“There is a significant opportunity for Islamic finance to demonstrate its catalytic role and impact by making full use of the tools available for financial innovation in addressing these evolving needs of the country,” he said.
“These include instruments such as sukuk, syndicated financing and blended finance on a much larger scale,” he added.
The country’s latest economic transformation plans, which include the NIMP and NETR, is estimated to cost about RM1.4 trillion by 2050.
Therefore, they will require more adept use of wider funding mechanisms, said Abdul Rasheed.
The BNM governor made these remarks during his keynote address at the Kuala Lumpur Islamic Finance Forum 2023 at the Royale Chulan hotel in Kuala Lumpur today.
“The industry can more actively mobilise new sources of funding while expanding the underlying assets funded by investment accounts (IA) towards projects aligned with sustainable development goals,” he said.
Abdul Rasheed elaborated on the adaptability of IA features, suggesting that they could seamlessly integrate with social finance mechanisms. He drew inspiration from the noteworthy advancements seen in sustainable and responsible investment sukuk structures.
Room for innovation
Referring to the Financial Sector Blueprint 2022-2026, Abdul Rasheed said BNM is working to simplify the shariah contract framework’s design and policy approach to spur innovation whilst ensuring the effective application of shariah principles.
The central bank governor highlighted two key foundations of Islamic finance that are crucial in delivering meaningful impact.
Firstly, he emphasised that there is considerable room for innovation within Islamic finance.
“We have diverse shariah contracts and instruments which can be tailored to engineer solutions that can serve varying needs of different segments of society,” he said.
Islamic finance, he added, also has the ability to “blend finance” using different forms of capital such as philanthropic capital and risk capital, thus expanding its intermediation role beyond credit provisions and risk transfers.
Secondly, Abdul Rasheed said that the value-based intermediation (VBI) framework, established by BNM in 2017, serves as an anchor in delivering tangible impact on society.
The VBI aims to re-orient Islamic finance business models towards realising the objectives of shariah that generate positive and sustainable impact to the economy, community and environment through practices, processes, offerings and conduct.
“It is not an easy feat to progress from where finance solutions gradually demonstrate principles of VBI to where the whole institutional behaviour and culture is fully aligned towards the fundamental values of shariah in delivering sustainable impact,” he said.
“Nonetheless, the industry must remain steadfast and strive forward to effect positive and lasting change,” he concluded.