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VBI set to be among drivers for Islamic finance

Penang Chief Minister Chow Kon Yeow (third, right) and Assistant Governor Bank Negara Adnan Zaylani Mohamad Zahid (right) visit the exhibition during the Islamic Finance Rendezvous Series (IFRS)

PETALING JAYA: Value-based intermediation (VBI), which focuses on creating value and impact, is set to be one of the drivers for Islamic financial institutions, Bank Negara Malaysia assistant governor Adnan Zaylani Mohamad Zahid says.

He said the Islamic financial system promotes VBI where Islamic financial institutions are encouraged to adopt more structured frameworks to assess how they create value and impact, particularly in response to changing economic, social and environmental conditions.

“In going beyond profit, VBI is set to be one of the drivers for Islamic financial institutions to assist entrepreneurs to grow their businesses,” he said.

He said this in the keynote speech delivered at the Islamic Finance Rendezvous Series in Penang yesterday.

“This would require an understanding of the entrepreneurs’ specific needs and circumstances prior to recommending a particular product or service, rather than focusing on a predetermined range of services.”

Adnan Zaylani said Islamic financial institutions are also expected to assist and guide businesses to adopt sustainable business practices.

The financing model for businesses and SMEs will be more holistic; including provision of environmental-friendly business solutions, entrepreneurship training and consulting services, he said.

“This model can better assist aspiring businesses to improve efficiency and reduce costs, which will lead to greater sustainability,” he added.

He pointed out the practice of Islamic finance is not and should not be exclusive to Muslims.

“Many of its underlying ideas, the pursuit of economic justice and risk sharing align with traditional and conventional economic thinking.

“Mutual insurance companies which derive from risk sharing, limited-purpose banking which moves away from interest-based or fractional banking and equity financing, are all ideas consistent with Islamic finance principles, and are practised across the world without any reference to the religion. Indeed, Islamic finance is for all,” he said.

Adnan Zaylani said a recent survey by Bank Negara revealed that almost 60% of SMEs were not aware of the availability of Islamic business financing facilities.

Indeed, most SMEs adopted conventional financing. Some may still have the misconception that Islamic finance is only for Muslims, he said.

He said Islamic finance is an established industry in Malaysia. Islamic banking assets stood at RM874bil or 30.4% of total banking assets as at end September last year, with an annual growth of 10% over the past three decades.

The end of Q3 last year also saw takaful contributions amounting to RM1.7bil with market penetration at 15%.

Adnan Zaylani said growth of Islamic finance in Malaysia has been resilient and supportive of social and economic developments.

“What underlies this growth is the robust foundation and building blocks that the government and Bank Negara, together with the industry, have worked towards, namely in infrastructure development, institution building, robust regulatory framework and product development.

“We are now at a stage where we view that the foundations are solid and the industry is ready to deliver solutions to meet your needs,” he said.


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