Financial institutions need to be more proactive with VBI

Financial sector needs to consider ultimate outcomes over immediate returns, says former BNM governor

by NUR HAZIQAH A MALEK / pic by MUHD AMIN NAHARUL

TO ADVANCE Islamic finance forward, financial institutions are urged to play a more proactive role in communities and issues like the environment with the adoption of Value-based Intermediation (VBI).

Former Bank Negara Malaysia (BNM) governor and current chair person of Permodalan Nasional Bhd Tan Sri Dr Zeti Akhtar Aziz (picture) said the financial sector needs to consider ultimate outcomes over immediate returns.

“Financial institutions, therefore, have to shift from performing a passive role as intermediaries of finance and passively analysing and allocating funds towards empowering activities in the economy,” Zeti said at the Global Islamic Finance Forum yesterday in Kuala Lumpur.

She added that the most basic part of VBI is disclosure and transparency in reporting, but the societal and environmental impacts must also be assessed.

BNM has made available two tools to facilitate the practical adoption of VBI, namely the VBI Impact Assessment Framework (VBIAF) and the VBI Scorecard.

The VBIAF provides a guideline on the financing and investment applications financing while taking economic, social and environmental impacts.

The VBI Scorecard, however, supports the implementation of performance measurement framework for Islamic financial institutions that drive positive value and impact on the society and the environment.

Zeti said the framework required a formulation of performance parameters which would measure the desired results.

“Among the wider societal problems are to reduce the carbon footprint; to strengthen the surrounding communities; economic empowerment; as well as to increase inclusion by bringing basic amenities to the community,” she said.

BNM’s VBI strategic paper was released last year.

Zeti added that Islamic finance must be both value-adding and value-based.

“By value-adding, it should continuously facilitate economic activity; and value-based, in which it brings benefits to the society,” she said.

The nine Islamic banking institutions in the VBI Community of Practitioners include 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.

Maybank Islamic strategic research and reporting head Dr Liza Mydin said in order to increase the adoption of VBI, institutions must first adopt the consumers’ perspective.

“When we develop a product, we must also think of how it’ll get us profit. It’s the same with consumers, they would want the most profit for themselves, too,” she said at the panel dialogue titled “Valuing and Fulfilling the Customers’ Needs”.