KUALA LUMPUR, Sept 19 — The Islamic financial sector needs to unlock impactful innovations for economic and sustainability transformation as well as double down on value-based finance to deliver more tangible impact, said Bank Negara Malaysia (BNM).
Governor Datuk Abdul Rasheed Ghaffour said this was also a call to action to the financial community to take charge with greater leadership in catalysing sustainable growth for the nation.
“The space for innovation in Islamic finance is vast, and yet, to this day, the full potential of Islamic finance has not been fully optimised as a tool for meaningful change to meet the world’s financial needs.
“We have diverse shariah contracts and instruments which could be tailored to engineer solutions that can serve the varying needs of the different segments of society,” the central bank governor said during the keynote address at the Kuala Lumpur Islamic Finance Forum 2023 here today.
In Islamic finance, he said Malaysia has the ability to “blend finance” using different forms of capital such as philanthropic and risk capital, thus expanding its intermediation role beyond credit provisions and risk transfers. “Looking ahead at the economic and financial needs of today and in the future, the funding, investment and risk protection needs of businesses and society today are much more diverse and complex.”
“There is a significant opportunity for Islamic finance to demonstrate its catalytic role and impact by making full use of the tools available for financial innovation in addressing these evolving needs of the country that includes instruments such as sukuk, syndicated financing and blended finance on a much larger scale,” he added.
Abdul Rasheed said another prime area for innovation is social finance, which could be harnessed towards lifting vulnerable groups out of the poverty and low-income trap.
Hence, he said the industry must remain steadfast and strive forward to effect positive and lasting change and a “step-change in the tone at the top” is of utmost importance to create a domino effect of positive actions that permeate throughout the sector, from corporate value intent to business strategies and operations, business conduct, performance measurement and impact reporting.
“This holistic change must be driven from the boardrooms with cascading effect to the frontlines for positive impact to be felt by customers and wider stakeholders,” he continued.
The BNM chief also expressed hope that the Value-Based Intermediation for Takaful (VBIT) Roadmap issued last year would be useful in guiding takaful operators to implement changes to business and operating strategies, introduce more value-based solutions and strengthen capacity to deliver positive impact to the people, planet and environment.