Islamic Finance System Gains Momentum in Malaysia’s Financial Sector
Malaysia’s central bank, Bank Negara Malaysia (BNM), has been working tirelessly to develop the Islamic finance industry by creating a conducive environment for Shariah-compliant financial products and services. One of its key initiatives is promoting the use of digital technology in Islamic banking.
Licensing Framework for Digital Banks
In December 2020, BNM introduced the Licensing Framework for Digital Banks, which provides a simplified regulatory framework for digital banks operating in Malaysia. This framework aims to enable innovative financial institutions to provide Shariah-compliant products and services to the public.
- The framework requires digital banks to comply with equivalent regulatory requirements applicable to incumbent banks after the foundational phase.
- It also allows digital banks to operate with an asset threshold of not more than RM3 billion for three to five years during their initial stage of operations.
Successful Applicants
In April 2022, BNM announced the names of five successful applicants out of a total of 29 applications for digital bank licences under the Financial Services Act 2013. The assessment criteria used in evaluating the applications included factors such as:
- Character and integrity
- Financial resources
- Business and technology plans
- Ability to address financial inclusion gaps
The successful applicants will undergo a period of operational readiness that will be validated by BNM through an audit before they can commence operations. This process is expected to take between 12 to 24 months.
Promoting Financial Inclusion
BNM Governor Tan Sri Nor Shamsiah emphasized the importance of digital banks in promoting financial inclusion, stating:
“Digital banks are expected to further advance financial inclusion. By adopting digital technology more widely for everyday transactions, we can significantly increase opportunities for our society to participate in the economy.”
The successful applicants will play a crucial role in enhancing access to financial services throughout the country and across all segments of society, in accordance with the five strategic thrusts outlined in the Financial Sector Blueprint 2022-2026.
Conclusion
Malaysia’s Islamic finance industry has made significant progress in recent years, with BNM’s efforts aimed at promoting Shariah-compliant products and services. The introduction of digital banking licences is expected to further enhance financial inclusion and provide more opportunities for individuals and businesses to participate in the economy.
As the industry continues to evolve, it is essential that regulators and stakeholders work together to create a conducive environment for the growth of Islamic finance in Malaysia.