Winning praises from its international peers for its value-based intermediation (VBI) approach which placed Islamic banks at the forefront of impact-driven financial services in Malaysia, Bank Negara Malaysia (BNM) continues its VBI endeavor by releasing a framework for the Takaful industry specifically, with three more of such guides to be issued for market feedback over the next few months. VINEETA TAN reports.
The VBI for Takaful (VBIT) Framework serves as a comprehensive guideline in implementing VBI practices and values for the Islamic insurance sector and is relevant to Family Takaful, General Takaful and re-Takaful operators. It is part of the regulator’s wider VBI initiative which began in 2017 with the release of its VBI Strategy Paper. In 2019, BNM published the VBI Financing and Investment Impact Assessment Framework (VBIAF).
The VBIT Framework was launched at the JC3 Flagship Conference — a BNM and Securities Commission Malaysia initiative in partnership with the industry — yesterday during which BNM Governor Nor Shamsiah Mohd Yunus said that the regulator has taken “important steps forward” within Malaysia’s financial industry, and will continue to do so, particularly in five priority areas through the JC3.
“First, we are introducing frameworks for the identification and classification of economic activities that meet climate objectives and are environmentally sustainable. A principles-based taxonomy has been issued to encourage financial flows to activities that support the transition to a low-carbon and climate-resilient economy. With the taxonomy in place, our focus will be to support its consistent and credible implementation within the financial sector,” Nor Shamsiah explained. “These efforts are being complemented by the issuance of sectoral guides under the VBIAF to help financial institutions conduct ESG [environmental, social and governance] risk assessments at a more granular level. Such guides have been issued for three economic subsectors, with three more to be published for consultation by the end of this year.”
The VBIT prioritizes four focus areas: inclusive stakeholder engagement, value-driven solutions, impact-based assessments and constructive collaborations.
“The framework is important to help the Takaful industry to integrate value-based principles seamlessly into the respective business practices. This is in line with the aspiration to achieve inclusive protection for underserved and unserved segments of society and to address relevant socioeconomic issues,” said Elmie Aman Najas, the chairman of Malaysian Takaful Association. “We expect that over time, the adoption of the VBI agenda will have a significant impact on Takaful companies’ models and this will drive the industry toward a sustainable finance ecosystem for the community (people), environment (planet) and economy (prosperity).”
The VBIT aside, the BNM governor also revealed that the regulator is working through the JC3 to develop the Guidance Documents on Climate Risk Management and Scenario Analysis to strengthen disclosure of climate risks; ramping up its engagement and capacity-building efforts; promoting an enabling environment for green financing and investments; and has established a new subcommittee under the JC3 on data to identify and address critical data gaps in climate and environmental risks-related information.