Islamic Finance as a Means of Shaping the Future of Sustainable Finance

Islamic Finance as a Means of Shaping the Future of Sustainable Finance

Can , Mehmet

The recent financial crises have proven that the major social impact of the activities of the most major commercial and investment banks is through improper management of transaction, portfolio and reputational risks. Although they and their key stakeholders agree that financiers bear significant responsibility for the environmental and social impacts of the operations they finance, they do not go beyond the recognition of environmental and social responsibilities driven to a large degree by outside pressures of environmental organizations such as Friends of the Earth (FoE) and the Rainforest Action Network (RAN). They challenged the industry with high-profile campaigns that highlighted cases in which commercial banks were “bankrolling disasters”. In 2002, a global coalition of nongovernmental organizations (NGOs) including FoE, RAN, WWF-UK and the Berne Declaration came together to promote sustainable finance in the commercial sector. This informal network subsequently evolved into BankTrack, whose vision for a sustainable finance sector was expressed in the Collevecchio Declaration of January 2003. In this paper we will put forward the main agent in improper management of transaction, portfolio and reputational risks of commercial banks, the interest rate. No economic system can sustain its health and vigor or contribute positively to the achievement of its socioeconomic goals without the support of sane and equitable money and banking system. The money and banking system should hence be reformed to eschew the excesses and imbalances which promote inequalities, conspicuous consumption, and unhealthy monetary expansion to the ultimate detriment of all. Keywords: Sustainable finance, Islamic finance, financial crises, interest free finance

Conference or Workshop Item
PeerReviewed

2012-05-31

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