BNM adds 2 new tools under VBI

The adoption of VBI will have a significant impact on business models of Islamic financial institutions, says BNM governor


Bank Negara Malaysia (BNM) has launched two new tools to facilitate the practical adoption of its Shariah-rooted Value-based Intermediation (VBI) initiative.

The two new tools include the VBI Impact Assessment Framework (VBIAF) and the VBI Scorecard, which were instituted at the Global Islamic Finance Forum (GIFF) 2018 for public consultation.

The VBIAF provides guidance on the assessment of financing and investment applications taking into consideration economic, social and environmental impacts, while the Scorecard supports the implementation of performance measurement framework for Islamic financial institutions that drive positive value and impact on society and the environment.

BNM governor Datuk Nor Shamsiah Mohd Yunus said the adoption of VBI will have a significant impact on business models of Islamic financial institutions, including the drivers of profitability and risks.

“The commitment to adopt the VBI is a significant step by the industry to clearly identify Islamic finance with sustainable practices, as it should.

“It has also set in motion initiatives that will raise the bar for processes, practices, offerings and conduct that promote sustainable businesses and communities,” she said in her keynote address at GIFF 2018 in Kuala Lumpur yesterday.

The VBI Scorecard comprises quantitative and qualitative elements that measure different segments.

It also single out the elements of financing which focuses on the triple bottom line, namely social, environmental (or ecological) and financial.

In a strategy paper issued in July last year, which was jointly developed by the central bank and Islamic banking players, VBI is defined as an intermediation function which aims to deliver the intended outcomes of Shariah through practices, conduct and offerings that generate positive and sustainable impact on the economy, community and environment, without compromising the financial returns to shareholders.

The strategy paper showed the market share of Islamic banks in Malaysia had quadrupled from 7.1% in 2010 to 28% in 2016.

However, the decline in its annual growth rate from a double digit in 2011 (24.2%) to 8.2% in 2016, indicates that the industry needs to explore new opportunities for sustained growth.

Hence, VBI is adopted as a major agenda under BNM’s move to lift Islamic banking to a higher level.

“Post-financing expert advisory services, which help borrowers mitigate the environmental impact of projects financed by the bank, will feature more prominently in the product and service offerings of VBI banks.

“VBI-oriented Islamic financial institutions can, and indeed should, also play an important role in mobilising resources to finance climate change mitigation and adaptation initiatives,” Nor Shamsiah added.

She said the importance of constructive feedback from the industry and interested parties will further strengthen these frameworks to drive a renewed focus on sustainable financial solutions.

Association of Islamic Banking and Financial Institutions Malaysia president Datuk Adissadikin Ali said the industry’s move towards embracing VBI will further strengthen Malaysia’s leadership position, while advancing the growth of Islamic finance.

“The adoption among industry players are gaining traction, with so far nine Islamic banking institutions in the VBI Community of Practitioners (CoP),” Adissadikin told reporters on the sidelines of GIFF 2018.

The nine Islamic banking institutions in the VBI CoP includes Bank Islam Malaysia Bhd, Bank Muamalat Malaysia Bhd, CIMB Islamic Bhd, Agrobank, HSBC Amanah Malaysia Bhd, Maybank Islamic Bhd, AmBank Islamic Bhd, Alliance Islamic Bank Bhd and Standard Chartered Saadiq Bhd.

“The fundamental of Islamic finance is sustainability. To only grow beyond this, we should give equal weight to both economic value creation and ethical values,” he added.