BNM: Islamic financial sector must continue to advance amid global challenges

KUALA LUMPUR: The Islamic financial sector has yet to realise its full potential of value-based finance to address contemporary economic and social needs, and there is a continuing need to foster an appreciation of Shariah's fundamental values among market participants as well as their embodiment in financial solutions, services, and conduct, said Bank Negara Malaysia (BNM).

Governor Tan Sri Nor Shamsiah Mohd Yunus said value-based intermediation (VBI) has become more entrenched in the corporate value intent and business strategies of Islamic financial institutions, but it appears that value-based finance is still in its early stages.

"Many financial institutions, conventional and Islamic alike have yet to make important changes to how they operate and do business to fully deliver on value-based finance. Five years since the launch of the VBI initiative in 2017, the majority of Community of Practitioners members are only at the 'Emerging' phase of implementation," she said during her keynote address at the two-day Global Islamic Forum 2022, which started today.

Nor Shamsiah also emphasised that the efforts to diversify value-based capital, which include funding of new ventures and other VBI-aligned outcomes are far from full realisation, with only 4.2 per cent of investment accounts intermediated by Islamic banks being suitable to finance transformation, such as in supplying growth capital to industries of the future or new business models.

"We have also yet to make the most out of the full range of Shariah contracts in finance application today. Benevolent contracts, risk-sharing contracts and other asset-based contracts have yet to be fully utilised to offer a broader spectrum of funding, investment and protection solutions," she said.