Upholding the Sanctity and Benefits of Islamic Banking

An exclusive interview with Mr Mohd Muazzam Mohamed, CEO of Bank Islam Malaysia Berhad

In pursuance of strengthening its role as a financial institution that pioneers social finance solutions, Bank Islam Malaysia Berhad (Bank Islam), on 25 November 2020, launched the BangKIT Microfinance. Funded by sadaqah instrument, this innovation mitigates the economic fallout of the COVID-19 pandemic, which is the first of its kind in Malaysia. The launch was officiated virtually by Y.B. Dato Sri Mustapa Mohamed, Minister in the Prime Minister’s Department (Economy). Also present were Tan Sri Dr Ismail Hj Bakar, Chairman of Bank Islam; and Mr Mohd Muazzam Mohamed, CEO of Bank Islam. 

An Ambitious Leader

Behind every successful organisation is a leader that has contributed tirelessly and found unique ways of using their eclectic experience. While many people know, not everyone has the skill to apply their knowledge diligently and to customise it to suit the specific needs of the volatile business landscape. A successful leader compiled their mistakes and accomplishments over the years to cultivate a balanced and wise understanding of themselves and how to achieve their ambitions. We spoke with Mr Mohd  Muazzam  Mohamed,  CEO  of  Bank Islam Malaysia Berhad, about his personal and professional experience with Bank Islam, to catch a glimpse of the remarkable journey.

Reflecting on his past, Mr Mohd Muazzam spoke humbly, explaining the steps it took to reach his current position. Most notable was his emphasis on using his current position to enhance social benefits and contribute to a better world. He graduated in accountancy from the International Islamic University Malaysia in 1996. At that time, Islamic banking and finance were still developing in Malaysia. Bank Islam was the only source of reference for Islamic banking back then, and that was his initial introduction as Mr Mohd Muazzam was researching to develop a clear understanding. He had much interest in the subject and attended/conducted seminars on Islamic banking. In fact, many of those who developed Islamic banking in the country were his lecturers. Through them, Mr Mohd Muazzam had the opportunity to engage in debates and research about various relevant topics on the field.

Following graduation, he went on to join KPMG. From 2004 to 2006 he was an external auditor of Bank Islam and was also doing advisory on financial services, simultaneously gaining  valuable knowledge and skills. Mr Mohd Muazzam joined Bank Islam in 2015 as CFO, remembering that he said, “It was a different Bank Islam compared to what I saw in 2006 because it went through a transformation journey.” In 2018, he moved to the position of CEO. “Even though I was not always a banker, it is a subject that is close to my heart. I studied about it; I understand sufficiently. However, in terms of my perspective, it is slightly different. I grew up in a consulting kind of environment, and probably that is what I brought in and was able to contribute to the institution.”

On a personal level, Mr Mohd Muazzam is disciplined. He highlighted that this trait is fundamental in consulting firms, so he was able to adopt it in his leadership style. “I was able to infuse it over here to strengthen the culture. From the perspective of service orientation, consulting also gave me a good grasp of finance, strategy and also technology. When I was back as a management consultant, the technology advisory group was also reporting to me.” Reflecting on the journey, he remarked, “Looking back at what Bank Islam did in 1983, many people followed our footsteps. The important thing is to have many people joining to offer more banking services. Today, we have got a good, young and energetic team. I always like to say this, what we have here are people whose hearts are in the right place, and they want to do the right thing.”

Speaking of the dedicated staff in Bank Islam he said, “All we need to do is give the direction of what we want to do, where we want to go, and they will do it because everybody is so dedicated. Bank Islam is such a big and unique institution. The challenge for us is how to turn something good into something great.” Mr Mohd Muazzam asserts that they are all committed to achieving this greatness. He always puts in the maximum amount of focus and effort to use the time as best he can. “From the first day I stepped into this organisation, I wanted to be able to lead this organisation better than when I joined it.”

“That means that I would have contributed to it. Hopefully by the time we leave, it is a better place than when we joined. So I think in terms of the contribution and that will be my aspiration and personal goal for the organisation. What we do is what we believe is good for not only for the organisation but also for the Ummah as well. This is not something for just Bank Islam to do, but also for the other financial institutions.”


“You cannot be quiet or shy about the good things that you have. Other people need to know about it to follow our footsteps.”


A Pioneer in Islamic Banking

There are rewards and challenges in becoming the first to do something. Bank Islam has been in a position to pave the way in Islamic finance and continues to take on more challenges and initiatives. “As we move forward, it is important to understand our roots and the expectations resting on our shoulders, as aspired by the country.” Malaysia is a Muslim-majority country and needed an alternative to the conventional banking system based on Riba (interest). This goal started the aspiration in the 1950s.

Initially, Tabung Haji was established as the first Islamic financial institution that accepted savings. It allowed people who wanted to go for Hajj to be able to invest with Shariah-approved instruments. In the 1980s, scholars began to look at the framework for an Islamic bank to be established in Malaysia. Some research made and translated into Bank Islam, established in 1983. It started small with about 30 staff. That later grew to about 300, with four branches. Today Bank Islam has 144 branches throughout Malaysia, with more than 4,600 staff.

As the first Islamic bank in Malaysia, they have had many firsts achievements, such as helping with the first issuance of Islamic Sukuk. With the continuously enhanced capabilities that have developed over the years, the bank feels a need to share the knowledge and experience with the other banks in Malaysia. Bank Islam decided to establish the Institute of Research and Training (BIRT), which later became the Islamic Banking Financial Institute of Malaysia (IBFIM). It remains a training centre that, until today, produces Islamic finance professionals.

Additionally, through the bank’s wholly-owned subsidiary BIMB Investment, Bank Islam became the first in the world to offer ESG-Shariah and ESG-compliant fund management, which provides funds that are both ESG-compliant and Shariah-compliant.

Mr Mohd Muazzam went on to explain that “What is more important is that we offer that through machine learning and artificial intelligence. The fund management is done by a set of rules and computing. We use big data that enables us to go through financial and non-financial information about the investment universe that we have.” He highlighted that Bank Islam is one of the founding members that started this integrated intelligent platform. It has transformed Islamic banks from being credit intermediation to investment intermediation, offering investments through online platforms.

In 2017, when Bank Negara launched the Value Based Intermediation (VBI) principle applying to Islamic banks, Bank Islam was one of the first banks to adopt it and one of the committee practitioners. They embedded it in the business model starting from 2018 onwards, and that has led the bank to where it is today. “The VBI principle is embedded in our business model,” said Mr Mohd Muazzam adding that, “It focuses on creating value and sustainable impact through a structured framework, especially in response to changing economic, social and environmental conditions.”

Beyond Shariah Compliance

Shifting from one standard system to another requires a high level of strategic planning, patience and vision. The Government envisioned Islamic finance to be the mainstream and since Bank Islam was the first to be established, there was a compelling need to further accelerate the development of innovative, Shariah-compliant products and services. For that to happen, Mr Mohd Muazzam emphasised that “there is a need for more than just one player in the market. That is why Bank Islam was the one to set up the training institution, to produce more Islamic finance professionals.” Many of those experts are currently leading Islamic banking ventures in several financial institutions across the country. This selfless act of Bank Islam resulted in the rapid growth of Islamic banking offerings over the past three decades.

Mr Mohd Muazzam discussed the need to keep moving forward as Shariah-compliance is no longer a sole distinct advantage of Bank Islam. It is indeed a positive point that other banks now offer Shariah-compliant products and services. He says, “It also means it is important now for Bank Islam, and the Islamic financial industry as a whole, to start to show the value of what they offer and the kind of impact they create.” He asserts that it is not just about profit maximisation. “We need to look from the perspective of fair and equal distribution. How do we share prosperity with the bigger group? How do we empower our community? These are important for Bank Islam.” As the bank moves forward, they want to be able to demonstrate that to express the beauty of Islamic finance.


“We want to be the bank that advances prosperity for all.”


The fact that Bank Islam complies with Shariah principles and firmly established, they want to focus on ways to expand their offerings. “We want to be the bank that advances prosperity for all, and when we say ‘all’ here, it means across different stakeholders that includes our customers, employees, shareholders, the regulators and community. When we talk about for all, it is also about the preservation of the environment. The elements of ESG—the environmental, the social, the governance—are all fully-embedded within what we want to pursue.”

This goal started the push for Bank Islam’s social finance agenda in 2018. “Social finance is about how we use our financing facilities and financial instruments to be able to support causes that have social impacts that ultimately can lead to socioeconomic returns, not just financial returns. It is meant to look at a different way for us to raise our capital and work in an ecosystem with the involvement of non-profit organisations and non-governmental organisations. It will let us focus more on the underserved and the unserved. The idea is that we can help to enable the unserved to be in the mass market and to nurture the unbankable segments to become bankable. It can be achieved through the provision of training, assistance and mentoring. That is what we are now trying to achieve beyond the early days of just looking at Shariah-compliant contracts and products.”

Instruments for Social Finance

When we discussed the pioneering developments of Bank Islam, it was evident that Mr Mohd Muazzam views success as an ongoing activity that requires constant assessment and ambition. While the accomplishments of Bank Islam are well-known, they are avidly pushing forward in new developments based on what the community needs. Such openness to engaging with the latest technology and using it to target the needs of the underserved segments of society is the type of strategy that allows an organisation to grow while staying true to remaining a pillar of support. He explained why Bank Islam feels that digitalisation and technology are important and how the bank is incorporating it into their activities.

“FinTech plays an important role for us because Bank Islam, wants to be the bank that advances prosperity for all. To achieve that, we need to provide solutions that deliver value. Meaning that it has to help solve customers’ and the community’s challenges, as well as serve their needs. In achieving that, we focus on the six areas of importance; we call it the six building blocks or six strategic objectives.”

He went on to provide an overview of these six objectives. The first objective is sustainable prosperity. “At the end of the day I can talk about social finance, but we are a bank, and there is a need for us to ensure that our financial position is strong, our capital is strong, and our liquidity is strong because these are the base. Without a solid base, it is difficult for us to achieve all the aspirations and good things that we want to do. Therefore, we put it very clear, sustainable prosperity. Alhamdulillah, so far, Bank Islam is one of the top achievers from the perspective of good credit in terms of strong capital, strong liquidity and all that.”

The second objective is the bank’s values-based culture, including the people, the behaviour and mindset. The third important objective is customer centricity—putting customers at the centre, and identifying who they are, what they need and how to serve them. Mr Mohd Muazzam says, “the other area is community empowerment. How we conduct and promote our business, at the same time, ensuring inclusiveness and providing support to the community where we operates is very important to Bank Islam.” Additionally, it is crucial to focus on the real economy and real economic activities. It is where, for example, Bank Islam needs to be able to assist small entrepreneurs and micro-entrepreneurs.

The final objective is digitalisation. When Mr Mohd Muazzam talks about digitalisation and technology, it is not just for social finance. It is for the bank. He engages in explaining why it is so important. “It is an enabler for us to create an ecosystem, where we involve various parties to come together on a single platform. This will ensure seamless management and distribution without the constraints of physical and geographical boundaries. One of the things that we are trying to do in terms of financial inclusion is to have an ecosystem whereby you can have small entrepreneurs there, and you have a bank that can help to facilitate payments, provide financing, etc. We can have agencies that can help to do marketing and export for domestic products being able to go overseas.”

Technology and digitalisation go together, and they are counting on this to connect people in an ecosystem, enabling even the small players to engage. It would have been unachievable 20 years ago, but now it can come to fruition. Service delivery has evolved. In the past, when Bank Islam wanted to do specific projects, the only way to service a customer was by having a physical presence. It is why some segments of society remained underserved. Physical presence in remote areas where there is not enough in terms of volume, business and customers is challenging. However, technology presence can become a reality without having a physical branch in such areas, as long as there is access to data services.

Bank Islam is now able to service segments no matter how rural they are. In Malaysia, internet penetration is already relatively high. He explained that “We are using it from the perspective of being able to reach out the underserved and being able to bring them in by using technology. The other important criteria are also that technology now enables transparency. Coming back to our social finance agenda, for example, we also do matching in a way that we fundraise, and we channel it through our changemakers to support certain projects that benefit certain segment of recipients. Through technology, contributors and donors will know where their money goes and what happened to the project that they wanted to support.”


“Bank Islam is now able to service segments no matter how rural they are.”


Speaking of the ongoing pandemic, which has affected all aspects of people’s lives, a possible solution that can reduce its impact is sadaqah (donations), whereby collection becomes easier and faster with the advance of technology such as crowdfunding platforms and internet banking. Amid the pandemic, many organisations and community-based institutions have raised sadaqah through digital technology. That increases transparency, and further enforce confidence and help to raise funds. “It is the reason for the establishment of our Sadaqa House. We also use this electronic platform for our crowdfunding, it has its own website and user-friendly features. You can log in and know what projects are listed, who the changemakers are, and look at their progress and how much financial contribution is required.”

Various assistance has been provided using sadaqah funds, including healthcare facilities, necessities and cash. Since beneficiaries of sadaqah are broader compared to Zakat (compulsory alms) beneficiaries which are limited to only eight groups of Asnaf, the use of sadaqah funds can be distributed to all people in general so long as the funds are for the welfare of society. The potential of Islamic social finance is enormous. Even though Islamic social finance has yet to reach its potential, it cannot be denied that zakat, waqf (Islamic endowments) and sadaqah have a crucial role in helping and the communities.

Thus, leveraging Islamic social finance instruments can be an alternative solution for minimising the adverse impact of COVID-19. Due to the enormous impact of the coronavirus, Bank Islam has assisted the government and community in tackling the issues. As such, the role of Islamic social finance has become more relevant during this pandemic. The mobilisation of zakat, waqf, sadaqah, Qard Hasan (benevolent loans), Islamic microfinance and others can help to reduce the burden faced by many.

Sadaqa House Initiative

Expansion is necessary to maintain an organisation and is in many ways, the lifeblood that prevents stagnation. Collaboration and strategies to guide such initiatives are also vital to being successful in expansion. Bank Islam has many current initiatives as well as goals on the horizon, all of which are well-executed due to strong leadership and trustworthy collaboration with others.


“The Sadaqa House is designed to fund microfinance facilities from contributions made by corporate institutions and the public."


One initiative that the bank has embarked on recently is Sadaqa House, which was set it up in January 2018. To ensure that they can further accelerate the development of the project and to be able to promote the social finance agenda, Bank Islam sets up a Centre for Social Finance in January 2020 to make it as one core business function. “The Bank has corporate, banking, commercial banking, consumer banking, SME banking, treasury and markets, and deposit and cash management. We also have a Centre of Social Finance, established to be a core function for the bank,” he explained.

Mr Mohd Muazzam further went on “It is almost one year down the road from when we started, and we have programmes that are suitable for end-financing for Waqf property, for people who want to buy a property which is sitting on a Waqf asset. We have a programme to promote the development of Waqf assets. This building where we work is a classic example as we are involved in the development of a Waqf project. Beyond that, we now have facilities that help in the development of waqf properties. When we talk about Malaysia, there is still a lot of unproductive waqf facilities, and these are the things that we want to be able to help with.”

Bank Islam is dedicated to meeting the needs of the underserved. When the CEO talks about serving this segment, he detailed the various channels they have to offer services such as facilities to enable them to buy or construct a house. Additionally, they have already launched the initiative to work with the State Religious Councils. It is taken very seriously by the bank. In Malaysia, matters of zakat and waqf, are under the State Religious Councils.

Speaking of other important programmes, Mr Mohd Muazzam said, “We have a microfinancing programme, iTekad, and we work State Religious Councils to help small entrepreneurs within the Asnaf category in their respective areas to provide financing and development for them. We have a new microfinance programme called BangKIT that will work with other changemakers and the NGOs. The capital that we raise from the crowdfunding platform is to assist small micro-entrepreneurs. For example, those who will be selling food by the roadside.”

2021 and 2022 is the time that we start to offer this on a big scale. In the immediate term, we are focusing on our domestic market, especially during this COVID-19 period. It is also important for us to be able to help in the economic recovery and that is where we see the potential to use social finance instruments during this time to assist people in getting up again and recovers from pandemic.” In the future, the bank is ready to work with other institutions. He says, “We will not do this alone,” in highlighting their collaborative perspective in promoting the social finance agenda.

The collaboration that we are looking at is among a few other Islamic banks, under the Association of Islamic Banking and Financial Institutions Malaysia (AIBIM). We envisioned it from the perspective of working together with social impact organisations and non-profit organisations. There is also the collaboration with other government agencies, such as the State Religious Councils and relevant agencies that have the mandate to promote local businesses overseas or promote the Halal economy. “It is always through collaboration. There is also ambition for us to move forward beyond our shores, but that is something that we will do once we strengthen our positioning locally in terms of our offering and our collaboration.”

Developing Principles of Islamic Finance

Mr Mohd Muazzam overviewed the changes that have taken place regarding Islamic finance over the years. “There were a lot of discussions 15–20 years ago about the form of Islamic finance services. There were a lot of debates among the intellectuals, a lot of discussion about it.” At that time, he mentioned, “the contracts consumed us, but the product may not necessarily be addressing the higher objectives of Maqasid al-Shariah. Is that the intention of Islamic finance? Itis through this reflection that VBI comes in. VBI came in with the debate or discourse, which has been good. There are a lot of opinions and a lot of things that we can now take away and use.”

It is where it shifted from formula-focused to customer value-focused, and this became Bank Islam’s mission. “That is what VBI is all about, to offer solutions that address our customers’ needs based on who they are and the channel that they prefer. We need to understand what we need to come up with to satisfy the needs of our customers at different stages of their growth and different stages of economic standing they are in.”

Putting the customer at the centre is a pillar of Bank Islam’s objectives, and this refers back to the discussed strategic objectives, with customer centricity as something of extreme importance. He says “We need to start with having high customer empathy, putting ourselves in the shoes of our customers. It is not just one customer. There are many customers at different stages in life, with different economic statuses and different objectives.”

It is from this customer-centred perspective that Bank Islam considers the kind of products and services to offer. Mr Mohd Muazzam consistently reassures that such offerings are always Shariah-compliant and offered details about that. “We have our own Shariah Council. When we talk about new products and services, they need to go through the gate of our Shariah Council. We are very strict about it, and we have robust governance around it. For Shariah Council’s approval, you need to get the Board of Director’s approval, and you need to get the Central Bank’s (Bank Negara Malaysia) approval as well. In the end, there is no doubt about the product or services.”

Mr Mohd Muazzam explained that when it comes to product innovation “the question we ask ourselves is just about a base product. If I want to meet my customer’s needs, wants and requirements and to come up with a product or a group of products, I need to understand what kind of features the products must have.”

Understanding the features of what the bank needs to offer is the first step to developing new products or services. Only after this aspect is exact can they look at what kind of Islamic contract is appropriate to meet those features. Innovation still does happen, but it is not from the same perspective. That is the perspective of innovation today when it comes to products and services as compared to 10 or 15 years ago,” said Mr Mohd Muazzam.

COVID-19 vs. Financial Crises

While dwelling on the past is not productive, learning from past events can be extremely beneficial for avoiding future pitfalls. The current pandemic may not be like any other financial crisis, but it has had severe financial and economic implications. Mr Mohd Muazzam had experience dealing with financial crises before, putting him in an excellent position to steer Bank Islam through such rough times. As he discussed the various aspects of the COVID-19 crisis, his focus did not waiver from helping those in hardship and making sure services were available for them.

He recalled his experience with another crisis, “If you were to go back a few years, the Asian financial crisis back in 1998 was a banking crisis. It was a credit crisis, and to a certain extent, Bank Islam was affected, but we didn’t feel that effect immediately. It came to heat in about 2003/2004 and it was when the bank had to recapitalise itself and put in a slightly different focus in terms where we put our exposure in and start to build or rather rebuild in terms of our governance structure processes and policies. Through that learning after that crisis, we put a more robust infrastructure.”

Of course, nobody can forget the global financial crisis of 2008. At that point, Bank Islam was on a solid footing, and not as severely affected as some other banks in other countries. Many of the banks in Malaysia survived that crisis, and Bank Islam continued to strengthen its position in terms of capabilities and financial strength. Now the bank is facing another crisis, COVID-19.

Mr Mohd Muazzam went on to express that “COVID-19 is unprecedented. From a health crisis, it became an economic crisis, and the nature is different. It is a broader base, whereas 1998 and 2008 only affected certain segments. Here it affects everybody, and we also feel the effect. We live in an ecosystem. When most institutions in the economy are affected, we are also affected. But when it happened, we were at one of our strongest positions I would say.”


“This is the realisation of the beauty of Islamic finance, because we have that social finance element that we have been championing.”


Offering more insight about how Bank Islam is faring, he stated that, “At the start of the pandemic, our total capital ratio was well above 18%. Our liquidity ratio, coverage ratio and net stable funding ratio were well above the minimum regulatory requirement. The impact ratio of Bank Islam was outstanding, twice better than the average of the industry. So, we started the crisis period in a strong footing that enabled us to serve our customers. We realised that it is essential at this point to find a way to assist our customers. Hence, they can get through this difficult period, and give them sufficient breathing space and assistance so that they can rebuild their businesses and get out of this period hopefully even stronger.”

That has been the bank’s focus through the turbulence. They offer moratorium, targeted moratorium, as well as restructure and reschedule debts for their customers. Of course, it carries some financial impact on the bank. “When you allow restructuring under this accounting concept of Modification Loss, it means that our credit payment provision will have to be higher, we need to have some buffers,” he explained.

The pandemic had presented an opportunity for Bank Islam to offer the Islamic social finance as well as formulate a solution to help address this situation that the nation is facing. The government has even acknowledged the bank’s efforts. In May, the Prime Minister announced the launch of iTekad micro-financing. Bank Islam was given the honour to be the first bank and currently is still the only bank, to offer that programme.

Mr Mohd Muazzam is pleased that Bank Islam is poised to offer services in a time of crisis, saying “This is the realisation of the beauty of Islamic finance because we have that social finance element that we have been championing. We want to put it in the market and will accelerate it further soon. We put this in our agenda back in 2018, and COVID-19 came to help hasten it in terms of us moving this agenda to be hopefully more mainstream.”