Initiative for Islamic Banks Intermediating Beyond Profits: Value- Based Intermediation

Category: Finans, Impact Investing Date: 14 October 2022

Islamic banking industry in Malaysia is pioneering the sustainability agenda through Value-Based Intermediation (VBI). The concept was generated by the theme of Association of Islamic Banking and Financial Institutions Malaysia (AIBIM) as “Sustainability through Islamic Values”. AIBIM is the  umbrella institution in Malaysia covering all banking intermediaries offering Islamic banking in this country.

When Bank Negara Malaysia (BNM) launched the VBI concept in 2017, it aimed to re-shape Islamic finance business models towards realising the objectives of Islamic finance principles in order to generate a more positive and sustainable impact on the economy, community and environment through the practices, processes, offerings and conduct of the industry players.The intended outcomes of VBI—which builds up in the triple bottom line of people, planet and profit/prosperity—are also compatible with the sustainability agendas shared by the United Nations through the Sustainable Development Goals and the Principles for Responsible Banking.

After the launch of the initiative by BNM, the coming months was really very challenging period for the Islamic Banks  but AIBIM member banks remain committed and intend to further raise their commitment and readiness to intermediate beyond financial returns.

The enabler community/network of the VBI as Community of Practitioners or CoP was initiated with 9 Islamic banks in 2017. Continuing the VBI journey to Year Five, i.e., in 2021, the VBI community made significant progress and continuous growth. As of October 2021, there were 15 CoP members, representing 58% of total AIBIM members. It is a collaborative platform for industry players to strategically advance industry-wide implementation of VBI agenda. The following are their mandates; i. to serve as a single reference point to identify possible impediments related to VBI, spur industry-wide VBI initiatives, iii. to promote continuous industry wide knowledge exchange iv. to expand the pool of expertise and talent in VBI in Malaysia.

As the regulatory body, BNM acts catalyzer role for the adaptation of VBI initiative in collaboration with other stakeholders, by promoting conducive environment for the Islamic Bank Institutions through the following strategies:

  • Nurturing potential champions or leaders to showcase success stories.
  • Enhancing disclosure on the commitment, implementation strategies and key performance indicators (KPIs).
  • Developing strategic collaboration with established value-based communities, key partners and stakeholders.
  • Developing “value-based scorecard” as a common and complementary measurement

BNM issued VBI Strategy Paper for consultation in July, 2017 and set out four VBI underpinning thrusts at the Strategy document. These thrusts are Entrepreneur Mindset, Community Empowerment, Good Self-governance, and Best Conduct to guide the Islamic banking industry in planning, strategizing and launching VBI initiatives and practices in their institutions. Then in 2018 BNM published Strategy Paper for VBI. At the same year BNM issued a) Implementation guide for VBI, b) Consultative Document on VBI Scorecard and c) Consultative Document on VBI Financing & Impact Assessment Framework (VBIAF). In 2018, CoP also began making public disclosures of VBI initiatives in annual report, specific publications, websites and public forums . When we look at the progress of VBI in 2019; VBIAF finalised by BNM, then  Climate-change and Principles-based Taxonomy discussion paper issued by BNM  and Specific products and services aligned to VBI or VBI-themed issued and finally a  number of AIBIM member banks have began to track VBI related intermediation activities and initiatives.In 2020, three VBIAF sectoral guides for the Palm Oil, Renewable Energy and Energy Efficency Sectors developed with the VBIAF Working Group leaded by VBI CoP issued for 3 months’ consultation period. Same working group issued the second cohort of the VBIAF Sectoral Guides on Oil & Gas (O&G), Manufacturing and Construction & Infrastructure (C&I) which provides an in-depth impact-based risk management toolkit for financial institutions (FIs) to implement VBIAF at a more granular and transactional level. These VBIAF Sectoral Guides are in line with the Climate Change and Principle-based Taxonomy (CCPT) issued by BNM in April 2021. The CCPT document, which is applicable to both conventional and Islamic financial institutions, aims to provide a common framework that supports risk assessments of climate-related exposures and that encourages financial flows toward the green economy. It guides CoP members in assessing and classifying economic activities that contribute to climate change mitigation and adaptation.

Implementation of VBI began in 2018 with CVI (Corporate Value Intent as described in VBI Implementation Guide), which articulates institutions’ commitment to VBI and forms the basis for the formulation of all policies and systems from the front office to the back office which includes customer service, marketing, product development, risk management, treasury, compliance, finance, human resource and information technology. The CVI is a framework that provides “a structured mechanism to formulate solid strategic intent, monitor the progression of implementation strategy and measure the end-outcome (impact).

AIBIM delivered first the report with the title of “Intermediating Beyond Profits: Inaugural Islamic Banking Industry Value-based Intermediation Preview Report 2017-2020.” The  report showed the journey of Malaysian Islamic banking institutions in implementing VBI initiatives and the growth of the industry since the early inception of VBI in 2017 till September 2020. Then a follow-up report published as “The Value-based Intermediation 2021 Full Report”. It focuses on mainly the progress of the VBI initiatives from October 2020 till September 2021 (the reporting period). It features the growth of the VBI industry as well as its role in alleviating the financial hardship faced by the unserved and underserved community during the reporting period.

As part of promoting VBI transparency and accountability, in 2021, CoP members enhancing their public disclosures in various reports including the Integrated Annual Report, Sustainability Report and Task Force on Climate-related Financial Disclosure (TCFD) Report. 2021 witnessed significant collaborative  efforts from various stakeholders in Malaysia including outside the financial sector, such as religious bodies, waqf institutions, business industry associations, government agencies, non-governmental organisations and community centres, stepping forward to aid vulnerable communities who have been adversely affected by the COVID-19 pandemic.


VBI represents a unique industry, regulator-NGO initiative to address climate, environmental as well as sustainable development related issues in addition to  consideration of social needs for financial intermediation. The COVID-19 pandemic put spot light on these sustainability concerns for today’s world agenda.


In realising and communicating the fundamentals of Islamic finance, the industry will also focus on value generation and value-based businesses that also considers both people, planet and prosperity. However, these pursuits will be possible with the collective efforts of various stakeholders, including the Government and its agencies, the regulators, and also with the engagement of non-financial sector, such as the waqf institutions, the private sector, and non-governmental organisations.

I would like to emphasize importance of  globalization of the VBI initiative, which is an exemplary application and measurement method, in directing Islamic finance, which has reached an asset size of $ 3.5 trillion, to impact investments and following its development, and its use in other countries. For this purpose, in my visit to the AIBIM team in September 2022, I stated that I would take part as an ambassador in spreading this initiative, which has been systematically and collectively implemented and measured in Malaysia for 5 years, as an example of good practice in other countries. I will be keeping updated the readers of Etkiyap for the developments about the process.



 AIBIM Value Based Intermediation 2021 Full Report

AIBIM Value-based Intermediation (VBI) Preview Report 2017-2020

BNM’s VBI Implementation Guide 2018