2020 was no doubt a challenging year for all countries worldwide due to the outbreak of the COVID-19 pandemic and Brunei Darussalam was no exception. Despite the difficulties faced during the ongoing pandemic, Brunei’s Islamic financial institutions remained strong and continued to find ways to grow, as well as contribute to society through various corporate social responsibility drives.
Brunei has maintained its ranking as one of the top 10 performing Islamic financial markets out of 131 countries as reported by the IsDB in the ‘ICD-Refinitiv Islamic Finance Development Report 2019: Shifting Dynamics’. The report, which took into account data accumulated in 2018, revealed that Brunei scored 45 points in the Islamic Finance Development Indicator index, ranking it tenth in 2019, and third in the ASEAN region, after Malaysia and Indonesia.
Review of 2020
The government of Brunei and Autoriti Monetari Brunei Darussalam (AMBD), as the central bank of the country, were cognizant that the country’s people and the business sector would need assistance to weather the unprecedented pandemic, as well as to ensure any potential negative impact to the economy would be alleviated.
With effect from the 1st April 2020, the government, in collaboration with AMBD and the Brunei Association of Banks (BAB), launched an economic relief package valued at BN$250 million (US$186.74 million). This multipronged package included the deferment of principal payments for loan/financing of up to a year; exemption of fees and charges for deferment and restructuring applications for all businesses and individuals who had been affected by the COVID-19 pandemic. Further, outstanding balances on credit cards were allowed to be converted into term loan/financing for a period not exceeding three years for affected banking customers working in the private sector, including the self-employed.
Contemporaneously, in an effort to encourage social distancing and minimize physical visits to banks, AMBD with BAB agreed that online local interbank transfer fees and charges were to be waived for six months for all customers. The general public was encouraged to utilize existing digital payment platforms offered by banks and other payment system providers. As part of AMBD’s continued support of the government’s efforts in containing the pandemic, AMBD and BAB agreed to extend the waiver for online local interbank fund transfer fees and charges to all bank customers for another six months with effect from the 1st October 2020.
Like many other businesses, the financial industry, including Islamic institutions, was not spared from the impact of the pandemic as the institutions operated at different sites for business continuity, heightened their credit and risk monitoring, experienced reduced income due to lower investment returns and there was lower loan/financing demand as people were curtailing or postponing some non-essential activities. Nonetheless, the banking sector benefited from prudent regulation that ensured capital buffers were sufficient to ensure resilience during the pandemic.
As a result of the pandemic, the Takaful sector was also negatively affected especially those Takaful operators offering workmen’s compensation, savings products and travel insurance. However, certain business lines like those offering car insurance and certain Takaful products continued to thrive.
Supervision of Islamic financial institutions in 2020
One of the key developments for Islamic finance regulation was the strengthening of compliance to the Syariah governance framework. AMBD has conducted onsite examinations to validate the self-assessment compliance of the Islamic financial institutions in Brunei to the Shariah governance framework and internal Shariah audit framework.
As part of AMBD’s commitment to improve the supervisory regime for the protection of Takaful policyholders in Brunei, AMBD issued six regulatory instruments (notices or guidelines) for Takaful operators, covering the establishment and maintenance of Takaful funds, re-Takaful management, recovery plans, online distribution and the surplus distribution of Takaful operators.
Additionally, in terms of the development of Islamic finance in Brunei, in line with the Brunei Darussalam Financial Sector Blueprint 2016–25, AMBD introduced the AMBD Islamic Bills Programme (AMBD I-Bills), of which the inaugural issuance was made on the 22nd October 2020. AMBD I-Bills are based on the Shariah concept of Wakalah Bi Ujrah, the first of its kind in Brunei.
Preview of 2021
AMBD is in the midst of reviewing and conducting industry consultation for the Guidelines on the Islamic Product Approval Process to enhance the approval process for product application by Islamic financial institutions. AMBD will also continue to issue Shariah standards and parameters for the Islamic financial institutions to provide them with a reference on the Shariah rulings associated with their respective Shariah concepts. By doing so, the Islamic product approval process promotes end-to-end compliance with Shariah requirements, with the ultimate aim of ensuring sound industry practices are implemented throughout the life cycle of Shariah products offered in Brunei.
AMBD will continue to explore other areas to be developed to promote the development of Islamic finance in the country as outlined in the Brunei Darussalam Financial Sector Blueprint (2016–25) in particular through fintech development, research capability and human capital development.
Pengiran Sri Joedianna Pengiran Mohammed is the executive director of macroprudential policy and financial surveillance and the head of corporate planning and development at Autoriti Monetari Brunei Darussalam. She can be contacted at [email protected].