Next generation of Islamic financial institutions: Leadership, values, ethics

Mr Adnan Zaylani Mohamad Zahid, Assistant Governor of the Central Bank of Malaysia in this speech talks about the nextgen ISlamic Financial Institutions:

The next generation of Islamic financial institutions would thus be driven by values and not just profit. With a moral outlook for the ultimate good, strengthened by self-discipline, greater accountability and integrity, Islamic financial institutions will have stronger consideration of the impact of decisions made. There should be greater drive to continuously improve their offerings and treatments towards customers and employees, which include fair and transparent disclosure in order to increase the positive impact of their activities. Development of banking practices based on VBI concepts are also anticipated to encourage the creation of new business opportunities and provide the foundation for better returns for Islamic banks over the long term. An example is assessment of financing application by Islamic banks based on value-creation instead of mere credit scoring which would benefit business propositions from new sectors such as SMEs. Another example is refocusing, strengthening and repositioning of personal financing by Islamic banks to best meet the needs and circumstances of customers.  In time, there may emerge greater differentiation between VBI and non-VBI institutions which will be better understood by shareholders, fund providers and financial markets more generally. Furthermore, the more comprehensive and holistic approach of VBI in advancing the good for society could prove to be a key competitive advantage that will influence and shape the future of the financial industry.

The drive for positive changes in the Islamic financial services industry however requires a major paradigm shift in many institutions. It takes a long view to recognise returns beyond financial profits where social and environmental gains are also highly valued. It will also take increasing professionalism and high quality talent that will contribute to this transformation of mind and culture. In Malaysia, we can readily leverage on the available Islamic finance talent development ecosystem, which has a comprehensive and diversified range of offerings, spanning tertiary and professional education, research, training and consultancy services which are globally-recognised. The implementation of VBI has already galvanised many stakeholders including institutions of higher learning such as the International Centre for Education in Islamic Finance (INCEIF) and International Shariah Research Academy (ISRA) to undertake impactful applied research that advances the implementation progress of VBI by the financial industry. Indeed, Islamic finance has greatly benefited through these institutions that have contributed towards enlarging the pool of Islamic finance professionals and deepening expertise through various programmes and initiatives. At the same time, these institutions have also grown in recognition. INCEIF for example, has been awarded the prestigious accreditation by the Association to Advance Collegiate Schools of Business (AACBS) International in recognition of its excellence in various areas, including its diverse programmes that have benefitted students from more than 80 countries.

Besides talent, strong and visionary leadership in particular at the Board and Senior Management will be crucial for success in this paradigm shift. This leadership and strong professionalism must continuously be complimented with the right ethics to transform the culture, systems and people. Nurturing talent also needs to be extended to the board level. In Malaysia, directors can gain greater appreciation on the dynamics of Shariah principles through programmes such as the Islamic Finance for Board of Directors Programme. This specialised Islamic finance training programme builds on the core foundations on corporate governance as set out in the Financial Institutions Directors’ Education programme. Directors would also be exposed to diverse perspectives from within and beyond the Islamic banking community on contemporary issues in the industry.

Let me conclude. The Islamic financial sector has made great strides over the recent decades. The next growth frontier in Islamic finance however lies in realising its potential to create greater socio-economic impact. Values and ethics, strongly instilled would strengthen trust between people and the system. For the Islamic finance industry, the move towards embracing VBI manifests the larger aspiration of Islamic finance. In shaping positive behaviour amongst industry players, Islamic finance can become a leading agent of change and bring about sustainable positive impacts to the economy and society. Translating this vision into reality then requires our collective efforts, steered by strong and capable leadership.

All financial sector is looking for similar values….

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