VBI strategies must come from the top, says experts

Institution : Bank Negara Malaysia - BNM, Association of Islamic Banking Institutions Malaysia - AIBIM
03 October, 2018      463



OCTOBER 3, 2018, Kuala Lumpur: Top management of Islamic finance institutions should set the tone as a first step towards embarking on a value-based intermediation (VBI) approach.

Dato' Mohd Redza Shah Abd Wahid, CEO of Bank Muamalat Malaysia Berhad said if the Chief Executive Officer (CEO) or Board does not want to embrace VBI, it wouldn't happen.

"After you have set the tone, then you need to go on to the next step, how do you get this done.

"If you don't know, ask. Don't do it alone. This is a journey of Islamic finance, you need to change finance for finance to change,” he told participants at one of the panel sessions at the Global Islamic Finance Forum 2018 (GIFF2018).

Dr Adnan Chilwan, Group CEO of Dubai Islamic Bank said banks or financial institutions should also consider the customer's standpoint when implementing VBI strategies.

"The first step for customers is for them to think about the proposal and plan a business that is going to create value for society. It will fall under the bank's VBI scorecard," he said.

He also said that some jurisdictions would support VBI-based proposals, while others might need time to study it. But, he added most of the Islamic finance markets under the Gulf Cooperation Council (GCC) were embracing the VBI concept, which was also being accepted by conventional financial institutions.

Redza said executing VBI strategies was not a challenge, particularly if there was a regulator who was sponsoring the concept along with setting out the guidelines such as Bank Negara Malaysia (BNM).

"If you don't have that (support), you have to battle the board, stakeholders and the most important people - your staff," he pointed out.

To overcome that hurdle, Redza also said institutions should inculcate a culture of thinking of the community amongst bank employees.

He found that one way to engage employees was to communicate the methods of balancing a staff's key performance indicators (KPI) against the positive impact on society at large.

Chilwan also said VBI was a natural extension of what Islamic finance has been doing all this while. But the concept does extend beyond ethical financing.

“VBI is also about how you can merge it with pure commercial indicators, how you can create value for society and in the process, make profit,” he added.

He said VBI approaches must consider how Islamic finance institutions could create an environment that could support entrepreneurs, small and medium businesses through various initiatives and ensuring financial inclusion.

"Why you need VBI, you need to do it because we want to create a population that is financially independent. And that independence does not come from financing alone, but through training and empowerment," he said.

Chilwan added that VBI was essentially a "marriage" of environmental and social governance (ESG), corporate social responsibility (CSR) and socially responsible investments (SRI).

Sheikh Nizam Yaquby, a member of the ISRA Council of Scholars (COS) said the VBI concept was not new as Islamic finance was built on Syariah concepts that emphasises ethical practices and environmental awareness.

But, practical implementation could be difficult. He said, "When you put virtues and values to numbers, amounts and contracts, you will have a great deal of issues to tackle."

Redza also said Islamic banks who were new to VBI should be aware that VBI was not limited to scorecards or credit processes.

This was because there are existing instruments that can be used to meet VBI goals. He said banks could incorporate zakat and wakaf approaches into the VBI practice.

All three were panellists on the "Value-Based Intermediation: The Islamic Perspective" session which was moderated by Dr Imran Lum, Director, Islamic Finance, National Australia Bank Limited.

The two-day forum GIFF2018 was organised by the Association of Islamic Banking and Financial Institutions Malaysia.

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The Association of Islamic Banking and Financial Instititions Malaysia (AIBIM) was established in 1996 as the Association of Interest Free Banking Institutions Malaysia. Currently, AIBIM has 26 member banks. The organisation promotes sound Islamic banking system and practice in Malaysia; represents interest of members locally and abroad; provides advice and assistance to members partinent in the development on Islamic banking and finance at local, regional and global level; coordinates human capital development initiatives, and promotes public awareness.

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Original Source: https://www.giff2018.com/press_releases


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