STEERING INDUSTRY SUCCESS
DATO’ REDZA President & CEO of AIBIM - Association of Islamic Banking Institutions in Malaysia
BY ADAM FEDZEL
EDITED BY NORZALENA ZAKARIA
Q1
IBA : Why was AIBIM was formed and what was the aims?
DR : AIBIM is an Association of Islamic Banking Institutions in Malaysia. We are first formed back in 1996. Basically, the main objective of AIBIM is to represent the interest of all member banks who are involved in Islamic banking industry. We work on the promotion on establishment of some Islamic banking systems and practices, and corporation consultation, even standardisation of doing things. This are among the things we do, and we also do a lot of engagement with the public in terms of meeting of Islamic banking and educating Islamic banks. We also have the objective to protect member banks looking at issues which are current with the industry as the industry is very young. As we go, there will be issues and regulations which we have to overcome. And as part of the industry we get together and get opinion from each other and work as one voice.
Q2
Basically AIBIM promotes educational and trainings in terms of trying to co-create Islamic banking expertise here. We don’t specifically go into it but certainly get involve in it. We also participate in cross-border transactions with our counterparts whereby we bring our member banks to do it. We do awareness programmes, workshops, roundtables, seminars and conferences online. We also look at industry issues. Where there is an industry issue, we are the coordinator to get one voice from the industry on to how to advance further.
IBA : Who are the members and stakeholders of AIBIM?
DR : Currently we have 24 member banks - domestic banks, international financial institutions; we have locally incorporated foreign banks, development financial institution. This are the categories of our members. On domestic banks, they are all local domestic banks such as Affin Bank, Alliance Bank, Bank Muamalat, Hong Leong Bank, and Public Banks. For international financial institutions, we have Alkhair, Bank Muamalat Indonesia. And some examples of locally incorporated foreign banks, we have Al-Rajhi, Asian Finance, Lariba, Bank of Tokyo, even Citibank, HSBC Amanah, Kuwait Finance House, OCBC, and Standard Chartered. We have development financial institution as our members, we have Bank Rakyat, and Bank Simpanan Nasional. We are increasing our members, as Agrobank will be coming onboard, which will be coming in January and then MBSB, Malaysian Building Society Berhad. So, mostly our stakeholders are also including the regulatory bodies and Bank Negara, and also the general public.
Q3
IBA : What is the role of AIBIM in the development of Islamic banking in Malaysia?
DR : Basically AIBIM promotes educational and trainings in terms of trying to co-create Islamic banking expertise here. We don’t specifically go into it but certainly get involve in it. We also participate in cross-border transactions with our counterparts whereby we bring our member banks to do it. We do awareness programmes, workshops, roundtables, seminars and conferences online. We also look at industry issues. Where there is an industry issue, we are the coordinator to get one voice from the industry on to how to advance further. We are also trying to engage with AIBIM member banks overseas. Our ultimate objective is also to have an ASEAN collaboration where we are are able to bring the ASEAN nations together. Islamic banking is not about the inclusion, the more they ... the more the engagement with counterparts then the more opportunity for you to grow and expand. So we would like to see our neighbours across regions to get involve in islamic banking and the way to do it is to help them. We have very good relationship with ABSINDO. We also have certain issues with their regulatory authority and they want to know how it is done and we teach them and likewise, we can also learn from our counterparts. This cross border is something that is important for us.
Q4
IBA : Do you think Islamic banks in Malaysia have done enough in social responsibility. What more can be done.
DR : I believe that Islamic banks in Malaysia have done quite a bit in term
of social responsibilty. What they have not done is actually publicising. And a lot of these banks do not publicise social responsibility initiatives that they have done. Some of them like to do their social responsibilty internally. But actually, as we move along, they will see how the market looks at banks. They look at bank everyday banks make more and more money. So actually banks need to change their perception not too shy about publicising their social responsibility because then the society will go and match for example, Bank Rakyat’s record profit and questioning what are their social responsibility whether they are contributing and the amount allocated. For example, Bank Rakyat bought a lot of van jenazah and gift it to the mosques to help out. Bank Muamalat also involved actively in social responsibility . We collected Waqaf on behalf of the Selangor State Government. We collected almost 2.5 million waqaf for them. These are few examples, but I guess that Islamic banks does not publicise enough for society to know what we do. Some of them also give zakat to the Perbadanan Zakat and the money is then channel to pusat zakat. They don’t do the CSR themselves. Some of the bank contribute half of the zakat to the agency hut the other half, we do our own CSR programme. That is when you can see the programmes but I must that Islamic banks especially full-fledged Islamic banks such as Bank Islam, Bank Rakyat, Bank Muamalat, they have actually done their parts in terms of CSR. Nowadays, you can see banks like Affin Islamic Bank had come forward and sponsored some of educational programmes on tv. It is encouraging to see that is happening. And I think moving forward with CSR element with the different Islamic banks will have over other institution. In other words, this stressed that Islamic banking
is about ethical banking, it is about being responsible, it is about being transparent. So, corporate social responsible is a little bit of an extension and this will be cutting edge of Islamic bank moving forward.
Q5
IBA : How can the momentum of Islamic financial industry as being a transformational agent is sustained?
DR : I think in terms of that being the transformational agent is not only about the principles of Islamic banking but it is the ability to match and out-class your competitors in the market and this is where Islamic banking need to update their service standard and their ability in terms of IT and R&D that we do and their production innovation and development and this will help them to move to the next level. But if they just sitting comfortably where they are and do not match or and being less competitive as their conventional peers, transformation will not be achieved. So banks need to accelerate their strive although we can see the growth but the growth is getting slower with the previous being at 25%, decreasing to 20% and now it has gone further down to 17%. But the growth is stil there ane I believe that is because the base is getting larger. But I believe that if done properly with proper service standards and proper product innovation, I think Islamic banks are here to stay and further grow.
Q6
IBA: One of the key challenges in Islamic banking institution is the failure to attract knowledge base workforce with the skills required to enhance innovations, productivity and performance. What role does institution such as AIBIM plays in
overcoming this challenges?
DR : I think it is necessary to attract workforce with relevant skills and we recognised it and the best part is our regulators, Bank Negara plays a very active part in this issue. I represent AIBIM in some of the learning institute that is created by the central bank, for example, IBFIM. I am one of the board members there and some of our members are also board members in educational institution such as ISRA and INCEIF as well. There is industry representation in some of this training institutes that have been set up by regulators and they invite us to work together with them. That helps in terms of getting the required skillsets. We are working towards creating the Association of Chartered Islamic Financial Professionals and this is to give certification and accredition for Islamic financial professionals. It is based on global standard quality equivalent to ACCA or Chartered Accountancy. We will have a Chartered Islamic so that the standard are kept and across the association we will agree that if if you want to have this position or you want to carry this responsibilty, you must be an ACIF member. All of us in the industry agree that we need to raise the bar and impose the standard. That is something that we are working towards. We are working together with the central bank as well on this initiative.
Q7
IBA : What do you think are the roles of academic institutions in Malaysia in producing for Islamic banking industry?
DR : I believe they play a big role in terms of producing the adequate human skills for Islamic banking industry. They are many institution that are already indulging in this effort. UIAM is one of the pioneer and then you have other
Right now we can see people moving away from conventional banking into Islamic banking due to the government support in the activities of Islamic banking. But in order to achieve the target, I think the product innovation, management and competitiveness need to be there. I think we will get to 40% or 50%. It is a matter of... whether it is 5 years or 15 yesrs, but I rather it happens in 5 years.
universities. At Bank Muamalat, we collaborate with USIM. And this cabinet institutions, they don’t provide the necessary skillsets but once they have the ability to do which some of our institution youth, they have the ability to conduct research for us as we don’t have time. If we said we wanted to know what is the public perception on a product, for example on Musharakah... , what do the public think of it. They can do the research and present on their findings. We created the instution not just to provide skillsets but we are looking at providing the research. We have not gone extensively in this area yet, which need to be develop further. If all Islami banking institution support some form academic institution, they will be more and more quality research that wil help the industry to grow further.
Q8
IBA : What do you think has contributed to the ... Islamic banking worldwide?
DR : I the think that the growth of Islamic banks probably really started in Malaysia when the government took the initiative of having the Islamic banking market. One if the important parameters is the ability to have equality in the market. The ability was created by our government and when the capital market improve then, thàt is when the market started growing and then we can join in other parts of world. Islamic banking is based on a very simple principle. Sometimes, people talked about what is Islamic banking do. But I should talk about what Iskamic banking do nkt do which is more attrctive. Islamic banking does not go into derivatives, Islamic banking do not go into unethical economic activities for example, gambling, horse racing, and all those sort of things. Islamic banking industry
is a very simple relationship are usually if you take that relationship further, it involves profit and loss sharing. That will not impact upon the customers level, it does not impact on the economy as a whole. Frankly on this, this was what took the growth of Islamic banking, the simplicity, transparency and some of ethics. That was lacking and getting worst in the conventional market. The drive for profits, the drive for ..., which lead them to come up with products and derivatives, all to enhance their profits. Where Islamic banking take in a simple true form. The easier and better things to go into is the simple form of financial intermediation that Islamic banking do.
Q9
IBA : Do you think the Islamic banks in Malaysia need to increase their market penetration. If so, how can they achieve this?
DR : Most certainly that Islamic banks in Malaysia need to increase their market penetration. Today our penetratiin rate is at 24 or 25% of the market. And if we look as a whole, there are more than 50% muslim in this country. What Islamic banking industry to grow to a level of at least 14 to 15% in terms of population growth but of course we have the economic demographic which is not quite the same. However, this currently still growing and we should target a figure of about 50% in the next ten years. And right now we can see people moving away from conventional banking into Islamic banking due to the government support in the activities of Islamic banking. But in order to achieve the target, I think the product innovation, management and competitiveness need to be there. I think we will get to 40% or 50%. It is a matter of... whether it is 5 years or 15 yesrs, but I rather it happens in 5 years.
Q10
IBA : The Security Commission seems to position Malaysia as an Islamic Wealth Management Centre. How can AIBIM contributes towards making this a reality?
DR : we really support the approach of the SC in bringing Islamic Wealth into Malaysia and I believe that Malaysia should be the leader in Wealth Management industry in the world. I think Islamic banks really can be used as channels to sell wealth management products through their network reach and really help on that. We, on our part encourage a lot of this type of activities. What we do by providing trainings on the wealth management subject and encourage on the discussion on any critical industry issue related to WM, finding solution to overcome the issue. Certainly, this is a global area and good income earning potential for the industry and we are looking at...
Q11
IBA : The current level of .... Islamic finance market has been lauded off. What is your opinion on how ... given rise to this?
DR : One of the major ... Malaysia financial has got to.... is because of the government and the mentality. The government and central bank including the Securities Commission play a very critical role. They will look at the whole question in terms of capital market. So, when they look at in terms of... and in terms of capital market, they actually creating the whole financial web which is able to garner and grow. This is where Malaysia, when you have issue on tax, issue on legal. On top of that, they built a Syari’a Advisory Council at the Central Bank which asist the industry is enabled. They also have training centres that be built. With all that structure