STEERING INDUSTRY SUCCESS
Islamicbanker (IB) : What led to the establishment of AIBIM and what are its main objectives?
Dato Redza (DR): The Association of Islamic Banking Institutions Malaysia (AIBIM) was formed as the Association of Interest-Free Banking Institutions Malaysia in 1996. The main objective of AIBIM is to represent the interest of all AIBIM member banks. We work in close collaboration with the Government, Bank Negara Malaysia and other regulatory authorities to establish a sound Islamic financial system and practices in Malaysia. One of our roles is to provide critical information and updates on issues regarding regulatory and policy. We also engage and educate the public by disseminating information on the advantage of Islamic banking and finance. AIBIM also aims to foster strategic collaboration between all ASEAN nations towards the common goal of developing Islamic banking and finance, and at the same time, create more growth opportunities for the industry
IB: Who are the members and stakeholders of AIBIM?
DR: AIBIM currently has 26 member banks comprising local domestic banks, international financial institutions, locally incorporated foreign banks, and developmental financial institutions. Our memberships are growing as we aim to further increase the diversity of our stakeholders.
IB: How do you see AIBIM steering the development of Islamic banking in Malaysia?
DR: We identify industry issues and facilitate cross-border engagement among AIBIM members locally and abroad. For example, we have established a very good relationship with the Asosiasi Baitul Maalwa Tamwil (BMT) se-Indonesia (ABSINDO). Such cross-border initiatives are beneficial to industry growth – they encourage the setting up of good guidelines, and at the same time, allow us to learn from one another. AIBIM plays a crucial role in this by co-creating an environment that is conducive to Islamic banking and finance in Malaysia, one that enables economic advancement, and resilience. To steer this, we facilitate and encourage knowledge sharing through our awareness programmes, workshops, roundtables and online conferences.
IB: Do you think Islamic banks in Malaysia have done enough in terms of social responsibility?
What more do you feel could be done?
DR: Islamic banks in Malaysia have made commendable fforts in terms of corporate social responsibility (CSR). However, they might not have publicised the many ways they have contributed to society. Moving forward, I feel that Islamic banks should consider changing their strategies. They need not shy from publicising CSR initiatives as there is significant brand equity to be gained from showcasing the bank’s contributions to society. For example, there are Islamic banking institutions in Malaysia who donated vehicles to the mosques to help in funeral arrangement, assisted Waqf collection on behalf of state government, and even sponsor various educational programmes on TV. All of these fforts exemplify to society how Islamic banking is about ethical banking – it is about being responsible, it is about being transparent. This will help the banks to move forward.
IB: How can one sustain the momentum of Islamic financial industry as a transformational agent?
DR: Being a transformation agent is not only about carrying the principle of Islamic banking and finance, it is also about raising the standards in the pursuit of an effective functioning and sound Islamic financial system. While the industry has benefited from a well developed, well-regulated, and healthy environment, as we move forward, we need to raise the bar and update our service standards by reinforcing the existing foundation, for example, through the introduction of more innovative products backed by solid research and development. As the industry transitions into anew era of growth, the competitive financial landscape is witnessing evolving regulatory reforms, a rising of consumer expectations, and increased competition. These are important indications for Islamic banks to accelerate their efforts. the main challenge for Islamic banking institutions here is to maintain a competitive market share.
IB: Islamic banking institutions face the key challenge of attracting a knowledge-based workforce equipped with the skills required to enhance innovations, productivity and performance. What role does AIBIM play in overcoming this?
DR: We have a strong focus on workforce development through ongoing education and training. Bank Negara Malaysia as a regulator has contributed substantially in developing the right workforce for the industry through the establishment of various educational institutions such as IBFIM, ISRA and INCEIF, and AIBIM member banks were invited to work together with Bank Negara Malaysia in these initiatives. For example, on the establishment of the Association of Chartered Islamic Financial Professionals (ACIF), which aims to provide accreditation and certification
for Islamic financial professionals. This way, the standards and the quality of our potential human capitals will be standardised and maintained.
IB: What do you think are the roles of academic institutions in Malaysia in producing the right human capital for Islamic banking industry?
DR: Academic institutions play a big role in building adequate human skills for the Islamic banking and finance industry, ensuring a skilled workforce pipeline and human capital development. International Islamic University Malaysia (IIUM), for example, is a pioneer of supporting
the industry by producing specialists and experts in Islamic finance. Yet, the education systems can still be further strengthened to meet the current market requirements. Strategic collaborations between the industry and academia must be established and concerted efforts must be formed in order for the industry to grow, especially in the area of market research. The market research approach will enhance the understanding of customers and enable the industry to design marketable products that over value to customers.
IB: What do you think has contributed to the growth of Islamic banking worldwide?
DR: Islamic banking and finance has grown tremendously since its introduction in the 1970s. I strongly believe that the journey actually started in Malaysia when the Malaysian Government took the initiative to establish the Islamic banking market. Malaysia’s Islamic finance industry has been in existence for over 30 years, with an excellent track record that gives the country a solid foundation. As a banker myself, I am more interested to talk about what Islamic banking does not do in order to explain it. Islamic banking does not go into derivatives; it does not engage in unethical or un-permissible economic activities, for example, gambling or horse racing. It is based on a very simple relationship, which taken further, involves a sharing of profit and loss which will not cause any impact on a customer level, or on the economy as a whole. This is what developed and steered the growth of Islamic banking – its simplicity, transparency and ethical values, which are lacking in the conventional market.
IB: Do you think there is a need for Islamic banks in Malaysia to increase their market penetration? If so, how can they achieve this?
DR: Evidence suggests that Islamic banks are currently competing well against conventional banks. Our penetration rate is around 25% of the market. If we look closely, there are more than 50% Muslims in Malaysia, which provides Islamic banks with excellent opportunities for expansion. We should thus set our target at a 50% penetration rate, optimistically, to be achieved in the next ten years. But, to achieve the target, we will need strong product innovations, an effective management framework, as well as competitiveness. I also believe that Islamic banks should not just focus on Muslims. Even now, we can see people, regardless of religious beliefs, starting to move from conventional banking to Islamic banking. The market approach offered by Islamic banking and finance can still appeal to non Muslims attracted to its ethical values and principles.
IB: The Securities Commission (SC) positions Malaysia as an Islamic Wealth Management Hub. What does AIBIM contribute to realise this positioning?
DR: The Islamic wealth management sector is set to grow, with many forecasting that global Islamic assets are to hit 1.6 trillion US dollars by 2018. As one of the major Islamic financial hubs in the world that contribute to this, I believe that Malaysia will become the global leader in Islamic Wealth Management. We on our part are focusing on encouraging active discussions pertaining to any arising critical industry issue related to Islamic wealth management and to and solutions to tackle the identified issues.
IB: What are your thoughts on differences in opinions on Islamic banking products and services in Malaysia from the perspective of different Shari’a scholars?
DR: The Islamic banking industry will benefit from harmonisation as this has been a challenge for the industry due to a lack of consensus amongst the scholars, who believe in different schools of thoughts when it comes to Shari’a standards. Establishing universal Shari’a standards will not just eliminate the divergence of Shari’a interpretation but it will also spur the growth of Islamic banking worldwide. The differences in opinions and interpretations on Shari’a-compliant products and services from the perspective of dfferent Shari’a scholars basically make standardization more challenging. However, we have to recognise that the differences are not necessarily bad or disruptive. Here are various international forums and platforms for scholars from different schools of thought to exchange views and achieve uniformity in opinions. One is the regional Shari’ah Scholars Dialogue – Muzakarah Cendekiawan Shari’ah Nusantara (MCSN), which helps to bring scholars closer and creates an environment for them to communicate more effectively. This helps to close the gaps and differences in opinions, and creates harmonised decision concerning Shari’a standards.
IB: What are your coverall closing views on Islamic banking?
DR: As the Islamic banking and finance industry progresses, it brings with it new challenges whose impact if ignored might inhibit the growth of the industry. As we move forward, we will face various issues that demand our attention – issues on ethical banking, social responsibility, transparency and so forth. In the perception of society, a bank is not only a profit centre, but also a social group. Therefore, industry players – the Islamic banks – must be able to fulfil society’s requirements. AIBIM is very optimistic about the growth of the Islamic banking and finance industry in Malaysia. Based
on the current trends, we believe that the industry will continue to expand globally