Alliance Bank in Malaysia is using its close ties with SMEs and entrepreneurs to uplift local communities and promote economic and environmental sustainability. The bank, which comprises Alliance Bank Malaysia and Alliance Islamic Bank, has launched a variety of initiatives that support small businesses, foster financial inclusion, and help companies respond to climate change. Rizal IL-Ehzan Fadil Azim, CEO at Alliance Islamic Bank and Roy Heong, head of strategic partnerships and innovation at Alliance Bank Malaysia, discuss how the group is “building alliances to improve lives.”
How do you envision the role of banks evolving to drive a positive future? What specific initiatives or strategies are you implementing to align with this vision?
Rizal: We're one of the fastest-growing banks in the country and we focus predominantly on SMEs. They comprise about 90% of businesses in Malaysia but only contribute around 38% of the country's GDP. Our goal is to help the SME sector become a bigger part of the economy reflecting a wider and fairer distribution of wealth and income
We view Alliance Bank’s purpose beyond a purely capitalistic standpoint. It emanates from our focus on small businesses. By serving the SME sector, we gain an intimate understanding of the trials and struggles faced by business owners. We strive to translate that knowledge into support that goes beyond financial assistance, ensuring that each of our customers has the opportunity to succeed and grow their businesses. This philosophy is embodied in our mission: “building alliances to improve lives.”
We believe our efforts are driven not only for commercial reasons but also by humanistic ones to improve society, to improve income levels, and foster community well-being. Our role as a bank extends beyond serving shareholders; it requires us to meet the needs of a broader range of stakeholders, including government and policymakers, customers, employees business partners and the communities in which we operate.
Our social funding programmes, such as SocioBiz and Zakat Micro Financing (ZMF), align with our mission of improving financial inclusion. Additionally, we have been working on several ESG initiatives through our Sustainability Impact Program (SIP), which provides businesses with a roadmap for adopting sustainability practices and building resilience in a low-carbon economy.
By supporting SMEs and micro-businesses through both social and environmental programme, we believe we can create a lasting impact on the economy and society as a whole.
How are you incorporating environmental considerations into your business practices and product offerings?
Roy: A lot of Alliance Bank's environmental focus significantly addresses climate change and compliance with climate change regulations. We assist our customers in their journey toward decarbonization. At this stage, we are not looking to sever relationships with non-compliant customers.
Our flagship Sustainability Impact Program (SIP) guides our environmental efforts with SMEs and encompasses three “A category” key activities –
1. Advocating for ESG adoption
2. Advising SMEs; providing guidance on how they can embark on their decarbonization journey
3. Provide Answers – offering solutions to help companies address their ESG needs.
To implement SIP effectively, we collaborate with like-minded, key industry partners. These include InvestSarawak (investment and development), SME Corp (research), and Monash University (education) in the Advocacy category, along with Bursa Malaysia (sustainability platform) and the UN Global Compact Network (planning and capacity building) in the Advisory component. Our banking solutions and beyond-banking teams play a crucial role in delivering Answers.
We have established a three-year exclusive partnership with the UN Global Compact Network Malaysia & Brunei, which provides a range of capabilities that help our clients assess their climate impact, build capacity, engage with sustainability ecosystems and implement action plans.
Additionally, we work with Bursa Malaysia (stock exchange) to assist SMEs that supply listed companies in driving ESG improvements and promoting green supply chains. We offer a comprehensive suite of programmes, that leverage our connections with the UN Global Compact Network, as well as our own financing products and incentives, to encourage SMEs in their transition to sustainability. This approach also helps listed companies in improving their ESG ratings and investor profiles, assists them in reducing their Scope 3 emissions, and encourages firms that have yet to go public to increase their ESG readiness. We have conducted multiple capacity-building workshops for corporates, state agencies and SMEs to help them reach their Net Zero goals.
Our sustainability initiatives support the business community in Malaysia in decarbonizing by collaborating with supply chains across the country. These initiatives cover a broad scope, and we believe they can deliver significant impact. As of FY2024, Alliance Bank has achieved RM12.6 billion in total sustainable banking business.
How does Alliance Bank support economic growth within the communities you serve?
Rizal: Our social funding programme builds on our core competency as a bank - intermediating funds. While we typically intermediate commercial funds, we also facilitate social funds to benefit our communities. At Alliance Islamic Bank, social funds consist of tithes (zakat), endowments (waqf), and donations (sadaqah) from various donors. The bank strongly advocates for value-based intermediation, channeling social funds to SMEs and other ventures that create a positive social and environmental impact.
Our Zakat Micro Financing (ZMF) initiative, launched last year, collaborates with business and religious partners to channel zakat funds to micro businesses and community-based entrepreneurs. This programme provides affordable financing to individuals with limited access to funding, focusing on value creation.
In the past, we provided funding on a one-off basis. However, with ZMF, we now channel this funding as microfinancing. Each recipient receives MYR 5,000 (US$1,300), which they use to run their businesses, and they repay us from the income generated. This model allows us to recycle the funds and extend microfinance to additional parties. Our approach is three to four times more effective than the previous one-off method.
To date, we have disbursed MYR 225,000 (US$55,000) to 45 asnaf micro-entrepreneurs, achieving a remarkable repayment rate of 100%. Under the former model of a one-off zakat distribution, this funding would have only assisted the initial 45 beneficiaries. However, with the ZMF model, we estimate that it will help approximately 135 beneficiaries over the next three years.
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Can you provide examples of programs or partnerships that have been particularly successful in improving financial inclusion or financial health?
Rizal: In 2019, we launched SocioBiz, a crowdfunding platform which combines contributions from the bank as the anchor contributor, with those from the community. The funds raised on the platform are channeled into impact projects, run by local communities that address critical needs such as poverty relief and education. During the pandemic, when income opportunities were severely limited, SocioBiz facilitated 15 crowdfunding campaigns, raising over MYR 1.5 million (US$355,000). This year, we have rolled out four campaigns, raising MYR 235,000 (US$55,000).
Additionally, in 2020, we introduced the Economic Empowerment Programme (EEP), a capacity-building initiative that complements our financing services. This programme provides entrepreneurs with training in business management, finance, and marketing. To date, more than 173 entrepreneurs have participated in the programme.
For our ZMF initiative, we partnered with microcredit provider Amanah Ikhtiar Malaysia and zakat management specialist Lembaga Zakat Selangor to utilise social funding in supporting local communities and fostering the growth of small businesses.
Are there other climate initiatives, in addition to action you are already taking, that you need to be doing to be more confident of achieving the 2050 decarbonization targets?
Rizal: I think it is clear that the role of banks in addressing climate change will continue to evolve, largely driven by regulatory requirements. In Malaysia, the NDCs (Nationally Determined Contributions) have spurred numerous initiatives within the financial sector. For instance, the central bank has been issuing regulations regarding the assessment of climate change risks in banking portfolios. We have been actively conducting scenario analysis and defining strategies to mitigate climate risks in our portfolios. There is no doubt that banks will increasingly engage in such activities; if not driven by market demands, they will be compelled by changing regulations.
In economies with significant wealth disparities, there is mounting pressure on businesses – not just within the finance sector, to adopt fair wage practices, equitable treatment of workers, and responsible customer relations. As we mentioned earlier, Alliance Bank is committed to guiding its customers down the decarbonization path, ensuring they are not left behind in this essential transition. There is a tendency for companies, particularly publicly listed companies, to divest from non-ESG-friendly businesses in response to demands from activist shareholders or regulators. However, we are taking a different approach. We assist our customers through this process by providing tools, information, and financing. At the same time, we are rolling out more funding solutions for sectors of the economy that previously lacked access to capital or funds from financial institutions. I think these initiatives will continue to be our focus, driven not just by regulations but also by the potential for future benefits. By ensuring the long-term viability of our business customers, we are also nurturing and cultivating new customer segments that have the potential to become bankable.
Alliance Bank seems to have focused more on social and economic development over environmental issues, which are a big concern in Europe. Is this emphasis on the S in ESG, rather than the E component, something that comes from an Islamic banking background or is it driven by other considerations?
Rizal: The Malaysian economy, like most Southeast Asian economies, is predominantly based on commodities. While there is some manufacturing, the economy largely revolves around the production of commodities, which often leads to environmental issues such as deforestation, land usage concerns and pollution. Local manufacturing companies also face challenges related to greenhouse gas emissions.
At Alliance Bank, both our conventional and Islamic banking businesses are committed to helping companies reduce their emissions and, consequently, their impact on the climate. We recognize that Malaysia’s economy may need to be transformed and transition away from commodity-related sectors toward new green activities. However, it is crucial for us to ensure that individuals and communities are not left behind in this process. So, on one hand we are addressing environmental concerns, particularly climate issues; on the other, we are guiding our customers along the path of decarbonization. We must ensure that the transition from the old economy is just, allowing as many people as possible to share in the wealth generated by the green economy.
On the Islamic side of our business, we maintain the same approach. We recognize that there are communities that may be displaced or disrupted by the transition to the new green economy. Our goal is to ensure that people are not left behind during the transition; instead, we want them to actively participate in the new economy and secure livelihoods for themselves.
Is there anything else you think is important to address?
Rizal: We at Alliance Bank proudly identify as The Bank for Life. We are a community-centric institution. Historically, our focus on community well-being tended to be peripheral, often categorised under corporate social responsibility initiatives. We primarily concentrated on our mainstream banking activities while engaging with the community on the fringes of our operations. However, in recent years, we have been enlightened to the importance of integrating our community and environmental activities into our core business. This shift in perspective has been largely driven by a growing need for accountability within the bank, coupled with investor activism and regulatory pressure. These factors have prompted us to rethink how we can embody our broader purpose within the bank’s core business.
