SPV 2030: Sharing of risks and reward

To encourage the society to share risks and rewards, a high level of trust and transparency is needed


THE Shared Prosperity Vision 2030, or SPV 2030, recently introduced by the government, is an important endeavour that aims to restructure the economy and bridge disparities between the wealthy and the impoverished — objectives that resonate with the core principles of Islamic finance, in particular, achieving social justice and equity.

To achieve this, there must be greater cooperation and coordination among people of all walks of life and ethnicity through the sharing of risks and rewards. To encourage the society to share risks and rewards, a high level of trust and transparency is needed.

With it comes good governance among economic players of all sectors, sizes and roles, including the government.

Premised on this vision, it is imperative for the upcoming Budget 2020 to set the tone and policies that will result in positive distributional impact that will provide the necessary thrust towards improving income inequality. The private sector, be it the corporate, small and medium enterprises (SMEs) or individuals, must work together with the government in order to achieve this timely vision.

The policies should focus on long-term sustainability, and not just financial growth.

Preservation of heritage, environment and culture must all be part of the equation.

The following are a few aspirations for Budget 2020 to focus on.

The growth and success of P2P lending is a testament of the viability of risk-sharing contracts, where the investors take on some risks (for higher return) from the ventures they are financing (TMR FILE)

Education and Training

The private sector must continue to increase investment in education, training and re-training, especially for the unemployed graduates to develop human capital for the next few gene-rations to create a sustainable pool of talents.

Policy tools, whether in terms of grants or tax incentives (such as double tax deduction), can be intensified towards encouraging the provision of training of the low- and middle-income groups, and increase their chances in participating in the formalised real economy, thus enabling them to climb the economic ladder.

There must also be continued investment to elevate the capabilities and skills of the current workforce, especially through professional qualifications and training programmes that will boost the number of qualified professionals to enhance Malaysia’s competitiveness in the globalised economy.

We must develop homegrown talents to be ready to become Malaysia’s future leaders and reduce the reliance on foreign expertise.

Most importantly, education and training must be firmly premised on ethics and professionalism as the building blocks of the SPV 2030.

Financial Inclusion

Tax incentives must focus on improving financial inclusion to uplift the financial capacity of the low- and middle-income groups. This does not mean providing extra payouts and increasing lending, but providing them with means and tools to bring them out of the low- and middle-income trap.

Financing based on partnership contracts are better suited for entrepreneurship compared to debt-based lending (where payments are required irrespective of economic outcome).

Suitable incentive structures should be put in place to encourage partnership-type financing such as Mudharabah and Musharakah, and at the same time regulations and policies should encourage financiers to provide such financial solutions based on those Shariah contracts. For SMEs and start-ups, there is always a risk of loss.

Without giving them a chance to start, however, the possibility for start-ups to take off becomes remote. By sharing the risks, financiers and investors will have “skin in the game” which is a way of sharing their financial capacity with the smaller players.

The growth and success of peer-to-peer (P2P) lending is a testament of the viability of risk-sharing contracts, where the investors take on some risks (for higher return) from the ventures they are financing. This way, finance will be grounded in the real economy, which is another core principle of Islamic finance.

The moral dimension to risk sharing is its ability to strengthen social solidarity by enhancing cooperation among all economic agents.

Based on these grounds, the government should re-focus on the important role that Islamic finance can play in driving the economy.

Rethinking Govt Financing

Apart from the current incentives to promote the usage of Islamic finance contracts in financial transactions, the government should expand the use of Islamic instruments to finance its projects.

These should be made available to the retail market in small denominations, so the general public with excess funds may participate in the development of the nation. Current financial instruments are only accessible to the big corporates and players in the financial market.

The establishment of Tabung Harapan Malaysia, that collected RM203 million in voluntary contributions from the public, is proof that Malaysians are instrumental in the success and development of the country.

Generally, the public is willing to contribute if they are certain that their money is being put to good use, hence the importance of transparency.

The government can, and should, create more endowment funds for certain purposes, specifically education, healthcare and social security, where the general public can contribute part of their taxes.

Tax rebates can incentivise such contributions. Proper governance in managing the funds will assure the contributors of its productive use.

In a nutshell, the government should leverage on the principles of Islamic finance and its inbuilt values such as social justice and equity, trust and transparency, risk sharing and financing grounded in the real economy to achieve SPV 2030.

The Malaysian society is pluralistic — if not in terms of race, language, or ethnicity, then in terms of worldviews, and understanding of values and norms.

There must be a spirit of “we are all in it together” in order to maintain a coalition for action and improve solidarity for a brighter Malaysia.

Dr Azura Othman is the CEO of Chartered Institute of Islamic Finance Professionals. The views expressed are the author’s own and may not be taken as representing the views of the institute, and do not necessarily reflect the views of the newspaper’s owners and editorial board.