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 Muazzam.
Waqf for Social Finance
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 positive long-term 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:
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 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 financial 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 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.
