Circular Economy and Islamic Finance

1. Circular
Economy
&
Islamic
Finance
Tariqullah Khan
Professor of Islamic Finance
tkhan@hbku.edu.qa
College of Islamic Studies

3. Circular Economy
Paradigm
Linear Economy
Paradigm
Multidimensional
realities
Opportunities
Islamic Economics
and Finance & CE
Presentation Outline

4. Existing Market Paradigm
Extract
Resources
Produce Use/Consume Waste
Atmosphere as
smoke of waste burns
Landfills
Rivers
Seas
 Pollution
 Climate change
and disasters
 Destruction of
Eco System and
species
 Entrance of toxic
elements in food
chain
 Waste of
economic value
 Sanitation, water
and health issues
 Poverty
 Uncertain future
4 billion people live under $10 a day 1.5 billion under $2.0 a day
Resource-based Linear Paradigm
Estimated 6 trillion dollars are wasted in reusable value of waste
Impact of Waste is
Someone Else’s
Concern

5. World GDP and stock of financial
assets 2015 trillion US dollars
Global Economy 2015
WGDP Financial Assets Derivatives
World
GDP 77
trillion
US$
World FAs
300
trillion
US$
World Ds
500
trillion
US$
WGDP
25% of
WFAs
WGDP
15% of
WDs
WGDP
10% of
WFAs &
WDs
Globally, $ 1
of real asset
is against
$10 financial
claims
Financing the Paradigm
Global Finance and Economy
“According to Hotelling’s model
(of economics of natural resources
1931), even when market prices
fully reflect the value of a species,
it will be efficient to exploit a
species to extinction or totally
degrade an ecosystem if the value
of the species or the ecosystem
over time is not increasing at least
as fast as money deposited in an
interest-bearing bank account.”
Costanza, R., Cumberland, J.H., Daly, H., Goodland,
R., Norgaard, R.B., Kubiszewski, I. and Franco, C.
(1997a). An introduction to ecological economics.
CRC Press, Florida: USA.

7. Question: Despite tremendous scientific and
engineering advances why the future of the world is so
uncertain because of the management of resources?
Answer: Because
Science and
Engineering has
learnt from
nature
But Economics has gone against nature
Flying; Swimming; Computers, Nano
Technology etc. Here is a list of 14
beautiful scientific discoveries based on
nature
https://www.bloomberg.com/news/photo-
essays/2015-02-23/14-smart-inventions-
inspired-by-nature-biomimicry

8. Economics Nature
Nature Science
Doesn’t
Waste
Based on
Waste
Why Science Serves and Economics Destroys?
Science is in Harmony with Nature
Economics Extracts and Exploits Nature

9. Lessons that Economics Can Learn from
Nature
Nature doesn’t waste
 Water Cycle
 Oxygen Cycle
 Carbon Cycle
 Food Cycle
Circular Economy Ideas
 (Photosynthesis)
Nature Economics
Need Economics in Harmony
with Nature
Zero Waste Circular Economy

10. https://www.google.com/imgres?imgurl=https://pmm.nasa.gov/education/sites/default/files/article_images/Water-Cycle-
Art2A.png&imgrefurl=https://pmm.nasa.gov/education/water-
cycle&h=1547&w=3023&tbnid=Bu63E8sDNI1PcM:&q=water+cycle&tbnh=102&tbnw=200&usg=AI4_-kRbGy1t58m5sfBdMBl3GMQyEMq9XA&vet=12ahUKEwixt-
_YvpLfAhXFp48KHYdmBDQQ_B0wGHoECAEQBg..i&docid=KlcqrGx4HZ1wHM&itg=1&sa=X&ved=2ahUKEwixt-
_YvpLfAhXFp48KHYdmBDQQ_B0wGHoECAEQBg#h=1547&imgdii=LROIUxFxeBPNIM:&tbnh=102&tbnw=200&vet=12ahUKEwixt-
_YvpLfAhXFp48KHYdmBDQQ_B0wGHoECAEQBg..i&w=3023
Water Cycle
Google Image credit
Oxygen Cycle
https://www.google.com/search?q=photosynthesis+cycle&safe=active&rlz=1C1GCEU_enQA821QA821
&source=lnms&tbm=isch&sa=X&ved=0ahUKEwj44vXVwpLfAhUHSxUIHR45CeoQ_AUIDigB&biw=1920&
bih=969#imgrc=Q9dyWHTC9dqxlM:
Google Image credit
Circularity of Nature

11. Marine Food CycleGoogle Image credithttps://www.google.com/search?safe=active&rlz=1C1GCEU_enQA821QA821&biw=1920&bih=969&tbm=isc
h&sa=1&ei=3ugMXLM1k8y_BInAusgN&q=food+chain+cycle+diagram&oq=food+chain+cycle&gs_l=img.1.1.0l
4j0i7i30j0i5i30j0i8i30l3.90254.91867..96185...0.0..0.394.2328.3-6......1....1..gws-wiz-
img.......0i7i5i30j0i8i7i30.6HtfTM2FSAs#imgrc=VWeLVnevDKikNM:
Carbon Cycle
https://biology-igcse.weebly.com/carbon--water-cycles.html
Google Image credit
Circularity of Nature

12. Linear Paradigm
Extract Produce Use Waste Waste
Waste
Waste
Waste
Waste
Waste
Waste
Waste
WasteDumped into
land fields,
rivers, sea and
atmosphere
as result of
high
temperature
burning
Extract
Design &
Produce
Use & Re-
use Waste
Circular Economy Paradigm
Ideally zero
/minimum
waste treated
to be part of
the Eco system
Turning Waste to Wealth and Wellbeing
Impact of Waste is
Someone Else Concern

13. Cleaner
production
processes
with zero-
waste
After sale
service and
repair
End of life
re-
collection
Reuse and
recycle
Rely on
green
energy
Design of
products -
Long life,
non-toxic,
C2C
Eliminate negative
environmental
impact
Eliminate Waste Reduce Resource
Dependency
Reduce Cost
Circular
Economy
Advantage
1
6
5 4
3
2

14. Design: Eco-friendly, long life, disassembly, reuse, recycle
C2C
CO2 Reduction: Eco-efficiency, Eco-sufficiency
Re-use: Take-back mechanism (C2C), repair, material
re-usability
Recycle: Waste separation at origin, zero-waste
strategies, waste to wealth and wellbeing
Technical nutrient classification – reenter waste into
environment after treatment
Renewable energy:
1
2
3
4
5
6
Pillars of Circular Economy
Cradle
to
Cradle
2002
William McDonough
and Michael Braungart

15. 1.Behavioral rationalization
of consumption to
eliminate wastage of food,
water, energy, clothing,
wealth etc.,
1.Enhancing design, repair
and maintenance to
eliminate wastage of life
cycle;
1.Promoting sharing and
Uberization to eliminate
wastage of useful capacity
of assets;
1.Cradle to Cradle to
eliminate wastage of
material value of waste
1.Promote usage of solar
and renewable energy to
eliminate wastage of
potential resource
1.Implement recycling to
eliminate wastage of
embedded values of
waste;
1.Incentivize eco-efficiency
and eco-sufficiency to
avoid wastage of energy
utilization opportunities
1.Chemically and biological
treat waste for remerging
with environment to avoid
wastage of beneficial
components and avoid
smoke of burning
Waste Reduction Opportunities and Interlinked Steps

16. Global Level CE
National Level CE
Macro Level CE
Intermediate Level CE
Micro Level CE
CE Hierarchies
International efforts – SDGs, PRIs, GCPs, RBPs,
RIPs, GRI
Multidimensional Development QNV2030, EU,
OECD and other national zero-waste initiatives
and legislation
Eco cities, collaborative consumption like Uber,
Air BnB, Kareem etc – resources sharing
Eco Parks, Industrial Symbioses, Associations,
Educational, Research and Development
initiatives
Product designs, repair & maintenance, reuse,
retake, separate waste collection and recycling,
supply chain and Econ friendly

17. Comprehensive
Human
Development
Goals
Enhancing
Intellect
Protection
of Future
Generatio
ns
Preserve
Self
Respect
Enhance
Wealth
Preserve
Religious
Values
Circularity of Multidimensional Development
QNV2030
People
CultureEconomy
Environment
Local Aspirations National Priorities Global Goals

18. The SDGs are a Paradigm Shift
The
Ecological
Environment
is not a
Resource
The
Ecological
Environment
is a precious
Resource
From: Linear Economy Paradigm To: Circular Economy Paradigm

19. Conventional
(Linear)
Economy
Paradigm
Halal
(Islamic)
Economy
Paradigm
Ecological
(Circular)
Economy
Paradigm
In Competing Global Economic Paradigms
Current Placement of Halal Economy

20. Conventional
(Linear)
Economy
Paradigm Halal
(Islamic)
Economy
Paradigm
Ecological
(Circular)
Economy
Paradigm
In Competing Global Economic Paradigms
Desirable Placement of Halal Economy

21. Conventional
(Linear)
Economy
Paradigm
Ecological
(Circular)
Economy
Paradigm
BIS system driven global
financial architecture –
Basel/IFSB, IFRS/AAOIFI,
IMF-WB Ss & Cs
UN & EC driven global
financial architecture
– SDGs, PRIs, GCPs,
GRI
SDGs Shift Global Financial Architecture
Wealth Ecology

22. Conventional
(linear) economy
paradigm with
traditional
architectural
principles and
institutions
Ecological (circular)
economy paradigm
+SDGs, GCPs, PRIs,
ESG concerns, GRI --
--
The emerging new
international
financial
architecture with
important role of
UN institutions
Transformative Global Financial
Architecture
Increasing role of United Nations &
Ecological, Social and Governance Concerns

23. UN
SDGs/
ESG
concern
s
G20 policy
reforms
International
financial
architecture
International Islamic
financial architecture
and standard setting
National legislative and
judicial systems recognizing
Islamic finance specificities
National legal, regulatory and
supervisory authorities, policy
advisory entities and Sharia bodies
International apex Fiqh academies, and
Sharia boards (whose research-driven
views/guidance notes are important)
Educational, informational, advisory,
structuring and rating services (cross-cutting
services) needed to implement genuine Islamic
financial services
Micro-Sharia governance: compliance at the level of
institutions, products, services, markets and users
(ongoing financial engineering and product
development work)
Qatar National Vision (QNV) & other derived and adapted best
practice standards for Islamic finance & economy (slowly
changeable perameters but with significant conssensus);
Maqasid Al Shariah, SDGs, ESG concerns, PRIs, GCPs etc
Recieved and given principles and architectural foundations of
Islamic finance (unchageable parameters)
Sharia Prohibitions Sharia Permissions
IMF-WB Standards & Codes UN SDGs, PRIs, GCPs
Sharia product development Sharia compliance & audit
Cross-cutting Sharia compliant services Compliance & audit
Independent Sharia academies Regulatory Sharia compliance
National regulatory authorities National supervisory authorities
National legislative system National judicial system
Standards: Basel III, IFRS, Securities
Institutions: IFSB, AAOIFI, OIC-FA
Principles of Responsible Investments (PRIs), Global Compact
Principles (GCPs)
Standards: Prudential, Financial Reporting, Sharia governance,
SRI
Institutions: BIS, BCBS, FSB, IOSCO, IMF, WB
Sustainable Development Goals (SDGs), Global Reporting
Initiative (GRI)
Paris (Climate) Agreement (PA) , EC, Canada & Others US, UK & other skeptics of PA
Islamic finance in the transformative global financial architecture

24. Seeds of Linear
Economy Paradigm
– Hotelling Model
1931
Design of Financial Contracts
Seeds of Circular
Economy Paradigm – LTG
Model 1972

25. Financialization
Green
Revolution in
Financial
Markets
SDGs Transform the Design of Financial Contracts
9%
34%
57%
Fig 2 Global Economy 2015 US$ trillions
WGDP Financial Assets Derivatives
0
100
200
300
400
500
600
Global GDP Global financial assets Global derivatives
SRI, green and
sustainable
financial contracts

26. Local
aspirations
National
targets
Global
goals
Comprehensive
Human
Development
Goals
Enhancing
Intellect
Protection of
Future
Generations
Preserve
Self
Respect
Enhance
Wealth
Preserve
Religious
Values
 Human
Development
 Social
Development
 Economic
Development
 Environmental
Sustainability
Significant Convergence

27. Global Level
Macro Level
Intermediate
Level
Micro
Level
Users of
services
 International institutions &
standard
 Legal, regulatory and tax
framework and policies
 Knowledge, educational,
capacity building,
information and advisory
services and providers
 Financial services and the
institutions and markets
providing them
 Uses and users
Sharia Governance: Direction of Reform
Maqasid
guided
Holistic
Perspective
at all levels

28. Extractive
paradigm
Compassionate
paradigm
Maqasid Al Shariah and the Compassionate Paradigm

29. Linear business
paradigm
Circular business
paradigm
Shifting the Islamic Finance Business
Paradigm

30. Establishing
Halal business
paradigm in
Islamic financial
services
Halal business paradigm + ethical
screening + genuineness of contract
designs + internalizing the
institutions of compassion (Zakah,
Awqaf, charities, interest-free loans,
forbearance, + concerns of ecology
and future generations etc.,) +
encompassing Maqasid Al-Sharia +
SDGs, PRIs and GCPs in financial
contracting and investment decision
and reporting
Reformed scope of Sharia
governance
Existing scope of Sharia
governance
Sharia Governance: Destination of Reform
Halal essential but insufficient

31. Circular
Economy
Paradigm shift
Architectural
transformation
Sharia
governance
reform
Design of
contracts
Integrated
Reporting
Reform of
Basel/IFSB
Pillars 1, 2, 3
Building blocks of SDGs supportive Islamic
finance regulation

32. Opportunities
National
strategies
Pedagogy
Research &
Development
Entrepreneurship
Islamic Financial
Services
Shariah
Governance

33. Social
entrepreneurs
and Circular
Economy
innovation
Social
Enterprises (for
effective service
to society)
Commercial
Finance (for
profit)
Compassionate
Finance (not for
profit)
Blending the Motives
of Compassion and
Profit for Social
Entrepreneurship in
Circular Economy
Government and Regulators
#1 Opportunity

34. #2 Opportunity
Multidisciplinary
and
interdisciplinary
research at all
hierarchical
levels
Global Level CE
National Level CE
Macro Level CE
Intermediate Level CE
Micro Level CE

35. #3 Opportunity
Transformative
pedagogy at all
levels of Blooms
Taxonomy &
Educational
Segments
Evaluation
Synthesis
Analysis
Application
Comprehension
Knowledge

36. #4 Opportunity
Circular
Economy
Transition
Strategies
involving all
stakeholders
Global Level
Macro Level
Intermediate
Level
Micro Level
The Public
and other
species
 International organizations
 Legal, regulatory and tax framework and
policies, federal and provincial
government entities, municipalities
 Knowledge, educational, capacity
building, information and advisory
services and providers
 Businesses, entrepreneurs, financial
services and the institutions and markets
providing them
 Uses and users

37. #5 Opportunity
Best
Practices and
Perception –
Studies
 Government entities at
various hierarchies
 Law and Regulation
 NGOs
 Businesses
 Households
 Individuals

38. #6 Opportunity
Assessment of
Value in Waste
in Qatar and
Different
Countries
Examples:
 Cradle-to-Cradle Value
 Value in Separation of Product
from Use
 Value in Capacity Utilization by
Sharing
 Value in existing abandoned
material
 Value in alternative energy
sources

39. #7 Opportunity
Moving Islamic
Economics and
Finance to the
Circular Economy
from its Current
Location in Linear
Economy

40. Thanks
tkhan@hbku.edu.qa
Think Out of the Box &
Transform the World to Become
a Better Place for Us & the
Generations to Come