Takaful - Value-Based Intermediation (VBI) and Value-Based Intermediation for Takaful (VBIT)

• Malaysia introduced important value-based frameworks to strengthen the role of Islamic finance and Takaful.
• These frameworks are:
• Value-Based Intermediation (VBI) – introduced in 2017
• Value-Based Intermediation for Takaful (VBIT) – introduced in 2021
• Both frameworks are guided by the objectives of Maqasid al-Shari’ah.
• They aim to create positive and sustainable outcomes for:
• The economy
• Society
• The environment
• Financial stakeholders

1. Value-Based Intermediation (VBI)

• VBI is a broader framework mainly associated with Islamic financial institutions, especially Islamic banks.
• It encourages financial institutions to move beyond simply earning profit and meeting minimum Shari’ah requirements.
• The institution should also consider whether its activities create a positive and sustainable impact.

Main Objectives of VBI

• Support economic development
• Improve social well-being
• Protect the environment
• Promote responsible financial practices
• Generate sustainable financial returns
• Support the objectives of Maqasid al-Shari’ah

Simple Idea

VBI = Shari’ah-compliant finance + Positive economic, social and environmental impact

2. Example of VBI

• An Islamic bank provides financing for a solar energy project instead of financing an environmentally harmful project.
• The project:
• Generates renewable energy
• Creates employment
• Supports economic development
• Reduces environmental damage
• The bank also earns a Shari’ah-compliant financial return.

Simple Process

Islamic financing → Renewable energy project → Financial return + Economic benefit + Environmental benefit

3. Value-Based Intermediation for Takaful (VBIT)

• VBIT applies the value-based principles specifically to the Takaful industry.
• It provides guidance for Takaful operators on how to implement value-based practices in their products and operations.
• It applies to:
• Family Takaful operators
• General Takaful operators
• Retakaful operators

Simple Idea

VBIT = Applying VBI principles specifically to Takaful

4. Main Objectives of VBIT

• Develop Takaful products that provide wider benefits to society.
• Improve financial inclusion.
• Encourage sustainable business practices.
• Protect vulnerable groups.
• Promote responsible investment.
• Create long-term value for participants and other stakeholders.
• Ensure Takaful operations remain consistent with Maqasid al-Shari’ah.

5. Example of VBIT

• A Takaful operator develops Micro-Takaful for low-income families.
• Participants pay a small affordable contribution.
• The product provides basic protection against:
• Death
• Accident
• Disability
• The operator still manages the product sustainably while helping underserved communities.

Why This Is VBIT

• It is Shari’ah-compliant.
• It creates positive social impact.
• It improves financial inclusion.
• It can still provide sustainable financial returns for stakeholders.

Simple Process

Affordable Takaful → Low-income families protected → Social impact + Sustainable business

6. VBI and VBIT Are Driven by Maqasid al-Shari’ah

• Both VBI and VBIT are influenced by the broader objectives of Shari’ah.
• These objectives include protecting:
• Life
• Wealth
• Intellect
• Family/progeny
• Religion
• Therefore, financial institutions should consider not only whether a transaction is technically permissible, but also whether it contributes positively to society.

Simple Idea

Shari’ah compliance tells us whether something is permissible.

Maqasid al-Shari’ah also asks whether it creates beneficial outcomes.

7. Three Main Elements of VBI and VBIT

Shari’ah Compliance

• Products and operations must comply with Shari’ah principles.
• They must avoid prohibited elements such as:
• Riba
• Gharar
• Maysir
• Prohibited business activities

Positive Impact

• Financial activities should provide benefits to:
• Customers
• Communities
• Society
• Environment
• Economy

Sustainable Financial Return

• The institution must still remain financially viable.
• It should generate sufficient returns to:
• Continue operating
• Pay expenses
• Maintain financial stability
• Reward relevant stakeholders

Simple Formula

Shari’ah Compliance + Positive Impact + Sustainable Financial Return = VBI / VBIT

8. Why Sustainable Financial Return Is Important

• VBI and VBIT do not mean that Islamic financial institutions should ignore profitability.
• A bank or Takaful operator must remain financially strong.
• Without sustainable financial returns:
• It may not survive
• It cannot continue serving customers
• It cannot expand its positive social impact

Example

• A Takaful operator provides Micro-Takaful at an affordable price.
• At the same time, it uses digital technology to reduce operating costs.
• This allows the operator to:
• Help low-income customers
• Keep contributions affordable
• Remain financially sustainable

Simple Idea

Social benefit must be balanced with financial sustainability.

9. VBI vs VBIT

VBI

• Broader framework.
• Mainly focuses on Islamic financial institutions.
• Encourages sustainable impact on:
• Economy
• Community
• Environment

Example

Islamic bank finances renewable-energy project

VBIT

• Specifically designed for the Takaful industry.
• Provides guidance for:
• Family Takaful
• General Takaful
• Retakaful
• Focuses on how Takaful can create value beyond simply paying claims.

Example

Takaful operator provides affordable Crop Takaful to small farmers

10. Overall Purpose

• VBI and VBIT aim to create a more sustainable Islamic financial ecosystem.
• Islamic banks and Takaful operators are encouraged to:
• Remain Shari’ah-compliant
• Generate financial returns
• Create positive social impact
• Support economic development
• Protect the environment
• Serve wider stakeholder interests

Easy Way to Remember

VBI = Value-based approach for Islamic finance

VBIT = Value-based approach specifically for Takaful

Simple Formula

VBI / VBIT

→ Shari’ah Compliance

→ Positive Economic Impact

→ Positive Social Impact

→ Positive Environmental Impact

→ Sustainable Financial Return

Final Simple Idea

VBI and VBIT encourage Islamic finance and Takaful to go beyond “Is it Shari’ah-compliant?” and also ask “Does it create sustainable value for society, the economy and the environment?”