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Saturday, May 25, 2024

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PODCAST: Current debt-based system unsustainable; industry could learn from equity-based Islamic financial models, alludes pundit

GLOBAL: To build a sustainable financial ecosystem, the finance industry needs to explore SME-focused financing models and separate itself from a debt-based system, says a global finance commentator, building the case for equity-driven Shariah compliant mechanisms.

“We really need to start experimenting with different types of financial models which actually concentrate on social enterprises, micro, small and medium enterprises, rather than just lending to the rich and lending to multinational corporations which actually don’t need the money. If micro, small, medium enterprises account for 70–80% by number of businesses, they account for 70% of the employment and they account for roughly 40–50% of GDP depending on the country. Why aren’t they getting more than 50% of the credit?” asks Andrew Sheng, a former financial regulator in Asia.

Andrew, previously a financial regulator in Malaysia and Hong Kong who is currently the chief advisor to the China Banking and Insurance Regulatory Commission, in a conversation with IFN, emphasized that the current debt-based financial system is not sustainable, as he believes that excess consumption is financed by excess debt.

“We are consuming the global resources at an unsustainable rate. And if we carry on pushing GDP and consume on growth, all we are doing is pump more carbon dioxide into the air and destroying biodiversity,” Andrew opined, adding that: “If you borrow from the future, you can always consume today’s resources.”

Commenting that the industry is still finding its footing in channeling resources toward social enterprises and sustainable initiatives, Andrew believes that emerging markets must be proactive in mobilizing effective measures.

“What is very hopeful, in my view, is that Malaysia is a leader in Islamic finance, and Islamic finance is not debt-financed because it does not believe in usury or interest-based instruments … So Islamic finance is basically equity-based finance with ethics-based principles — that’s the right way to go,” according to Andrew. “The only problem is that no Islamic country has yet been able to develop, very successfully, an Islamic stock market.”

This is an excerpt of an interview with Andrew Sheng. To hear the full conversation on the sustainability of the global financial system and the way forward, log on to IFN Podcast.

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