Value-Based Intermediation Report 2023: Maqāṣid al-Sharīʿah in Islamic Banking

The Value-based Intermediation Report 2023 is the fourth in the VBI Report series published by AIBIM, which tracks the progress and impact of VBI initiatives within Islamic banks in Malaysia and shares the outcomes with stakeholders. The Financial Sector Blueprint (FSB) of Bank Negara Malaysia (BNM) provides foundational support for promoting VBI among Islamic banks, emphasising the integration of value creation into core operations rather than treating it as secondary to profit-driven objectives. In line with this national aspiration, this year’s report reveals continued growth in VBI adoption by Islamic banks in Malaysia, with a particular emphasis on small and medium enterprises (SMEs), micro-SMEs (MSMEs), and net- zero and green financing. The data covered in this report is from January to December 2023.

As maqāṣid al-Sharīʿah serves as the foundation of the VBI framework, this report reexamines its interpretation within Islamic finance and strategies for its advancement through VBI. The report also presents insights from industry pioneers and leaders on promoting both maqāṣid al-Sharīʿah and VBI. It captures their understanding of VBI, efforts to align VBI initiatives with national agendas, and strategies for maintaining VBI momentum in an ever-evolving ecosystem. The findings reveal the strategies adopted, identify challenges to be addressed, and provide recommendations to guide the industry forward. The report concludes with a roadmap for implementing VBI, aiming to transform recommendations into actionable steps.

The report finds that Islamic banking has evolved well beyond mere replication, with VBI significantly enhancing its scope and impact, leading to more comprehensive and refined practices. VBI encourages Islamic banks to fundamentally rethink their roles and responsibilities in society, broadening their engagement beyond limited corporate social responsibility (CSR) efforts. It has transformed how Islamic banks operate, shifting their focus from profit generation to a more inclusive model that prioritises social impact, demonstrating that banks can effectively combine profitability with purpose.

Additionally, although the report highlights that VBI activities have been steadily growing, challenges remain regarding consistency in implementation and clarity in reporting practices. It offers several recommendations, including the development of standardised metrics for reporting VBI contributions, raising awareness among stakeholders, and creating innovative financial products that align with VBI principles. The report emphasises that collaborative efforts from Sharīʿah scholars, research institutions, and industry stakeholders are critical to actualising VBI in Islamic banking practices.

The information, data, and findings in this report are primarily based on surveys conducted by AIBIM and the ISRA Research Management Centre, encompassing all AIBIM member banks. While every effort has been made to present a comprehensive report on the growth of the VBI initiative, it is important to note that the findings depend on the responses received from AIBIM member banks.