GUIDANCE FOR VALUE-BASED SYSTEM
Bank Negara documents aim to help lenders generate positive social impact
BANK Negara Malaysia has issued guidance documents to encourage the nation’s Islamic financial institutions to adopt a value-based system to generate positive social impact and help propel the industry into a new growth pathway.
The documents served as a guidance to banks on implementing the value-based intermediation (VBI) system and creating a financing and investment framework as well as VBI scorecard.
Bank Negara governor Datuk Nor Shamsiah Mohd Yunus said with the support of the central bank, the industry had been taking concrete steps to drive strategies to increase the positive impact of finance on society.
“The commitment to adopt VBI is a significant step by the industry to clearly identify Islamic finance with sustainable practices, as it should,” she said at the Global Islamic Finance Forum 2018 (GIFF 2018) attended by more than 1,000 delegates.
“From time to time, we expect the use of the VBI to have a major impact on the business model of Islamic financial institutions, including drivers of profit and risk,” she added.
Nor Shamsiah said Bank Negara would continue to work on developing the VBI system for Islamic finance.
The VBI Impact Assessment Framework consists of a guidance on valuation of financing and investment applications that take into account the economic, social and environmental impacts.
The VBI scorecard, on the other hand, supports the implementation of performance measurement frameworks for Islamic financial institutions that drive positive values and impact on society and the environment.
She said the growth of Islamic finance had been a remarkable success story, with the market share of Islamic banking assets in Malaysia having reached the 30 per cent mark.
However, this had since slowed, signalling the need for a fresh direction, added Nor Shamsiah.
“The Islamic finance industry today faces a strategic choice — either to continue on a path that largely ignores the stark social and environmental realities that confront humanity or to thoughtfully chart a new path that fully embraces the idea and philosophy of finance beyond profits.
“The latter will be an unfamiliar path in many respects, but one that is far closer to the fundamental premise of syariah on which Islamic finance is based upon,” she said.
With the theme “Beyond Profit”, GIFF 2018 brings together a panel of experts in Islamic finance and sustainability to lead the conversation in encouraging the industry to progress from syariah-compliant banking towards a more holistic practice of syariah-based financing that generates a positive impact on the economy, community and environment.