In Malaysia, banks have participated in Valuebased Intermediation (VBI) without realising it. For example, renewable energy through sukuk was used to raise money.”
Value-based Intermediation an important initiative to drive industry to next level of growth, say banking players
THE Islamic finance industry has gained more traction among businesses and individuals but it is at a point where a paradigm change is needed.
And Malaysia is in a strong position to drive that change.
Value-based Intermediation (VBI) is an important initiative in moving the Islamic financial industry to the next level of growth that is sustainable and has clear value propositions.
Its development and implementation is led by Community of Practitioners, which is formed by nine Islamic banking players who are also the early adopters.
The nine are Bank Islam, Bank Muamalat, CIMB Islamic, Agrobank, HSBC Amanah, Maybank Islamic, AmBank Islamic, Alliance Islamic and Standard Chartered Saadiq.
Bank Islam said the VBI involved the 3Ps — profit, planet and people — and should be read together when funding was being considered.
“In Malaysia, banks have participated in VBI without realising it. For example, renewable energy sukuk was used to raise money,” said its chief executive officer Khairul Kamarudin at a VBI Dialogue.
The event was held a month after a strategy paper was issued about the proposed implementation approach.
“Once projects have a positive impact on the community and the people, and are documented, then let it be the main consideration to start marketing our financial products tools.”
VBI, which is not a new concept, relies on syariah principles in deciding the underlying values, moral compass and priorities, unlike the known concepts such as Environmental, Social and Corporate Governance (ESG), Ethical Finance and Sustainable, Responsible, Impact Investing.
Bank Islam has two ESG products that have won global recognition as people want companies which practise good governance and have a good social standing.
Khairul said people needed to be convinced to do more good in the face of events like global warming.
“So, when we fund something we don’t look at the ROA (return on assets), ROE (return on equity), pre-tax profit and profit after tax.”
He opined that the ESG equity counters performed two times better than other.
“There are US$23 trillion (RM98.32 trillion) invested in ESG and VBI markets.
“If Malaysia can be at the forefront, then we can attract these funds.”
Arsalaan Ahmed, who heads HSBC Amanah Malaysia Bhd, said global standards could be shaped to meet the expectations of the Generation Y in emerging markets.
“It is so exciting to be part of the VBI initiative as no country is doing it at such a scale and with strong regulatory support.”
Bank Negara Malaysia assistant governor Marzunisham Omar, who chaired the panel discussion, also stressed on the need for a strong customer protection framework.
The key principles in investment accounts are transparency, disclosure and making sure customers are fully aware of risk sharing.
The central bank, on its part, also views seriously any unethical promotion and has a legal framework to manage this.
“In investment accounts (IAs), we realise we need to educate our investors, especially retail customers that IAs are not the same as deposit accounts — this is where responsibility in Islamic finance is higher to ensure customers fully understood the nature of the investment.”
According to Bank Negara, the VBI will change the current banking offerings and practices through three ways — offerings and market segments, improvement in existing banking practices and collaboration with strategic partners and stakeholders beyond the financial community.
The first key focus area is on greater involvement in entrepreneurial activities through financing and advisory, market infrastructure and business network.
Empowering communities through financial solutions as well as inculcating good organisational discipline and best conduct are also among the main thrusts of VBI.