Abdul Rasheed Ghaffour: Opening remarks - World Halal Business
Conference 2021
Opening remarks by Mr Abdul Rasheed Ghaffour, Deputy Governor of the Central Bank of
Malaysia (Bank Negara Malaysia), at the World Halal Business Conference 2021, 9 September
2021.
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Assalamualaikum w.b.t and a very good afternoon to our distinguished guests and fellow
audience. Thank you to the Halal Development Corporation (HDC) for inviting me to deliver the
Opening Remarks today. I wish to congratulate HDC for organising this conference which I
believe will be inspiring and enlightening. The timing of this event could not be better, echoing the
pace of an ongoing global economic recovery. The theme of this conference, "Halal - the
Catalyst for Universal Economic Recovery" spells out the potential for this multi-trillion dollar
industry to facilitate the rejuvenation of the global economy.
Within the global sphere, the prospect of the halal economy is huge. Global consumption of halal
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goods and services is expected to grow at 3.5% annually to reach USD2.4 trillion by 2024 ,
largely driven by the fast-growing Muslim population. Another contributing factor is the rising trend
on ethical consumerism that primarily considers the impact of consumption. This aligns with
the practice of halalan-toyyiban that propagates good, pure, and wholesome elements in
consumption. At a broader level, this is also relevant in addressing growing concerns on
sustainability and climate change in halal production.
These global trends on halal economy present an excellent narrative with enormous prospects
for Malaysia, given our forefront position in the global halal economy. Ranked top in both Islamic
finance and Islamic economy, these trends open up opportunities to marry both of these
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segments . Our domestic halal market is currently valued at approximately RM300 billion,
contributing 7% of the country's GDP. This figure is projected to grow further to RM400 billion, to
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account for 11% of GDP by 2030 . We have observed the increasing prominence of Islamic
financial institutions in supporting the halal sector in recent years. Although only 21.9% of
Malaysian halal-certified companies used Islamic finance in 2018, the number of applications
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from this segment has doubled to 10,800 in 2020, amounting to RM63 billion . Allow me to share
some thoughts on three critical factors that contribute to this positive trend, which I believe will
continue moving forward.
First is the value proposition of Islamic finance that extends the ability of Islamic financial
institutions to offer beyond bank-based credit intermediation. The universal scope of
business under the Islamic Financial Services Act 2013 allows Islamic financial institutions to
mobilise different sources of funds towards delivering meaningful solutions. One example is the
provision of value-added services to SMEs such as marketplace and advisory services in trade
facilitation alongside supply chain finance capability. To date, five Islamic banks are already
offering such services through the HDC's Halal Integrated Platform. I understand that more are
expected to join this digital platform later this year. Another example is the Investment Account,
an instrument which allows Islamic banks to source risk-absorbent capital to fund high-growth
halal business sectors such as pharmaceutical and cosmetics. The ability of Islamic banks to
structure Investment Account in accordance with the risk profile and characteristics of the
underlying assets offers an attractive opportunity for customers to diversify their investment
portfolio across various halal sub-sectors.
Second is the wide network of Malaysian financial institutions in facilitating halal exports to tap
into regional markets. Increasing interest from ASEAN countries which makes up 42% of the
global Muslim population as well as demand from non-Muslim dominated Asian countries such
as Japan, Korea and Vietnam provide a huge halal consumption base for domestic halal
businesses to tap on. Currently, three Malaysian financial institutions have leveraged their
extensive global network and strategic partnerships to assist halal exporters in gaining access to
new markets. Moving forward, Malaysian financial institutions should take advantage of the strong
government-to-government (G2G) ties and multilateral strategic cooperation in the halal sector
between countries to offer Islamic trade finance to halal industry players.
The third factor is the ability of Islamic financial institutions to facilitate businesses to
transition towards more sustainable practices. The underlying concept of Maqasid Shariah which
propagates for the attainment of benefits as well as preventing harm, resonates well with
sustainability principles that call for a balanced, sustainable and inclusive economic growth.
Adopting sustainability practices is imperative to ensure the longevity of businesses. Failure to
take this into account may result in substantial financial loss to the halal industry given that our
trade partners have started imposing expectations on sustainability as preconditions to transact.
For example, Malaysia's top halal export markets (e.g. China, Singapore and Japan) are
signatories to the Net Zero target and non-sustainability practices will lead to an increase cost of
business exporting into these markets.
Malaysia's halal food and beverages segment, which makes up 80% of Malaysia's halal
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production and 86% of total halal exports may be adversely affected by climate change. An
increase in temperature will lower the resilience of the agroecosystem against pests and
pathogens, resulting in lower yields and quality of crops, affecting the supply of raw materials. In
addition, more MNCs are embracing the sustainability agenda compelling halal SMEs to factor in
sustainability as part of their business strategies, operations and decision making. It is heartening
that prominent halal MNC manufacturers have already started imposing sustainable practices
across their supply chain. Nestle for example, has established the Paddy Club back in 2012 as
an initiative to ensure rice used for the company's cereal products is sourced sustainably and
responsibly. Another example is the Sustainability Agriculture Code as a pre-requisite for
suppliers to enter Unilever's supply chain as part of the group's ambition to sustainable sourcing.
Towards this end, the Islamic financial institutions have put together a lot of efforts and resources
in place, underpinned by the concept of Value-based intermediation (VBI) such that financing and
banking activities are in line with sustainability practices. The VBI Community of Practitioners
have collectively issued sectoral guidelines on palm oil, renewable energy and energy efficiency,
that serve as an impact-based risk assessment toolkit to assist financial and investment
decisions of banks. The takaful industry has followed suit with the issuance of the VBI for Takaful
Framework that integrates the principles of VBI into products and business practices that
promote financial resilience and climate risk management.
Conclusion
Before I end my remarks, I would like to touch on the importance of the right skill set that can
future-proof our halal industry. As we navigate beyond the pandemic, leaders in halal business
community have to be agile and forward looking. This includes keeping abreast of the latest
technology and constant up skilling to embrace digitalisation. In recognising the potential of
digitalisation as a key ingredient to assist halal businesses, the Bank provides an enabling
environment for financial institutions to foster innovation such as through the fintech regulatory
sandbox and facilitation of pilot projects. These avenues enable the Bank to identify potential
adjustments or responses to the existing regulatory framework that commensurate with the risk
and scale of activities. The Bank has also established the SME Automation and Digitalisation
Facility (ADF) in March 2020, which aims to encourage SMEs to automate processes and
digitalise operations to increase productivity and efficiency. In March 2021, an additional
allocation of RM700 million has been provided for the ADF, bringing the facility's total size to RM1
billion.
To conclude, Islamic financial institutions have developed into matured institutions that are now
offering a wide range of financial solutions to meet the varied needs of customers. Therefore,
halal businesses should seize these opportunities to better position themselves and embrace
sustainability, as well as digitalisation that aim to provide stronger platforms to rebound as the
economy recovers.
In closing, I would like to share with you an inspiring verse from the Quran, that serves as the
foundation to the key points I have intended to raise earlier. In Surah Al-Baqarah verse 195, Allah
s.w.t mentioned, "And do good, indeed Allah loves the doers of good". So, let us embrace this
message together and put more effort in propagating good, particularly in the way we conduct
businesses, by not just being halal, but also beneficial to the environment and society at large in
line with the commandment of Allah s.w.t. Let us begin this today, here at the World Halal
Business Conference 2021.
Thank you and I wish everyone a pleasant and productive conference.
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Source: Dinar Standard, The State of Global Islamic Economy 2020/2021
2
Halal food, Islamic finance, Muslim-friendly travel, pharma and cosmetics
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Source: HDC HIMP 2030
4
BNM internal survey
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Source: HDC Vibes issue 06/2021