LETTERS: MALAYSIA ranks 12th globally for the frequency of flood events, a sobering reality that is impossible to ignore.
It is a wake-up call to step up our efforts to adapt to this growing threat before the costs, both economic and social, spiral beyond control.
Without adaptation efforts, flood-related losses could soar to as much as 4.1 per cent of GDP and drive unemployment up by 2.2 percentage points by 2030, according to the World Bank and Bank Negara Malaysia.
Yet, there is a good deal on the table. Flood adaptation measures come at a cost of about 0.2 per cent of annual GDP, or approximately RM1 billion a year.
Investing in these measures could slash the economic impact of floods by more than 40 per cent, reducing losses by 1.8 percentage points to 2.3 per cent of GDP.
So, who will take the lead in financing this urgent need for adaptation? This is where Islamic finance can rise to the challenge.
Islamic banks, for example, can offer a range of Syariah-compliant financing options. They include revolving credit lines, leasing, and equity financing to support companies undertaking ecosystem-based preventive measures, such as restoring wetlands, preserving mangroves and reforestation in addition to building structural protection infrastructure like flood walls, retention basins, drainage enlargements and flood warning systems.
These adaptation projects can also be financed using proceeds raised from issuing sukuk. There is room for the markets to innovate further. One idea could be linking sukuk payouts to predefined trigger events such as river water exceeding a critical level or total damages surpassing a financial threshold.
If such an event occurs during the sukuk's tenure, sukukholders could endow (waqf) part or all of their principal or returns, or both, which will be directed to the issuer such as governments to fund flood recovery and rebuilding efforts.
This ensures swift disbursement of funds when it matters most, reducing the delays often seen in traditional disaster relief financing.
Lastly, it goes without saying that making takaful accessible and affordable to low-income communities is essential, as they are often the most affected in the face of recurring floods. Without access to risk protection, these vulnerable groups are left exposed to devastating economic shocks in the aftermath.
DR NAZRUL HAZIZI NOORDIN
Assistant Professor,
Institute of Islamic Banking and Finance,
International Islamic University Malaysia
The views expressed in this article are the author's own and do not necessarily reflect those of the New Straits Times