Dato’ Wan Mohd Fadzmi Wan Othman
President & Ceo Of Agrobank
ISFIRE has global distribution and our readers come from all over the world; please tell us about Agrobank and its leadership role in promoting Islamic banking and finance (IBF) in Malaysia.
Dato’ Wan Mohd Fadzmi Wan Othman: Agrobank is a development financial institution that specialises in providing a holistic range of Islamic financial solutions for the development of agriculture sector in Malaysia. Established in 1969 under the name Bank Pertanian Malaysia (BPM), the bank has undergone profound changes since then, in tandem with the rapid development of Malaysia to become a high-income country and a global halal hub especially in the food industry. In 2008, the Bank was corporatized and rebranded from Bank Pertanian Malaysia to its present name, Bank Pertanian Malaysia Berhad, or commercially known as Agrobank. This was a major milestone for the Bank as it allowed the Bank to position itself to play a more effective role in the development of the agricultural sector. It also provided the Bank with a stronger footing to meet the need of the entire value chain of agricultural activities that include financing for upstream activities such as the supply of agricultural production inputs to downstream activities such a processing and selling of agricultural products to consumers.
Islamic banking is not new to Agrobank as the Bank had started introducing Islamic financial products back in 1997. The bank’s transition into a full-fledged Islamic bank in July 2015 signifies its progressive development in providing diverse and innovative Islamic product structures that cater the specific needs of all market and industry segments in agriculture sector. And this is in line with the Government’s initiative to establish Malaysia as a conducive, strong and dynamic Islamic financial hub. Since agriculture and agro-based industry is synonym with food processing activities, this transition enabled Agrobank to provide Islamic banking products and funding to cater for the halal food industry. It also adds confidence on the part of the investors with respect to the halal status of a product as it is backed up by Shari’a-compliant business transactions.
The global movement of Islamic economics, banking and finance has benefitted from leadership roles of many Malaysians. Who amongst the Malaysians has impressed you in the field of IBF and why?
Dato’ Wan Mohd Fadzmi Wan Othman: For anyone who is interested, involved or an active player in Islamic banking and finance in Malaysia, it is absolutely impossible to remain unimpressed by what Tan Sri Dato’ Sri Dr. Zeti Akhtar Aziz, former Governor of Bank Negara Malaysia, has done for the industry in Malaysia as well as at the international arena. She is a remarkable leader and I have been thoroughly impressed by her demeanor, professionalism, advocacy for Islamic banking and takaful, promotion of human resource development, and numerous other initiatives. I believe Islamic banking and finance in Malaysia stands on strong and solid Agrobank has a clear and focused mandate, which is to develop and grow the agriculture industry in the country.
foundations because of her farsighted vision and profound outlook towards the future. Another person who has impressed me most is Datuk Dr Mohd Daud Bakar who has been a Malaysian spokesman for Islamic banking and finance worldwide. He is not only a renowned Shari’a scholar but also a successful entrepreneur in his own right. This makes him a Shari’apreneur, and perhaps the only one in the entire world.
How is Agrobank different from other Islamic financial institutions in Malaysia?
How can Agrobank become an agent of change in the regional Islamic financial services industry?
Dato’ Wan Mohd Fadzmi Wan Othman: Agrobank has a clear and focused mandate, which is to develop and grow the agriculture industry in the country. This is not the only distinctive factor that differentiates Agrobank from other Islamic financial institutions in Malaysia; it also provides the Bank with a competitive advantage. As I mentioned earlier, food is synonymous with agriculture sector and halal factor is essential to the Muslim community. Operating as a full fledged Islamic bank, Agrobank has the unique value proposition to provide Islamic banking products and funding to cater for the halal food industry and complete the cycle of halal food production.
At the regional front, Agrobank sees huge potential for the halal market, which is estimated to be worth around US$632 billion or 16% of total global food industry. Undoubtedly, Malaysia is a well-known brand for halal products. With the ASEAN Economic Community in place, there are many opportunities for the halal sector to flourish. For example, the ASEAN region is home to around 600 million people while its main food markets, East Asia and South Asia, have populations of 1.6 billion people and around 1 billion people, respectively. A large chunk of these populations form part of the growing middle class with increased buying capacity and changing preference from food staples to high-value food whether organic or processed. The region’s proximity to world powers like China and Japan puts it in a very good position for supplying food and other perishable goods. As the region itself continues to rise together with Asia’s economic growth, intra-market trade of goods is also expected to rise.
Financial inclusion is big on the economic agenda of almost all the governments in the world. Many are of the view that financial inclusion should be the focus for future growth in IBF. Is IBF ready to play a role in this respect? What is the role of Agrobank as an agent of change in this space?
Dato’ Wan Mohd Fadzmi Wan Othman: In support of the Government’s initiatives towards achieving full financial inclusion and improving the lives of underserved communities, Agrobank has consciously broadened its rural presence throughout the country to increase rural banking penetration with full access to its products and services. There are more than 71% of Agrobank branches located throughout the country and in certain cases, Agrobank is the only bank servicing these areas. As part of its financial inclusion initiatives, the Bank has also expanded the utilisation of its electronic banking platform as well as the provision of a full range of services such as affordable credit, savings and remittance services.
In 2014, Agrobank launched a new banking platform called ‘Agro Agent’ to provide basic banking facilities especially to the underserved and unserved segments of the population. As of August 2016, Agrobank has appointed more than 264 banking agents to provide basic banking services, particularly in rural areas. Although this concept is not new in Malaysia, Agrobank’s approach is different in that the Bank focuses only on entities under relevant agricultural bodies such as agricultural cooperatives. As an agent of change in financial inclusion, Agrobank takes a broader approach to financial inclusion, which includes the underserved segment of the community such as people with disabilities. We have a special financing programme for them, called Agro Bakti. I am proud to say that this is the first financing programme in the country dedicated for this target segment. The aim here is to assist them with working capital for their agriculture and agro-based businesses and ultimately improve their economic security.
The world is fast becoming orientated towards the use of social media. What role can social media play in creating awareness around Islamic banking and finance? Dato’ Wan Mohd Fadzmi Wan Othman: Social media has grown massively – reaching out to people of all levels, beyond country borders, races etc. The reach is far and wide and some claimed that the influence of social media has significantly changed political scenarios or even government, flow and influence of mainstream media and more. Like it or not, social media has become mainstream communication tools for businesses. Regardless if you are a startup or Fortune 500 company, you need to be on social media and start engaging with your consumers positively.
The likes of Facebook, Twitter, LinkedIn and most importantly WhatsApp group chats have helped Islamic banking and finance immensely. This is in line with what is happening in the conventional domain – perhaps more so in case of Islamic banking. I am personally an ardent user of social media, especially Facebook. All the social media are now interconnected. So if one is using Facebook, one has access to posts shared though other social media like LinkedIn and Twitter. With that view, any organisation cannot afford the risk of not using these platforms to engage stakeholders. Islamic finance organisations and leaders must learn to use these platforms effectively to promote their thought leadership and to push for Islamic banking as a more sustainable alternative to conventional banking practices. Having said that, although Islamic financial institutions have their own social media campaigns, awareness about Islamic banking and finance remains very much a market-driven phenomenon.
Does the current trend of innovation brings more complexity and risks than benefits? How has Agrobank embraced technological innovation into its operation?
Dato’ Wan Mohd Fadzmi Wan Othman: Innovation to Agrobank is about creating the right technological platform that best suites three things. First, achieve greater operational efficiency. Second, enhance our customers’ banking experience for speedier delivery of banking services. And third, increase penetration in the under-served and unserved segments of the population in Malaysia.
Would you disagree to the view held by many Muslims that IBF has failed to achieve its objectives in terms of poverty alleviation and contribution to economic development? What can be done to make IBF more sensitive to the needs of Muslim communities around the world, and especially in Asia?
Dato’ Wan Mohd Fadzmi Wan Othman: Without a doubt, Islamic finance can significantly contribute to economic development, given its direct link to physical assets and the real economy. The use of profit and loss sharing arrangements encourage the provision of financial support to productive enterprises that can increase output and generate jobs. The emphasis on tangible assets ensures that the industry supports only transactions that serve a real purpose, thus discouraging financial speculation.
In principle, Islamic finance promotes equality, fairness and transparency in both risk-taking and returns to its subscribers. However, the effect on poverty alleviation is more structural in nature depending on its size within a country, and the effectiveness of the role played by various stakeholders including practitioners of Islamic finance. Financial inclusion is not just about having access to physical branches. Here at Agrobank we believe that financial access is best measured based on whether all segments of the population, regardless their size of income and household, have the right Islamic banking products that suit their profile and unique demand based on their economic circumstances.
Understanding the unique profile of lower income population is key to capitalising on the prospects of Islamic finance in alleviating poverty. By expanding the range and reach of financial products, Islamic finance could help improve financial access and foster the inclusion of those deprived of financial services. Islamic finance provides the right platform to facilitate these objectives. What is needed is for Islamic banks to build the right infrastructure and capacity towards supporting these objectives.
With the right business and operating model that is distinctive from conventional lending set up, Islamic banks will be in a greater position to contribute significantly to economic development and poverty reduction.
Islamic finance can significantly contribute to economic development, given its direct link to physical assets and the real economy.
What are your thoughts in the context of agriculture sector’ on the current developments in IBF, both in Malaysia and globally? What challenges IBF faces in Asia and what could be done to address these challenges?
Dato’ Wan Mohd Fadzmi Wan Othman: Malaysia continues to strengthen its reputation as an international Islamic finance marketplace. The total foreign currency assets of Islamic banks grew by 10.1% in 2015 to RM30.5 billion (2014: RM27.7 billion), reflecting increased cross-border transactions in Islamic finance. With the successful migration of customers’ deposits into Islamic deposits or investment accounts, it is expected that the role of Islamic finance in supporting entrepreneurship will be greatly enhanced. The operationalisation of investment accounts was further complemented by the launch of the Investment Account Platform in February 2016, which is expected to expand the pool of investors, ventures and banks participating in investment account offerings.
Malaysia’s position as an international Islamic finance marketplace and leading issuance destination has been further strengthened with several landmark issuances in the sukuk market. The issuance of the US$500 million sukuk by the Government marked the longest-tenure sovereign sukuk to date and serves as a long-dated benchmark yield curve for other sovereigns. Following Agrobank’s successful transition into a full-fledged Islamic bank, the total number of Islamic banks operating in Malaysia stands at 27.
Within the Asian context, growth in Islamic agriculture finance in the region is contingent on efforts made in supporting long term food sustainability and security. Uniting resources and consolidating agricultural development policies will help to bring greater coordination among Asian countries and this will facilitate creation of demand for Islamic banking and finance as Asia seeks to become the hub for halal food. But the limited Islamic banking counterparts in Asian countries remains the biggest challenge for the industry moving forward. I believe that increasing the presence of Islamic banks and takaful operators will not only deepen the industry within Asia, but more importantly facilitate greater cross-jurisdictional trades in a more organised and orderly fashion.
A grobank is now in second phase of its transformation journey. Can you share some of the milestones in the journey and what we can expect from Agrobank in the near future?
Dato’ Wan Mohd Fadzmi Wan Othman: Despite the challenging global economic conditions, Agrobank has fared very well. We have successfully achieved the objectives that we set out in our first phase of transformation. Agrobank today is the largest financier for primary agrofood segment with 23.8% market share. It has also achieved the highest growth rate of 13.3% in 5 years mandated financing continues to record strong growth, rising from 69% in 2012 to 85% in 2015. At present, Agrobank’s agriculture-related financing consists of 92% primary agricultural and 8% agro-based. By 2020, the Bank aspires to achieve a ratio of 82:12 in terms of composition of primary to agro-based.
In the next 5 years, Agrobank is targeted to be the domestic champion in agriculture financing, measured from its market share in agro-food industries and increased presence throughout the agriculture value chain. As we are embark on our next phase of transformation this year, our six strategies are namely, effective stakeholder engagement, effective intermediary function, sound and sustainable operating model; high-performing and sustainable organisation; sound and prudent financial management and capacity; and center of excellence in agriculture center. Meanwhile, the business focus for 2016 to 2020 is two-pronged, that is to provide comprehensive financial access to agricultural community in line with the aspiration to be the leading financial institution with a focus on agriculture and to pursue greater diversification by retaining the bank’s market share in the agrofood whilst expanding its presence in the agro-based industries.
Understanding the unique profile of lower income population is key to capitalise on the prospects of Islamic finance in alleviating poverty.
Malaysia is an ethnically diverse country, with multi-faith communities and yet it has emerged as a global leader in IBF. In your opinion what factors have contributed to the Malaysian success?
Dato’ Wan Mohd Fadzmi Wan Othman: Malaysia’s long track record of building a comprehensive Islamic financial ecosystem is attributable to the vision and effective central banking leadership to develop a progressive Islamic banking sector alongside the conventional banking set-up. I am proud to say that Malaysia continues to lead the Islamic banking and finance industry in many fronts, from sukuk development and issuance, to product innovation and human capital development. This is evident in the many accolades given to and acknowledgement received by Malaysia as a country as well as Malaysian-based Islamic financial institutions and other organisations involved in Islamic banking and finance. In my opinion, there are at least five important factors that have contributed to the Malaysian success. First, diverse and well-capitalised Islamic financial institutions that provide equivalent if not better alternatives to conventional banking products and services. Second is the inclusive approach taken by the government and authorities, which has always been to expand opportunities for all. This include the provision of financial products and services. Third, as an ethnically diverse country, with multi-faith communities; all the stakeholders in Malaysia have promoted Islamic banking as a universal service accessible to all regardless of ethnic groups and beliefs. Malaysia also has a mature and high level of financial literacy amongst working population. Hence, Islamic banking with its moral and ethical values in all dealings has wide universal appeal. Fourth, progressive capital market that provides added advantage to Shari’a-compliant instruments in terms of access to liquidity from global investors. Finally, potential to help address the challenges of ending extreme poverty and boosting shared prosperity. This is where Agrobank’s role in Islamic banking and finance becomes relevant. To my knowledge, we are the only full-fledged Islamic bank in the world, with an exclusive mandate to develop agriculture sector.
Malaysia’s position as an international Islamic finance marketplace and leading issuance destination has been further strengthened with several landmark issuances in the sukuk market.
The role of the banking regulator is very important in the development and promotion of Islamic banking. In your experience and observation, how has Bank Negara Malaysia helped in providing a level-playing field to Islamic banking in the country?
Dato’ Wan Mohd Fadzmi Wan Othman: I think I have already answered this question in bits. My reference to Dr Zeti Akhtar Aziz is not just personal. Whatever she did as Governor of Bank Negara Malaysai should in fact be attributed to Bank Negara Malaysia as the financial regulator. Progressive approach undertaken by the central bank towards development of Islamic banking is an example worth emulating elsewhere in the world. We are fortunate to have a banking regulator who is open to discussions and exchange of ideas with market players, particularly on new developmental areas.
Unlike many banking regulators around the world, Bank Negara Malaysia has strongly supported the development of new and innovative Islamic banking products. Most importantly, it has developed adequate infrastructure to establish the world’s most comprehensive ecosystem for the development of Islamic finance in terms of research, access to reputable Shari’a scholars, capacity building for Islamic experts, and liquidity management platform, etc.
What would be your message to the global Islamic financial services community and particularly the youth?
Dato’ Wan Mohd Fadzmi Wan Othman: As a proud father, I have always emphasised on being progressive. My message to the new entrants into Islamic banking and finance, and the incumbent young professionals is – to think ahead; be progressive in your thoughts and actions, as today’s actions will influence the future. Only then can you bring greater impact to the industry and ultimately make Islamic finance a norm rather than just an alternative.
