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VBI in the Practice of Malaysian Islamic Banking Institution

Malaysia has developed a progressive and sophisticated Islamic finance marketplace for over four decades. As of December 2019, the total banking assets in the Malaysian Islamic banking industry stood at RM 835.19 billion, up 8.2% from RM771. Eighty-one billion were recorded in the same month of 2018, according to data from Bank Negara Malaysia. Plus, there is a lot of migration from conventional to Islamic banking products, which show that the asset-based of Islamic banking size is growing.

Despite the outstanding achievement and success of Islamic banking institutions (IBIs), some sceptics even criticized that Islamic banking has become too ‘commercialized’ in pursuit of profit by neglecting their social origins even though this is included in one of the Shariah objectives of IBIs. Thus, this urged the IBIs to explore new strategies to bring back its basis while maintaining growth and sustainability through active participation in the Value-based Intermediation (VBI) initiative introduced by the Bank Negara Malaysia (BNM) for IBIs to be more impactful. This enables them to move beyond their traditional intermediation function by creating more value to the community, economy and environment through its day-to-day operations. Since VBI is considered new in the family, the commitment to adopt this concept is significant. Early movers are likely to gain a competitive advantage. Many Islamic banks are keen to participate actively and challenge implementing this VBI initiative in their business operation as advocated by BNM since 2017. 

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Among the earliest Islamic banks that focused on VBI was Bank Islam Malaysia Berhad (BIMB). Through VBI, they are activating win-win synergies that benefit society and business growth by establishing several social finance initiatives that can positively impact uplifting lives and sustainability, which benefit their business performance over the long term. 

Bank Islam has taken an innovative step in providing a social impact platform, namely Sadaqa House, as part of their initiatives to connect the public with social projects for underserved sectors such as healthcare, education and entrepreneurship through the Bank’s digital crowdfunding collaboration with Ethics Ventures Sdn Bhd and The contributions of the fund can be made using Bank Islam’s existing channels such as Internet banking (“IB”), Transact-at-Palm (“TAP”), Mobile Banking-i and Bank Islam credit card. Interestingly, for every public donation made, the Bank matches every ringgit contribution into the Sadaqa House fund account, at the rate of 1:1 to a maximum of RM500,000. The Bank’s staff also are encouraged to contribute via salary deduction, and a total amount of RM52,308 was contributed by the Bank’s staff over the year. The funds collected from the collaboration between the general public and Bank Islam have been distributed to better the disadvantaged communities. 

As stated in their Integrated Annual Report 2019, Sadaqah House managed to collect about RM 1.4 million over the year and has been channelled the fund to non-governmental organizations (“NGOs”) and charitable organizations such as Institute Jantung Negara (“IJN”) Foundation, Yayasan Sultanah Bahiyah (“YSB”) and Universiti Teknologi Malaysia (“UTM”). This Sadaqah House platform has been recognized as the Best Social Finance Initiative 2019 during the 5th Islamic Retail Banking Awards (“IRBA”).

Source: Integrated Annual Report 2019 Bank Islam Berhad

Another Islamic social finance instrument of Bank Islam in achieving VBI is through the creation of myWaqf. This myWakaf portal has been launched during the year to catalyze Wakaf contributions as part of the Association of Islamic Banking and Financial Institutions Malaysia’s (“AIBIM”) objective to promote Wakaf development in consultation with state Islamic Religious Councils. The portal enables more accessible, more effective and tax-exempt Wakaf contributions by individuals to selected projects like education, healthcare, investment and economic empowerment. Bank Islam has been appointed by Majlis Agama Islam dan Adat Istiadat Melayu Perlis (“MAIPs”) as the leading Bank in managing the fund for the construction of Tunku Fauziah Hospital Dialysis Centre (“HTF”) on the Waqf land situated at Kangar, Perlis. However, this HTF project requires about RM 6million to cover the cost of development and building to accommodate around 66 beds for patients with kidney problems. Upon its completion, this HTF will help further enhance the delivery of health services in the state of Perlis by prioritizing the needs of underprivileged patients or those from poor economic backgrounds. Following their efforts and commitment to promoting VBI, BIMB was honoured to be named the year’s Top VBI Scorer by Bank Negara Malaysia in 2018 based on a holistic assessment of the Bank’s progress on all fronts VBI parameters. 

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Another practice of VBI also can be traced from the initiative taken by AmBank Islamic Berhad. The aspiration of VBI in Islamic Ambank is primarily manifested from two main pillars: financial inclusion and responsible lending/financing. In financial inclusion, AmBank Islamic will continue to emphasize the SME sector. Recently, the said Bank is leveraging on the SME Biz Startup-i Scheme. A Shariah-compliant financing scheme is meant for businesses with a minimal track record to promote financial inclusion for start-up businesses. Other than that, they are also leveraging their strategic partnerships and upskilling the initiatives such as the AmBank BizCLUB and AmBank BizRACE while providing the SME with the opportunity to cross-sell products such as key man takaful and deposits that is in line with their VBI aspiration

Despite this, many still believe that VBI’s success will be determined by its capacity to be deployed across the entire banking ecosystem rather than simply focusing on a single product. Despite the solid financial rationale for value-based banking, it is still a long way from achieving critical mass, owing to the emphasis on Shariah in identifying underlying values, moral compass, and priorities, which may be difficult for the general public to comprehend. As a result, Islamic banks and the VBI Community of Practitioners are strongly urged to diversify their product and service offerings in this area.


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