Home Business Islamic finance needs to unlock innovations for economic, sustainability transformation, says BNM governor

Islamic finance needs to unlock innovations for economic, sustainability transformation, says BNM governor

by Paul Morgan

The Islamic financial sector has been called upon to unlock impactful innovations for economic and sustainability transformation. Bank Negara Malaysia (BNM) has urged the industry to double down on value-based finance in order to deliver more tangible impact and catalyze sustainable growth for the nation. In a keynote address at the Kuala Lumpur Islamic Finance Forum 2023, BNM Governor Datuk Abdul Rasheed Ghaffour emphasized that the full potential of Islamic finance has not been fully optimized as a tool for meaningful change.

Abdul Rasheed highlighted that the space for innovation in Islamic finance is vast and can be harnessed to meet the world’s financial needs. Malaysia, in particular, possesses the ability to blend finance using various forms of capital, such as philanthropic and risk capital. This allows the country to expand its intermediation role beyond credit provisions and risk transfers.

Furthermore, the governor stressed the importance of Islamic finance adapting to the evolving needs of businesses and society. He mentioned the significant opportunity for Islamic finance to utilize financial innovation tools, such as sukuk, syndicated financing, and blended finance, on a larger scale to address these needs. By doing so, Islamic finance can demonstrate its catalytic role and impact.

Abdul Rasheed also highlighted social finance as another prime area for innovation in Islamic finance. He emphasized the potential of harnessing social finance to lift vulnerable groups out of poverty and the low-income trap. This aligns with the industry’s responsibility to effect positive and lasting change.

To drive this change, Abdul Rasheed emphasized the need for a “step change in the tone at the top.” This means that positive actions and intentions must permeate throughout the sector, from corporate value intent to business strategies and operations, business conduct, performance measurement, and impact reporting. The industry must remain steadfast and strive forward to create a domino effect of positive actions.

Lastly, Abdul Rasheed expressed hope that the Value-Based Intermediation for Takaful (VBIT) Roadmap, issued last year, would guide takaful operators in implementing changes to business and operating strategies. The roadmap aims to introduce more value-based solutions and strengthen capacity to deliver positive impact to the people, planet, and the environment.

In conclusion, there is a need for the Islamic financial sector to unlock impactful innovations and double down on value-based finance. By fully utilizing the potential of Islamic finance as a tool for meaningful change and sustainable growth, the sector can better meet the evolving financial needs of businesses and society. A holistic change driven from the boardrooms, cascading to the frontlines, is essential for positive impact to be felt by customers and wider stakeholders. With a concerted effort, Islamic finance can make a significant and lasting positive impact on the economy and society.

related posts