TENGKU AHMAD BADLI SHAH RAJA HUSSIN
President/Chief Executive Officer Agrobank
IT’S ONLY BEEN SOME TIME SINCE YOU ARE APPOINTED AS PRESIDENT/CHIEF EXECUTIVE OFFICER. HOW DO YOU THINK YOUR BROAD EXPERIENCE IN STRATEGIC PLANNING, BUSINESS DEVELOPMENT, AND LEGAL AND SHARI’A-COMPLIANT FINANCING WILL STRENGTHEN AGROBANK’S POSITION AS THE LEADING AGRICULTURE FINANCIAL INSTITUTION IN MALAYSIA?
With over 29 years of extensive experience in banking and finance, I am looking forward to building and enhancing the success of Agrobank together with a solid management team and dedicated employees. With the Bank’s new Strategic Business Plan (SBP) that kick-started last year (2021), the Bank is dedicated to creating a positive impact by ensuring the community’s well-being, sustainable environment, and economic growth without compromising on our shareholders’ returns.
My intention is to empower Agrobankers to be the best version of themselves in order to provide the best service quality to our customers.
Therefore, my experience from wearing different hats in the front and back-office roles provides me with a wider perspective when I assess the real pain points faced throughout the organisation. Left unresolved, these pain points could erode the customers’ confidence and worse, damage the competitive advantages built by the Bank.
I believe that the Bank’s current businesses and capabilities provide a good platform for us to grow in order to assist the unserved and underserved communities and transform the agri-finance landscape beyond banking, as outlined in the Value-Based Intermediation (VBI). Unveiled in 2021, the Bank’s “Strategic Business Plan” is a strategic blueprint for the Bank to establish a greater presence in agriculture and establish a transformative business model for greater success in performing our mandated role.
SBP 2021-2025 is anchored by four Strategic Focus Areas, which are as follows:
- Sound Agricultural Development: Realigning Agrobank’s core developmental activities towards supporting national focus areas for agricultural development.
- Inclusive Customer Focus: Upward migrating our customers in key segments (particularly the Bottom 40 (B40), entrepreneurs and young agri- SMEs), becoming partners in the development of their overall financial well-being, and improving Agrobank customer’s experience.
- Transformative Business Models: Introducing new ways for Agrobank to conduct business with the aim of supporting agricultural development, through modalities that go beyond conventional banking.
- Sustainable Financial Condition: Maintaining a balance between strengthening our developmental impact and ensuring financial stability.
WHAT ARE SOME OF YOUR SHORT AND LONG-TERM GOALS FOR FINANCIALLY IMPROVING AND ASSISTING THE UNSERVED AND UNDERSERVED COMMUNITY IN THE COUNTRY AND TRANSFORMING THE AGRI-FINANCE LANDSCAPE BEYOND BANKING?
In the short term, we are focused on playing our role to support the national food security agenda by continuing to provide financial support in strategic agriculture subsectors such as poultry, livestock and vegetables. The Bank has always been and will continue to be a keen supporter of the strategic objectives laid out in the national agricultural developmental policies, guiding the strategic direction of agro-food and agri-commodity development over the next 10 years.
IN THE LONG TERM, WE ALSO PLAY AN IMPORTANT ROLE IN DEVELOPING FINANCIAL LITERACY AMONG THE UNSERVED AND UNDERSERVED THROUGH THE PROVISION OF FREE AND INCLUSIVE EDUCATIONAL PROGRAMMES.
We also provide entrepreneurial development support in agriculture through Agrobank’s Centre of Excellence (ACE), in which we deliver advisory, financial and business knowledge training, coaching, and business matchmaking for aspiring entrepreneurs. We see our role as catalysts for the upward journey of the unserved and underserved and to uplift their overall financial well-being. Our programmes are designed for a long-term partnership with our customers in the agricultural community and to meet their overall lifecycle needs. Our intention is to help the needy, so that they may one day also be in the position to help others.
In the long term, we also play an important role in developing financial literacy among the unserved and underserved through the provision of free and inclusive educational programmes.
AS AN EXPERIENCED BANKER AND AN ENTHUSIAST OF ISLAMIC FINANCE, ARE YOU SATISFIED WITH THE FLEET OF FINANCIAL PRODUCTS OFFERED BY ISLAMIC FINANCIAL INSTITUTIONS THROUGHOUT THE WORLD?
There are over 1500 Islamic financial institutions worldwide across 80 countries. According to the Asian Banker Research Group, the world’s 100 largest Islamic banks have set an average asset growth rate of 13%.1 The evolution of Islamic finance, since the beginning of the 21st century, in short, has been amazing. We now see a wider acceptance of Islamic finance to meet the financial needs of the customers, which implies that Islamic finance is universal. The speed of its innovation has outpaced the conventional financial products, which are in line with the progressive approach undertaken by many financial institutions across the globe. Islamic finance continues to grow rapidly, supported by a conducive environment, which is renowned for continuous product innovation, diversity of financial institutions from across the world, a broad range of innovative Islamic investment instruments, a comprehensive financial infrastructure, and adoption of global regulatory and best legal practices.
The application of Islamic finance in addressing economic problems through superior Shari’a solutions can be further intensified. As customers are now becoming more sophisticated in Islamic finance, their expectations grow beyond looking at the impact and outcomes of its application to people, economy, and the environment. I believe that Islamic finance has a strong purpose in addressing socio-economic problems and hence Islamic finance practitioners can play a role by constantly channelling investments in new Islamic finance solutions.
HOW HAS AGROBANK INCORPORATED DIGITISATION IN ITS OPERATIONS AND DIGITAL INNOVATION IN ITS PRODUCTS AND SERVICES?
Post-COVID-19 and the Movement Control Order (MCO 1.0 and 2.0), have shown the need for digital banking as it shortens the traditional customer financing application and credit assessment processes, which consume both time and resources. For example, in June 2020 Bank Negara Malaysia (BNM), the Central Bank of Malaysia, announced the electronic-Know Your Customer (e-KYC), which replaces the traditional way of conducting customer screening and assessment by providing verification from the National Registration Identification Card (NRIC) and Selfie (for Biometric Verification), a process which is both convenient and accurate.
Agrobank’s digital journey generally covers two perspectives; customer interface and internal process improvement. In terms of the customer interface, our digital efforts involve the enhancement of digital channels (online and mobile) and expansion of our digital service offerings (e.g., QRpay, Duitnow, etc.).
In terms of the internal process improvement, we initially determine the needs of our customers who we want to service before exploring how a digital mechanism can improve our ability to provide that service. The scope of our internal efforts would include enhancement of digital tools to support our workforce, process automation, cybersecurity enhancements and digitisation of processes to improve the turnaround time.
For example, we are conducting a major revamp of our credit application and online account opening processes to speed up the processing time and reduce friction experienced by the customer. We then look at how a digital mechanism can enable this new process improvement.
However, digital efforts usually require big investments and resource commitments – which we do not intend to pass on to the customers – as our intention is to make it easy for our customers to access our services.
WHAT CHALLENGES DO YOU SEE IN THE NEAR FUTURE FOR THE AGRICULTURE AND FINANCIAL INDUSTRY, AS THE WORLD IS SLOWLY RETURNING TO A NEW NORMAL POST-PANDEMIC?
At a global level, the main issues in the agriculture industry are food security, climate change and food export restrictions that have led to disruptions in supply and soaring food inflation as the world moves to a new normal post-pandemic era with the revival in household consumption. The strict movement restriction imposed back in 2020-21 to curb the spread of COVID-19 has severely caused imbalances in all sectors globally, including the agriculture sector, which has inevitably affected the overall supply chain, resulting in higher food prices and greater food insecurity.
AGROBANK’S DIGITAL JOURNEY GENERALLY COVERS TWO PERSPECTIVES; CUSTOMER INTERFACE AND INTERNAL PROCESS IMPROVEMENT.
ISLAMIC BANKS ARE ALSO FINDING IT CHALLENGING TO COPE WITH THE EVOLVING GLOBAL BANKING ENVIRONMENT AND MAKING APPROPRIATE RULES AND REGULATIONS TO GET THROUGH WITH THESE CHANGES WHILE STILL REMAINING COMPETITIVE WITH THEIR CONVENTIONAL COUNTERPARTS.
While the threat of COVID-19 has subsided with widespread vaccination, the agricultural sector continues to face challenges with the current food supply shocks exacerbated by the Russia-Ukraine war. Food prices have further escalated following the economic reopening in many countries and the recovery in global demand for food. In the first five months of 2022, global food prices have risen by more than 20%, while fertilizer and oil prices surged by more than 50%.
On the home front, the performance of the agriculture sub-sectors like livestock and food crops remain challenging against the backdrop of rising input costs, in particular, animal feed and fertiliser, extended supply disruptions, and scarcity of labour. According to the Federation of Malaysian Manufacturers (FMM), there is a shortage of about 120,000 workers in the plantation industry and around 3 million tonnes of the crop could be lost this year as fruit rots unpicked, estimating losses of more than RM28 billion if the sector continues to be hampered by a labour shortage.
Notably, several countries have started to implement export restrictions to secure domestic food availability and stabilise prices including Malaysia, which recently imposed an export ban on whole chicken. The approved permits (APs) for certain agro-food commodities have been abolished to allow for more food imports. Furthermore, a RM500 million agro-food fund is being set up to provide soft financing to industry players in the agro-food industry, including chicken breeding and planting of corns. The government plans to create buffer stocks for chicken, fish and meat and is studying tax incentives to be given to agro-food players.
On the positive side, the price of crude palm oil (CPO) has risen by 55% to above RM6,000 per tonne so far in 2022. Export revenue from CPO exports has risen 59% to RM29.6 billion in Jan-Apr 2022, earning foreign exchange for the nation. In spite of all the above-mentioned challenges, Agrobank anticipates the agriculture sector to register positive growth of 1.0%-2.0% in 2022 (2021: -0.2%), driven by modest growth in agro-food and oil palm production. The reopening of the economy and international borders amidst the transition to endemicity will drive the recovery in the demand for food items.
For the financial industry, the COVID-19 pandemic, the economic downturn and record low interest/ profit rates had hurt the banking industry in 2020, with profit before tax (PBT) plunging by 26.4%. In 2021, as the economy started to recover, the banking system’s PBT stabilised and registered a 23.3% growth. Nonetheless, banks have contributed to financial stability and economic recovery by participating in the moratorium to assist affected customers during these difficult times. Banks will continue to offer assistance via restructuring and rescheduling (R&R) to customers and SMEs who are still making efforts to get back on their feet after experiencing hardships during the recession.
Notably, we foresee a brighter outlook in the post-pandemic period with higher financing growth, in tandem with the expectation of stronger GDP growth in 2022 propelled by sustained economic revival and border reopening. We predict financing in the banking system to increase at a faster rate of 4.5%-5.0% in 2022 (2021: 4.5%), to be lifted by the recovery in household consumption as well as private sector investment with the normalisation of economic activities and continued policy support from the government.
The net interest/profit margins (NIM) of Malaysian banks are also predicted to improve in 2022 as Bank Negara Malaysia (BNM) has started to tighten the monetary policy by raising the overnight policy rate (OPR) by 25 bps to 2.00% in May 2022. BNM is expected to gradually hike the key policy rate further on the back of sturdier domestic demand and resilient exports. This is also aimed at strengthening the Ringgit and curbing capital outflows, while at the same time keeping a lid on imported inflation.
FROM A PROFESSIONAL AND PERSONAL NOTION, WHAT IS YOUR STANCE WITH REGARD TO FINTECH? DO YOU THINK IT DESERVES THE GARNERING ATTENTION, OR IS IT OVERRATED?
FinTech is the future of banking as it will shape the competitive landscape and manifest how successful financial institutions remained relevant and integrated with the ecosystem, which is beyond its ordinary intermediary functions. FinTech has disrupted the role and structure of financial institutions and transformed the competitive environment in which these institutions operate. The COVID-19 pandemic has proven to all of us the importance of banks operating outside their comfort zone and accelerated the pace of technological change. FinTech and the accelerated digitalisation of economies present a promising avenue to tackle these challenges, mobilising finance for inclusive and effective intermediation while securing a sustained path to economic recovery.
IF YOU HAVE TO PICK UP A COUPLE OF WEAKNESSES IN THE CURRENT PRACTICES OF ISLAMIC BANKING AND FINANCE, WHAT WOULD THOSE BE?
In 2020, the total size of the Islamic banking sector had a growth rate of 4.3% YoY and reached over US$2.7 trillion in total assets2. The widely held expectation that this superior growth record will continue is understandable – given that approximately one-sixth of the world’s population is Muslim – and most of which is based in the Middle East and Asia.
Taking note of the demand, a number of western countries have recently started allowing Islamic banks to operate in their respective jurisdictions. Yet, despite the increased interest, Islamic banking penetration in non-Muslim countries has been slow, as Islamic banks find it difficult to expand into different jurisdictions, and face regulatory and Shari’a complications in terms of approvals.
Islamic banks are also finding it challenging to get through with the evolving global banking environment and making appropriate rules and regulations to cope with these changes while still remaining competitive with their conventional counterparts. Additionally, the industry lacks consistency in product structures and investment practices which adversely affects its credibility, reputation, perception and regulation capabilities.
While conventional banks have harmonised and approved regulatory standards that banks around the world follow – making it easier for them to expand and conduct operations in different countries. There are no approved standard per se for Islamic banks; they follow the conventional banking regulations.
As Islamic banking differs from conventional banking, it is difficult for Islamic banks to completely follow these global conventional standards. For instance, the capital structure in Islamic banks is different from that of conventional banks. Because of the prohibition of interest, Islamic banks mobilise and utilise funds using Shari’a-compliant instruments or contracts that are not used by conventional banks and hence their capital structure primarily consists of Tier 1 capital only, while only a handful of Islamic banks have Tier 2 capital. Another differentiation between the two banking models is the bank’s ownership of the asset. In Islamic banking contracts like Murabaha, Islamic banks have to own the asset for a period of time, a practice that is not required in conventional banking practices.
AND NOW A COUPLE OF STRENGTHS?
The Islamic banking practice is picking up and becoming among the prefered business methods in today’s date around the world. This is simply because of the strengths of the practices of the religion itself, which strongly hold on ethics and principles.
Justice and Fairness
The foundation of the Islamic banking model is based on a profit-sharing principle, whereby the risk is shared by the bank and the customer. This system of financial intermediation contributes to a more equitable distribution of income and wealth.
Banking for All
Although based on Shari’a principles, Islamic banking is not restricted to Muslims only and is available to non-Muslims as well.
Transparency
Islamic banking is about conducting business fairly and transparently. Guiding customers through to ensure a full understanding of risks and costs associated with the products and services is the utmost prerogative.
ISLAM IS THE FASTEST-GROWING RELIGION IN THE WORLD AND IS PREDICTED TO INCREASE BY 30% OF THE WORLD POPULATION IN THE NEXT DECADE. ISLAM HAS THE YOUNGEST MEDIAN AGE, AROUND 24 YEARS, THIS FACT IMPLIES THAT THE POPULATION WILL CONTINUE TO GROW.
Ethical and Moral Dimensions
The strong ethical and moral dimensions of doing business and selecting business activities to be financed, play an important role in promoting socially desirable investments, and better individual or corporate behaviour.
Discouraging Speculation
Speculative transactions are sources of instability, and a cause of misallocation of the capital. Islamic banks are prohibited from carrying out such activities, rather should be focusing on the deployment of capital to the real economy and to promote socio-economic justice.
LET US NOW MOVE TO SOME PERSONAL QUESTIONS REGARDING TENGKU BADLI SHAH AS AN INDIVIDUAL HUMAN BEING. OUR READERS WOULD BE INTERESTED IN KNOWING ABOUT A TYPICAL DAY OF YOUR LIFE. WHAT HAS CHANGED RECENTLY IN THIS RESPECT?
Every leader has a specific daily routine and I put my priority on being present for my team of employees, so I build my schedule around that. I believe that a crucial part of leading an organisation is creating a culture that is productive and fun. As a leader, you have to carefully define your own values and build from there.
My internal clock has me up early and ready to take on the day without an alarm clock. Once I am up, I start my day by offering Fajr prayers, followed by meditation, to ensure that I put myself in the best mindset. At the office, I meet with my assistants to go over my agenda for the day, followed by encouraging and participating in a team huddle with my management team. Most days largely consist of meetings, networking, and connecting with my team, other peer CEOs and industry leaders. On other mornings, I have conference calls with our C-level executives.
I also like to make my rounds to various departments in the office throughout the day because it allows me to catch up with my team. After leaving my office, I take time to catch up on conversations and follow-ups that I missed while at work. This could include phone calls, text messages, and emails. After calling off my workday, I typically spend time with my family. As the evening winds down, I take time to unplug from technology because I find it helps my mind to innovate, the results of which drive the company’s success.
I find that personal development is another way that I like to unwind, hence, I love to read the latest books and magazines on the subject. In our ever-changing world, I find that it’s important to continue to develop a competitive edge in leadership and business in addition to working on personal development.
WHAT WOULD BE YOUR ADVICE TO ADVOCATES OF ISLAMIC FINANCE TO FURTHER DEVELOP ISLAMIC BANKING AND FINANCE, BOTH IN THE REGION AND WORLDWIDE?
The Muslim population has a strong global presence and is involved in economic activities across many countries, especially in the Middle East, Northern Africa, and Asia with around 25% of the global population or 1.8 billion Muslims. Islam is the fastest growing religion in the world and is predicted to increase by 30% of the world population in the next decade. Islam, also, has the youngest median age, around 24 years; this fact implies that the population will continue to grow.
With the growing Muslim population, Islamic finance has an opportunity to further expand, globally, and there will be a huge potential to penetrate new markets and introduce Islamic banking and finance. The size of the Islamic finance industry is projected to rise from US$3.37 trillion in 2020 to US$4.94 trillion in 2025, with an average growth of 8.0% per annum. In order to reach out to the unserved and underserved Muslim countries, Islamic banks must advance their financial inclusion and improve their digital banking strategies including leveraging Islamic FinTech as technology and automation have been the major catalysts of global financial services since the last century.
Some areas that need to be focused on to improve Islamic banking include boosting the potential reach and impact of Islamic financial services like building digital-only banking and capital markets to provide the digital demographic, targeting the customer base via artificial intelligence and big data analytics. Moreover, enabling cross-border trade as well as financing through peer-to-peer (P2P) lending and trade financing will also create opportunities for Islamic finance to be known worldwide. In addition, addressing the financial inclusion gaps by innovating payment solutions could also improve market expansion for Islamic banking and finance besides delivering Islamic social financing to support the global Sustainable Development Goals (SDGs).
It is worth highlighting that the Islamic Trade Finance (ITF) has the potential to inflate and catalyse trade relationships as it represents less than 5% of the US$7.62 trillion world trade finance sector. Malaysia has a huge opportunity in ITF and has been a leading country in both trade and Islamic finance. Malaysia
stands at third place amongst OIC members in exports and imports of merchandise and takes up more than 12% of trade by OIC member countries, although being smaller than 2% of the total OIC population. At the same time, Malaysia is ranked highly in the Global Islamic Finance Development Report, and continues to be the host country to various international Islamic finance bodies including Islamic Financial Services Board, International Islamic Liquidity Management Corporation, International Centre for Education in Islamic Finance (INCEIF) and International Shariʽah Research Academy for Islamic Finance (ISRA).
ISLAMIC BANKS ARE BECOMING MORE AWARE OF THE IMPORTANCE OF SUSTAINABLE DEVELOPMENT AND ARE STEPPING UP EFFORTS TO INTEGRATE ENVIRONMENTAL, SOCIAL, AND CORPORATE GOVERNANCE (ESG) CONSIDERATIONS INTO THEIR OPERATIONS, BUSINESS STRATEGY, GOVERNANCE, AND RISK MANAGEMENT.
As a leading country in Islamic finance, Malaysia could enhance its expertise in regional countries like the Association of Southeast Asian Nations (ASEAN), which has more than 200 million Muslims, including supporting the Halal industry through competitive financial products and services. Malaysia will further benefit from its strong infrastructure and established status as a global Halal hub. Statistically, Muslims spent around US$2.0 trillion in 2019 in the global Halal food, pharmaceuticals, cosmetics, fashion, travel, and recreational sectors.
According to the 12th Malaysia Plan, the Halal industry is projected to contribute around 8.1% to the Malaysian Gross Domestic Product (GDP) in 2025 versus 7.8% in 2019. Henceforth, expanding the performance of Micro, Small and Medium Enterprises (MSMEs) in the Halal industry by utilising the Islamic financial services is pivotal as they can contribute significantly to the country’s economy.
Islamic banks are becoming more aware of the importance of sustainable development and are stepping up efforts to integrate environmental, social, and corporate governance (ESG) considerations into their operations, business strategy, governance, and risk management. BNM has introduced the Value- Based Intermediation (VBI) in 2017 as a strategy to drive the sustainability agenda and strengthening the roles and impact of Islamic banks toward a sustainable financial ecosystem. VBI shares similarities with other established concepts such as ESG (environmental, social, and corporate governance), with the difference being that VBI relies on Shari’a in determining its underlying values, moral compass, and priorities.
According to a survey conducted by the Joint Committee on Climate Change (JC3) in November 2021, 92% of respondents (24 financial institutions) have a sustainability strategy in place, 83% have a sustainability framework in their organisation, 88% offer sustainability products to their customers, and 92% plan to increase the number of sustainability products in the future. This shows that a majority of financial institutions in Malaysia are making efforts to adopt the sustainability agenda and Islamic banks are no exception.
AS WE APPROACH THE END OF THIS INTERVIEW, WE WOULD LIKE YOU TO SHARE YOUR EXPERIENCE AT THE CAMBRIDGE ISLAMIC FINANCE LEADERSHIP PROGRAMME AT THE CLARE COLLEGE, UNIVERSITY OF CAMBRIDGE, AND HOW IT INFLUENCED YOUR LEADERSHIP SKILLS OR PAVED THE WAY FOR YOUR SUCCESS AS A LEADER?
I attended the Cambridge-IFLP programme in 2017, and it was indeed, a fulfilling and enriching experience. The programme helped me identify new strengths and provided opportunities for others to create success stories for the organisation. I am sure that my exposure and experience in interacting with successful, across the globe, across the globe has significantly contributed to my leadership journey. I encourage more leaders to participate in this programme, and let us grow Islamic finance together!
FINALLY, WHAT WOULD BE YOUR ADVICE TO YOUNG PRACTITIONERS OF ISLAMIC BANKING AND FINANCE?
I wish I had known years ago the importance of learning about all areas of the banking industry in general, including areas that I might not be excited about. This can be challenging, if your organisation does not provide job rotations, or if you do not have a mentor in the organisation, who can guide you on specific projects. So, speak up and volunteer for new projects at your organisation or in your local community and learn all you can. Attend conferences and forum events, and have sessions and conversations on subjects, which are outside your comfort zone. Be sure to look outside the organisational world for education too; as there are many corporate events that can give you new perspectives or insights.
If you focus only on your area of expertise, you will become the expert, but to advance into the C-suite, you need a well-rounded experience. Building experience in all areas of the industry helped me land my first C-suite position, and while I felt confident that I would be successful, having additional knowledge makes my job so much easier.
However, I do believe that there is no “secret sauce” to becoming a CEO, or being successful in whatever position you hold.
My advice is simple: Work hard, play fair, be the best you can in whatever you are asked to do, be honest, polite, consistent, and develop meaningful relationships. Be aware of your strengths and your weaknesses, get certified and constantly develop your network and your own abilities.
