THE Islamic financial system has expanded at a faster pace than the conventional financial system, reflecting a growing awareness and wider public acceptance of Islamic financial solutions as a competitive alternative to conventional finance.
Several financial institutions have also responded to the increased acceptance of Islamic finance by adopting the “Islamic first” strategy at the group level, said Bank Negara Malaysia (BNM) in its Annual Report 2019 released today.
As such, as at end-2019, Islamic financial institutions account for 39.2% of total banking sector financing.
“Total funds placed with Islamic banks in 2019 represent 38% of total banking sector deposits, compared with 36.6% in 2018, while the share of takaful net contributions as a proportion of the total insurance and takaful business grew further to 18.3% from 16.6% in 2018,” the report said.
As the Malaysian Islamic finance industry matures, BNM continues to focus its efforts on strengthening its fundamental values, which is to fully realise the beneficial impact of Shariah principles that underpin the provision of Shariah-compliant financial services.
The Shariah Advisory Council on Islamic Financ – BNM’s advisor on Shariah matters – plays an instrumental role in clarifying key fundamental Shariah principles that should be embedded in Islamic financial services.
Meanwhile, as a part of a strengthened focus on value-based intermediation, the Islamic banking and takaful industry has also been exploring the use of social finance instruments such as endowment, donation and alms-giving in the provision of financial services for those in greater need.
The infusion of social finance contributions unlocks the potential to more effectively mobilise resources towards the provision of financing and financial protection to lower income segments in the form of seed-capital, working capital and takaful benefits, the report said.
“These financial programmes can have an important impact on promoting financial resilience and social well-being within the society,” BNM said, adding that several pilot programmes are being implemented in collaboration with state governments and religious authorities.
It said that the pilot programmes will serve as a model and catalyst for the further development of social finance in Malaysia.
Meanwhile, the central bank said the Islamic finance industry in the country is well-positioned to support halal industry development, and collectively, Islamic banks have pledged RM20 bil in funding for small and medium enterprises and businesses in the halal industry.
“A variety of financial solutions are available to address various business needs such as cash and liquidity management, working capital and investment, risk management and protection solutions, leasing of equipment and machineries as well as supply chain financing,” it added. – April 3, 2020, Bernama
