The Bank’s interest thus has a stimulating effect on the economy, and note that real interest rates at present are lower than they have been since the spring of 1996. It should  BIS Review 12/2003  1  also be borne in mind that changes in interest rates only affect demand and inflation with a considerable time lag, so that the full effect of interest rate cuts in recent months will not be felt for some time yet. ISK exchange rate No one doubts the importance of the ISK exchange rate for the Icelandic economy. The exchange rate has enormous impact on price levels and the performance of the export and competitive sectors. On the other hand, people must realise that the Central Bank has only limited long-term effect on the exchange rate. Many aspects of the economy affect the exchange rate. These include, for instance, foreign trade, foreign investments in Iceland and investment by Icelanders abroad, not to forget expectations of future economic developments. There is little doubt that expectations concerning power-intensive industry developments have influenced the exchange rate in recent months. Interest rates certainly affect the exchange rate, but experience both in Iceland and elsewhere shows that this effect eventually disappears, as long as monetary policy aims at maintaining long-term inflation comparable to that of the country’s trading partners. At the same time, intervention by central banks can have a temporary impact.

VBI encapsulates the industry’s vision to be more impact driven, reinforcing the overarching intent of Shariah to promote good and prevent harm on the people and planet, which closely aligns with the global shift towards sustainable finance and ESG. Through the VBI initiative, Islamic financial institutions have also been spearheading the sustainability agenda. Digitalisation can further this cause, helping Islamic Finance unleash its full potential in striving towards fully embracing and adopting VBI to contribute meaningfully towards an inclusive, sustainable and impactful growth. There are two main outcomes for which digitalisation can be deployed to create winning strategies for Islamic finance. Firstly, technological advances can reduce operational costs therefore allowing Islamic financial service providers to reach the underserved and the unbanked with more affordable digital financial services. High mobile penetration and internet usage, the shift towards e-commerce and increased usage of e-payments are all important trends that hold great promise to bring financial inclusion in Malaysia to the next level. Coupled with new technological advances such as cloud computing, artificial intelligence (AI) and data analytics, financial services providers are now able to better assess creditworthiness using real time and alternative data, thereby overcoming the traditional obstacle of making sound credit decisions for customers who lack collateral and credit history. In the same vein, the deployment of telematics, internet of things (IoT), affordable usage-based insurance (UBI) and other value added services open up scope for the takaful industry to create efficiencies whilst addressing customer demand, further closing the protection gap of the Malaysian population.