Value-Based Intermediation in Malaysia - A Preliminary Case Study

The inspiration of the Islamic banking theoretical model has been to serve society and to earn legitimate profits. However, a narrow focus on owners return on equity, at best backed by meagre philanthropic spending on social responsibility, has driven commercial banking and Islamic banking alike operating in the shared conventional ecosystem. In 2017, Bank Negara Malaysia (BNM) introduced a strategic framework for business model transformation of Islamic banks under value-based intermediation (VBI). The VBI initiative seeks to encourage Islamic Banks in Malaysia to shift away from mere profit focus - a single-bottom-line mind-set - to a new triple-bottom-line business model and holistic direction that looks at the impact of banking on people-planet-profit (PPP). Bank Negara Malaysia in collaboration with Islamic banks have formed the VBI Community of Practitioners (CoP) to develop strategies for PPP business model transformation. BNM introduced a number of implementation and follow-up documents. Implementation of VBI is voluntary and the period of the practice is short for any broadened research assessment. However, the VBI initiative, by its strategic goal, is transformative. Therefore, in this research we undertook an assessment of the reporting by CoP participating members to gauge any indications of PPP business model transformation. The study analysed the performance of six Islamic banks as CoP members acting voluntarily. Using the BNM scorecard, through content analysis and qualitative and quantitative measurements, we found visible transformation of business models to a PPP framework while financial returns remained robust. Although very preliminary, the results are indicative of positive impact of VBI. As a result, our findings provide the Islamic financial industry with helpful insight about the benefits of VBI. These findings may encourage other countries to formulate suitable financial sector policies so that more Islamic banks can implement VBI type of initiatives.