by M JAY SHEILA / pic courtesy of BNM

VALUE-BASED intermediation (VBI) is still in the “early days”, with Islamic banks only managing to intermediate RM146.6 billion in the financing, investments and deposits in VBI-related or VBI-aligned initiatives between 2020 and 2021.

“Many financial institutions — conventional and Islamic alike — have yet to make important changes to how they operate and do business to fully deliver on value-based finance.

“Five years since the launch of the VBI initiative in 2017, the majority of the community of practitioner members are only at the ‘emerging’ phase of implementation,” Bank Negara Malaysia (BNM) governor Tan Sri Nor Shamsiah Mohd Yunus (picture) said at the seventh Global Islamic Finance Forum at Sasana Kijang in Kuala Lumpur today.

Nor Shamsiah and the Association of Islamic Banking Institutions Malaysia (AIBIM) president Mohd Muazzam Mohamed, launched the 113-page Value-based Intermediation Full Report 2021, which reviewed the journey and progress of VBI initiatives during the period between October 2020 and September 2021.

The report is a follow-up on AIBIM’s Intermediating Beyond Profits: Inaugural Islamic Banking Industry Value-based Intermediate Preview Report 2017-2020.

The progress of Malaysia’s Islamic banking institutions toward the sustainability agenda of the United Nations is examined in detail in the report, along with other topics like the contribution of technology to the expansion of VBI and the significance of easing the financial hardship experienced by the unserved and underserved community.

VBI has become more entrenched in the corporate value intent and business strategies of Islamic financial institutions, noted Nor Shamsiah.

The industry today frequently uses tools like the VBI Financing and Investment Impact Assessment Framework Sectoral Guides, implementation roadmaps and reporting frameworks to generate positive value and effect on the economy, society and environment, she added.

The intermediation of capital is also more diverse, with innovative instruments mobilising “beyond deposits”, adding risk-absorbent capital and social capital into the mix.

Nor Shamsiah noted one of the challenges is that the efforts to diversify value-based capital — such as to fund new ventures and other VBI-aligned outcomes — are far from full realisation, which is 4.2% of investment accounts are suitable to finance transformation.

Another key challenge is that Islamic banks have not yet fully tapped into the potential of the Shariah contracts such as benevolent contracts, risk-sharing contracts and other asset-based contracts, she added.

Nor Shamsiah put forward a continued need to foster an appreciation of the fundamental values of Shariah among market participants and its embodiment in financial solutions, services and conduct.

At the same event, the BNM governor announces the establishment of the Malaysia International Islamic Financial Centre (MIFC) Leadership Council, a joint initiative of BNM and the Securities Commission of Malaysia (SC).

Under the leadership of Tan Sri Azman Mokhtar as the chair, the council will provide thought leadership, drive strategy formulation and implementation to enhance Malaysia’s position as an international gateway for Islamic finance, said Nor Shamsiah.

At the event, BNM and SC announced the recipients of the Emerging Leader Prize and Impact Challenge Prize in conjunction with The Royal Award for Islamic Finance 2022.

One of the winners, “Pod” founded by Nadia Ismadi, won the Impact Challenge Prize. This Malaysian homegrown solution helps users save money and access Shariah microfinancing and financial products while leveraging artificial intelligence to provide borrowers with an alternative way to build credit records which in turn enable them to access financing products from banks.

The hybrid conference themed Take the Reins organised by AIBIM in support of the MIFC, was attended by more than 1,000 participants worldwide.