Saudi Arabia’s Regional Voluntary Carbon Market Company (RVCMC) will facilitate the first-ever Islamic finance transaction with carbon credits as underlying assets this year, according to Riham ElGizy, CEO of the RVCMC. ISFI spoke to the RVCMC CEO to learn about the upcoming deal and the launch of the RVCMC exchange early next year.
“What we are looking for this year is to collaborate with the ITFC [International Islamic Trade Finance Corporation] to start the first finance trading using carbon credit assets powered by the RVCMC and the ITFC…
“You are going to hear something later this year between us and the ITFC and another country,” Riham said.
The RVCMC held its sophomore carbon auction in Nairobi, Kenya earlier in June this year, selling over 2.2 million tons of carbon credits, marking it as the largest-ever carbon credit auction.
Following the inaugural auction late last year, the RVCMC secured a Fatwa from the ITFC, the IsDB’s trade finance arm, to use carbon credits as underlying assets for Islamic finance transactions. The pronouncement was hailed as the first-ever Fatwa for carbon credits.
According to Riham, facilitating Islamic financing transactions will enable the RVCMC to generate scale and promote the liquidity of carbon credit trading.
With a market size of US$2 trillion annually, if a portion of the underlying assets for Islamic financing utilizes the voluntary carbon market, which was valued much lower at US$2 billion last year, it will significantly contribute to driving carbon credit pricing and incentivizing supply, Riham argued.
In addition to the ITFC Fatwa for using carbon credits as underlying assets for Murabahah transactions, it also has a Fatwa from the Saudi National Bank (SNB). The SNB Fatwa allows carbon credits to be used as underlying assets for Tawarruq transactions.
Notably, the RVCMC CEO also confirmed that its carbon exchange platform, set to be launched in the first half of 2024, will play a similar role as Bursa Malaysia’s commodity trading platform Bursa Suq Al-Sila’, but instead of agricultural commodities, it would instead facilitate the trading of carbon credit commodities as underlying assets for Islamic financing transactions.
This is an excerpt from an interview with Riham ElGizy, CEO of the Regional Voluntary Carbon Market Company. Listen to the full discussion on IFN OnAir.