Abdul Rasheed Ghaffour: Unlocking full potential of Islamic finance through sustainability Welcoming remarks by Mr Abdul Rasheed Ghaffour, Deputy Governor of the Central Bank of Malaysia (Bank Negara Malaysia), at the RFI Roundtable on Responsible Finance "Unlocking Full Potential of Islamic Finance through Sustainability", Kuala Lumpur, 23 September 2019. * * * It is my great pleasure to welcome all of you to the RFI Roundtable on Responsible Finance. I would like to thank the RFI foundation and Dubai Islamic Economy Development Centre (DIEDC) for organising such gathering of policymakers and captains of the financial services industry. The chosen theme “Unlocking full potential of Islamic finance through sustainability” is indeed very apt and timely. We are now in an environment where global aspirations are at risk – indebtedness is high1, inequality has widened2, effects of climate change continue to accelerate3. Doing nothing is not a responsible option! Despite the growing focus in sustainable finance, I am certain many within this room would agree that this transition in the financial system, more so the Islamic financial system, is happening not at the desired pace, scale and intensity. For the next five to ten minutes, allow me to highlight the catalytic role that Islamic finance can play in advancing sustainability agenda. Shariah embeds inherent features that make it natural for Islamic financial institutions to play such role. The three main features: i. First, impact-driven.
Already, several factors, such as the search for yield driven by a low interest rate environment, new regulatory constraints on the banking system, and digitalisation, are changing the way in which financing is designed, produced, distributed and managed. This transformation is  leading to a more diversified financing structure for our economies. Is this diversification desirable? Is this diversification sufficient? 1. A desirable diversification of financing modes to spur growth and innovation, which must be further supported My answer to the first question is yes because too strong a reliance on bank financing may constitute a source of vulnerability for business development in the event of a shock affecting the banking system. However, the relatively slow pace of development of this diversification  shows that it is not so simple to achieve, and that it should be further encouraged. A. In the short term, the efforts made to adapt the regulatory framework and standardise the alternative sources of financing to bank lending should be pursued. In recent years, public authorities have made significant efforts to adapt the regulatory framework in order to support the development of alternative sources of financing to bank lending. These efforts must be pursued and matched by those of private players to standardise the market. Thus, since 2017, the European Union has established a set of new rules for the development of sound securitisation, i.e.