Participation Banks Need To Adopt Sustainability

The world’s working principle has changed after the busi- ness models and global needs have transformed. We talked to Dr Wail Aaminou, CEO at Al Maali Group, about the definition and function of sustainable development and its integration to participation banks.

WHAT DO YOU MEAN BY ALIGNING THE PARTICIPATION BANKING BUSINESS MODEL WITH SUSTAINABILITY?

Sustainable development is a development model that meets today’s needs without compromising the ability of future generations to meet their own needs. Today, how- ever, our development approach is in no way sustainable. The most striking example of this is climate change, which represents a global challenge socially, economically and environmentally. In response to this critical situation, a new Sustainable Development Program was created in 2015. The program included a series of goals such as put- ting an end to poverty, protecting the planet and ensuring welfare for everybody. Each goal was divided into 169 in- dicators to be achieved within 15 years. Thus, Sustainable Development Goals (SDG) constitute the legal framework of today’s universal development.

However, civil society also needs to take on the responsi- bility as much as the public to reach these goals. Focusing on the marginal expansion of public budgets will not be enough to achieve the SDGs. Furthermore, given the scale and complexity of sustainability issues, it is seen that corporate and social responsibility are no longer sufficient. Financial institutions also need to embed sustainability principles into their core business models. For participa- tion banking, issuing social or green sukuks, aligning the financing portfolio with environmental, social and gov- ernance considerations are examples of such a strategy.

HOW IS SUSTAINABILITY IMPORTANT FOR PARTICIPATION BANKS IN MOROCCO?

We can give a lot of reasons for that. Let’s start with a couple. First, the country faces many challenges in terms of sustainability. We see these problems, which have be- come more evident with the COVID-19 crisis, especially in the fields of employment, healthcare and education. Since the ethical perspective is a cornerstone of İslamic law, participative banks have to actively contribute to the efforts of addressing sustainability issues. Second, Islamic Finance business model is naturally integrated into the real economy and can be easily aligned with different sectorial ecosystems needs. Third, customers’ behaviour is shifting. They now expect participative banks to be ac- tive on the social front. And therefore, sustainability can provide participative banks with a comparative advantage beyond “Sharia compliance” value proposition.

WHAT IS THE CURRENT SITUATION IN TERMS OF ALIGNING PARTICIPATIVE BANKING BUSINESS MODEL WITH SUSTAINABILITY?

Participative banking is a young industry that started in Morocco 3 years ago. Efforts so far have been directed mainly towards corporate social responsibility. Examples include funding charities and supporting academic initia- tives on participative finance. As the industry grows and given the reasons I mentioned earlier, we should expect more concrete actions in terms of aligning participative banking business model with sustainability.

ARE THERE ANY INTERNATIONAL PRACTICES THAT CAN BE DEPLOYED FOR THESE STRATEGIES?

In the context of banking, adopting the Principles for Re- sponsible Banking (PRB) from UN Environment Finance Initiative (UNEP FI) is a recommended strategy. These principles represent a voluntary commitment to a more responsible and sustainable way of banking that will con- tribute to the achievement of society’s goals. They are pre- pared based on the best international practices. Therefore, participative banks are able to harmonise their business models with their ethical values, ensure continued growth and channel funds for sustainability friendly projects and initiatives. In this journey, Fintechs are interesting levers that facilitate the transition to more sustainable finance as they support operational excellence and unleash the innovation potential. This is particularly relevant in the context of Morocco which has a young population and a relatively reliable telecommunication infrastructure.

GOING FORWARD, WHAT STRATEGIES SHOULD BE UNDERTAKEN IN ORDER TO PUT SUSTAINABILITY AT THE CENTRE OF PARTICIPATIVE BANKING ACTIVITY?

We have first to recognize that participative banks have no choice but to embrace a sustainability strategy. Cur- rently, its an international trend and financial institutions globally are now vying to rethink their business model in a way that fits with sustainability challenges and oppor- tunities. Secondly, starting from a white sheet may not be the optimal approach as international best practices and standards can be easily adapted to the local context. This will ensure efficiency and credibility in the eyes of stakeholders. Thirdly, as sustainable development has a very large scope, it is recommended that participative banks focus on specific areas that not only present a po- tential from a business standpoint but also fit with each bank positioning. Lastly, sustainable finance is grounded in the principle of continuous improvement. Therefore, banks have to start with small-scale initiatives, assess the outcomes and keep improving their value proposition.

Interview: Fatma Çınar