Categories: Media ReleasePublished On: 11/11/2021

Waqf, fintech solutions, and the global sustainability agenda were identified as key drivers for the future growth of Islamic finance at the recent Malaysian Institute of Accountants (MIA) Islamic Finance Conference 2021, which focused on the theme of “Islamic Finance: Latest Developments and Drivers for Growth in a Post-Pandemic World”.

These three drivers will enable the Islamic finance sector to achieve its higher goals of inclusive development, equitable prosperity, and positive social impact in the post-pandemic economy.

“Over the last 18 months since the pandemic came about, the Islamic finance industry has dedicated much of its development efforts to address the threats and challenges posed by the pandemic, making its impact on building social resilience, facilitating economic recovery as well as championing the sustainability agenda,” said Mohd Muazzam Mohamed, Chairman of the Islamic Finance Committee, Malaysian Institute of Accountants and CEO of Bank Islam in his Conference address. He pointed out the industry’s proactivity in assisting customers with various relief measures, including automatic payment moratorium, targeted payment assistance and, more recently, the extended financial support scheme under URUS, is aimed to promote long-term financial resilience.

“Notably, the Islamic Finance principle of prohibiting compounding charges was also adopted as the market practice by the conventional counterparts during the deferment period – highlighting the positive influence of Islamic Finance on the broader financial industry,” added Mohd Muazzam.

Waqf for Social Finance

Mohd Muazzam emphasised the importance of waqf and social finance instruments as a lever to support the social welfare or ijtima’iy component of the Islamic economy. Waqf can have a long-term positive social impact creation by moving Malaysia closer to the ideal path of more inclusive, equitable and sustainable growth.

Muazzam enumerated the steps that Malaysia has put in place to mobilise waqf further:

  • The launch of the Waqf features fund framework by the Securities Commission of Malaysia in 2020 to promote greater public participation in charitable acts of waqf for the creation of meaningful perpetual benefits.
  • The establishment of myWakaf as a platform for Islamic Banks to collaborate with State Islamic Religious Councils (SIRC) to spearhead multiple waqf projects for the community across the country, including construction of haemodialysis centres, dental clinics, muallaf shelters and boats.
  • The formulation of a National Waqf Master Plan by the Government under the 12th Malaysia Plan to harness the full potential of waqf and elevate the recognition of Islamic Finance.

Fintech Innovations for Social Resilience and Impact

To assist those who have lost their jobs or source of income, the industry continuously explores new innovative financial products and services to create financial solutions that can nurture micro-entrepreneurship. “Towards this end, a few Islamic banks in collaboration with strategic partners have blended traditional banking offerings with Islamic Social Finance instruments like sadaqah and zakat to create affordable microfinancing product, known as iTekad, that is provided along with structured business coaching and training to ensure effective business nurturing,” explained Mohd Muazzam.

Other complementary tools to increase funding access include the Securities Commission (SC) Shariah screening assessment toolkit for unlisted micro, small and medium enterprises (MSMEs). The toolkit enables MSMEs to tap funding from Shariah-compliant investors through market-based crowdfunding platforms such as equity crowdfunding (ECF) and peer-to-peer financing (P2P).

Driving Sustainability Through Value-Based Intermediation

Accelerated by the COVID-19 pandemic, sustainability is now a mainstream agenda across all financial sectors, particularly Islamic finance that has inherent considerations that include, among others, being ethical, sustainable, responsible, transparent, green, and equitable. “Islamic finance institutions (IFIs) hence have a natural duty to do more as financial intermediaries – they need to generate positive and sustainable impact on the economy, community and environment,” remarked Muazzam.

“For the Islamic banking and takaful sectors, the shared vision and commitment to champion sustainability agenda is anchored upon the Value-based Intermediation (VBI) framework by Bank Negara Malaysia (BNM),” he stated.

So far, the VBI initiative has logged the following milestones:

  • The formation of VBI Community of Practitioners as a collaborative platform has enabled Islamic banks in Malaysia to come together to spearhead the development of sustainability initiatives for the financial industry, including the Value-based Intermediation Financing and Investment Impact Assessment Framework (VBIAF) Sectoral Guides.
  • VBIAF is an impact-based risk management toolkit to guide incorporation of environmental, social and governance (ESG) risk considerations in the decision-making process that was developed jointly by the Islamic banking industry with relevant stakeholders such as World Wide Fund for Nature (WWF), Energy Commission (EC), Sustainable Energy Development Authority (SEDA), and Malaysian Green Technology and Climate Change Centre (MGTC).
  • To date, six VBIAF sectoral guides have been issued, where the first cohort for Palm Oil, Renewable Energy and Energy Efficiency Sector has been finalised, while the second cohort for the Oil & Gas, Manufacturing and Construction & Infrastructure sectors is now being published for public feedback.

The MIA Islamic Finance Conference 2021 was held on 27-28 October 2021. As the regulator and developer of the accountancy profession, MIA plays a key role in building up the capacity and competency of accountancy and finance professionals in the Islamic finance sector via initiatives such as its ongoing Islamic Finance Mini-pupillage programme and its free-to-download textbook on accounting for Islamic finance transactions.