Islamic banks in Malaysia play a regulatory-driven role in delivering sustainable financial and social impact in line with the Shariah through value-based intermediation (VBI). Bank Muamalat was one of the founding members of the VBI Community of Practitioners (CoP) which collaborated with Bank Negara Malaysia (BNM) to develop the ‘Value-based Intermediation: Strengthening the Roles and Impact of Islamic Finance’ strategy paper. In this interview with ISFI, the chief strategy officer at Bank Muamalat, Fairuz Radi, talks about the bank’s sustainability efforts.
When did Bank Muamalat begin its focus on sustainability and ESG?
Bank Muamalat was first involved in sustainability in 2017. We were among the first CoP members for VBI and in November 2017, we officially became one of the members of the Global Alliance for Banking Values (GABV).
The GABV is an independent network of independent banks using finance to deliver sustainable economic, social and environmental development. The GABV consists of 66 members from a total of 44 countries, serving more than 60 million customers.
We are also active in VBI and sustainable scenes as a member of the General Council for Islamic Banks and Financial Institutions’s sustainability working group and were involved in developing BNM’s VBI Financing and Investment Impact Assessment Framework. Our commitment to VBI is very much integrated into our business strategy. We take a value-based approach to designing and delivering our products and services.
What are some of Bank Muamalat’s ESG initiatives?
Recognizing the importance of SMEs to the nation and some of the difficulties faced by SMEs to obtain financing, we have structured a financing facility called the Vendor Financing Programme to eligible SMEs.
Financing for SMEs
- Special Relief Facility (SRF) — working capital to support SMEs recovering from the COVID-19 impact.
- SJPP Financing — Provide an alternative solution to collateral requirements through a guarantee scheme (collaboration with Syarikat Jaminan Pembiayaan Perniagaan, an agency under the Ministry Of Finance Incorporated).
- Vendor Financing Programme — financing for vendors involved in supply and services of corporate companies.
- SIRIM–Fraunhofer Programme — a mixture of grant and financing to enhance productivity and competitiveness of SMEs in the manufacturing sector (collaboration with Standard and Industrial Research Institute of Malaysia, an agency under the Ministry Of Finance Incorporated).
- Investment program to assist the SMEs eligible to receive Zakat and the B40 category while providing returns to investors.
- Utilizes cash Waqf to provide microfinancing and non-interest lending for selected nano/microentrepreneurs.
- Developed with a combination of a social finance instrument and investment fund
- To date, the bank has distributed roughly RM94,000 (US$21,091) and helped develop 15 entrepreneurs.
Is Bank Muamalat focusing on a specific area in terms of its sustainability and ESG efforts?
Bank Muamalat focuses more on VBI which means it covers the overall aspect of the ESG efforts. This is in line with previous efforts by BNM to encourage the adoption of VBI among industry players in Malaysia. Due to the recent requirement by BNM, we have been focusing more on ‘climate-related risk’, ie the ‘environmental’ aspect of sustainability.
What social finance initiatives is Bank Muamalat currently working on?
Through Tabung Mawaddah (TM), the bank is committed to distributing its funds to helping the most vulnerable members of society in line with Shariah principles.
The TM committee has been actively operating since 2002, dedicated to aiding and implementing charitable activities to eligible Zakat recipients and non-eligible Zakat recipients. TM is funded through Zakat and Sadaqah sources contributed by Bank Muamalat and its staff.
Bank Muamalat set up Wakaf Muamalat 10 years ago. To date, RM30 million (US$6.73 million) has been collected and RM24 million approved (US$5.39 million).
We also introduced the Jariah Fund, a social welfare crowdfunding platform in line with BNM’s VBI strategy, an important step to help elevate the economy and banking industry. To date, we have collected RM34,000 (US$7,628) and featured eight campaigns. The fund has been used for health and education funding purposes.