Malaysia’s central bank releases guidance document for impact-based risk management system for Islamic financial institutions

Bank Negara Malaysia, the central bank, has issued the guidance document for the Value-based Intermediation Financing and Investment Assessment Framework (VBIAF).

The VBIAF aims to facilitate the implementation of an impact-based risk management system for assessing the financing and investment activities of Islamic financial institutions in line with their respective VBI commitments, said the central bank in a statement on Friday (November 1).

Value-based intermediation (VBI) is seen as Malaysia’s attempt to transition its Islamic finance industry from being ‘merely’ Shariah-compliant to becoming Shariah-based, whose approach is aligned with the goals of Shariah that seek to protect and preserve the benefits and interests of society and the acquisition of wealth in a fair, transparent and accountable manner.

Most Shariah-compliant financial products and services are criticised for originating from conventional finance but are structured in such a way that they comply with Shariah in form, but not spirit. 

VBI’s introduction in a July 2017 strategy paper came at a point when the asset growth of Malaysia’s Islamic banks was on the decline.

The VBIAF was jointly developed by the VBI Community of Practitioners (CoP), the International Centre for Education in Islamic Finance (INCEIF) and The World Bank Group (Malaysia Office).

The World Wide Fund for Nature (WWF) (Malaysia and Singapore Offices) also made significant contribution towards the drafting of this document, especially from environmental and social aspects, said BNM.

The guidance documents can be accessed from this link on the central bank website.

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