact beyond financial returns. It is true that the current Shariah screening, specifically in equity market, is limited to the negative screening based on Shariah rules, and it shows its mere focus on conformity to Islamic principles rather than the objectives. In that simply adhering to Shariah rules does not implement the objectives of Shariah, it, in fact, deprives investors of an opportunity for investing proactively to realize what they believe in. In order to achieve the ultimate goal of Islamic finance, impact investing technique should be introduced and proactively used as a major Shariah investment strategy. The third converged form, PPP based on Shariah system is expected to be a leading development tool for satisfying required basic infrastructural, social, and economic development in Muslim majority countries. Given that the current socioeconomic situation in most OIC member countries where are in worse condition than other developing countries, there is a strong necessity of attracting private capital to fill the deficient public budget. Considering that the intrinsic features of Islamic finance, asset-backed and risk-shared, are in line with the nature of PPPs, PPPs will be the best fit strategy to draw Islamic financing for filling a dearth of liquidity in demand for infrastructure investment. Consequently, the collaboration with SRI will make Islamic finance proactively participate in contributing to socioeconomic and environmental sector, and it enables to meet the commitments by creating positive impact to communities. Furthermore, it will promote to achieve Maqasid al-Shariah truly and play a critical role in attaining SDGs by opening a more advanced stage of responsible investment in the global finance market. |