Muhammad bin Ibrahim: Evolving the next frontier of Islamic finance
development through innovation
Speech by Mr Muhammad bin Ibrahim, Assistant Governor of the Central Bank of Malaysia,
at the Mock Cheque Exchange Ceremony between the International Centre for Education in
Islamic Finance (INCEIF) and Bank Islam, Maybank Islamic and Affin Islamic, Kuala Lumpur,
15 June 2010.
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Thank you for inviting me to witness the mock cheque exchange ceremony for the allocation
of zakat contributions from Bank Islam, Maybank Islamic and Affin Islamic to the International
Centre for Education in Islamic Finance (INCEIF). This act of giving signifies an exemplary
commitment on the part of these Islamic financial institutions to support human capital
development in Islamic finance. As a leading provider of advanced education in Islamic
finance, INCEIF plays an important role to position Malaysia as a center for innovation and
thought leadership in this field. But INCEIF alone would not be able to achieve this objective
without the continuous efforts and support by all stakeholders within the industry.
Let me make a few remarks on innovation. Few would argue on the role of innovation as the
connerstone to sustaining growth and securing competitive advantage for any organization,
industry, economy and nation. As we have seen in the more recent decades, innovation has
fundamentally transformed the global financial landscape at a very rapid pace. Innovation in
the financial services industry has enabled financial institutions to obtain better insight into
customer needs and correspondingly, develop new and better products to match their
diverse needs, make significant improvements in operational efficiency by improving
processes and business models as well as ensure more effective risk management. It has
facilitated greater financial inclusion by allowing broader access to financial services in many
emerging and developing countries. But the abilities to innovate will very much depend on
the ability to get the necessary talent: the creativity to develop new ideas, the capacity to
absorb knowledge and the capacity to acquire the new skill to turn ideas into results. This
requires a talented workforce as the driving force of innovation. Building such a workforce
would thus become a constant challenge for the Islamic financial services industry.
In the context of Islamic finance, human capital development is all the more important given
that the Islamic finance industry is still relatively in a nascent development phase. There is no
doubt that the Islamic financial services industry in Malaysia has experienced an exciting and
phenomenal growth. The proliferation of competitively priced Islamic financial products to
match the diverse and discerning needs of customers particularly in this recent decade is
quite evident. But we cannot be complacent. What has served us well in the past is unlikely
to serve us well into the future.
We must be mindful that being innovative in this environment of constant change and
heightened complexity in itself is a challenge. Along with technological advancements which
bring about more efficient ways of conducting financial services, globalisation and
liberalization of markets are amongst today's major forces of change that are transforming
the global financial landscape, blurring the geographical borders in doing business and
increasing competition in the financial sector. Moreover, the recent global financial crisis has
brought about several important developments that are shaping the global financial
landscape. One that is relevant is the increasing awareness and appreciation amongst the
international financial community on the distinct nature and inbuilt strengths of Islamic
finance. The crisis thus has provided an opportunity for Islamic finance to strategically
position itself as a stable form of financial intermediation. A few challenges stood before us
- ongoing global reform that is going to change the contour of financial regulation, challenges
associated with a general public distrust on the financial sector, general suspicion on
financial innovation, and constant competition from other financial centers aspiring to take
advantage of opportunities in Islamic finance as a new area of growth.
Against these developments, we need to rise above these challenges whilst transitioning into
the next level of its development. This will require rethinking of existing product structures
and formulating new ones. New products being developed must also be competitive, meet
the greater sophistication of customers' needs and distinct from financial solutions offered by
conventional banks.
As new players enter the industry, the competition for the best talent would become more
intense. Demand will increase for talents in the Islamic financial services industry who are
not only conversant in both fields of finance and Shariah but must also possess soft skills
such as managerial expertise, leadership and effective communication. Thus education and
learning providers must constantly relook at the methodology of teaching, learning contents
and the contemporary skills requirements of the industry. Forging greater collaboration
between industry and academia is also an important aspect to align the training and
development and the business requirements of the industry. We should all be mindful about
the employability of our graduates.
The industry-academia partnership could come in various forms. For example, there could be
more reciprocal dialogues and strategic alliances to explore areas with the aim to provide
real solutions to contemporary issues that are key to progressive development of the Islamic
financial services industry. We should capitalize on our extensive experience in industry
development which makes Malaysia a fertile learning ground on Islamic finance. For
example, our Islamic financial market is vibrant and progressive, whilst our Islamic financial
institutions are innovative and dynamic. Islamic financial institutions could complement
INCEIF's education programmes by offering practical training at their organization. The
opportunity for an attachment at our institutions is an added value to INCEIF's programmes,
and an attractive value proposition for foreign students. On this note, the strong industry
support has indeed been commendable and contributed to the progress of INCEIF. Efforts by
INCEIF to forge strategic alliances with entities from all over the world must also continue.
Today's allocation of zakat contribution to INCEIF by the three Islamic banks is another
commendable act of industry in support of learning. INCEIF has received monetary
contributions from several other Islamic financial institutions since 2007. This has enabled
INCEIF to continuously enhance its internal capacity as the leading provider of Islamic
finance education and knowledge. The contributions are being utilized to create the provision
of scholarships, research and facilities development. In this regard, INCEIF has recently
been accorded the "Project of National Interest" (Projek Berkepentingan Nasional) status.
This status, which accords contributors with tax benefits in the forms of tax rebates for zakat
contributions and tax deductions for non-zakat contributions, will incentivize more individuals
and institutions in providing monetary support to INCEIF. The contributions will indeed go a
long way towards the growth and development of Islamic finance in Malaysia and beyond.
Thank you.