Malaysia maintaining pole position in Islamic finance

By Hamisah Hamid Malaysia is clearly the current leader in Islamic finance, setting the standards across the industry and marking its thought leadership in the area. Backed with over 30 years of development in Islamic banking and finance, the country now has a deep capital market and broad range of consumer banking and Takaful products that attract both Muslims and non-Muslims. Malaysia now has the critical mass of players - Syariah experts, products, tax incentives as well as legal clarity and certainty that support the expansion of Islamic banking and finance. The country's headship in Islamic banking and finance is the result of the government's political will and the private sector initiatives in enabling an environment of legal, regulatory, supervisory, risk management, Syariah framework and incentives. Under the programme introduced by former prime minister Tun Dr Mahathir Mohamad, the architect of Malaysia's Islamic banking policy in early 1980s, the sector has evolved systematically and comprehensively. Today, Malaysia is home to the largest Islamic banking assets with a current value of US$86 billion (RM284 billion); has the most number of Islamic fund managers with 152 firms managing a total of US$6.5 billion (RM21.4 billion) of funds; its Bursa Malaysia topped the world's exchanges in sukuk listings, recording a total of US$17.6 billion (RM58 billion) in sukuks last year; and with 1,080 sukuk issuances amounting to US$67 billion (RM221 billion), the country accounted for 63 per cent of the global sukuk issued since 2006. Malaysia's position as one of the world's Islamic finance hub is recognised globally, and it has become a role model for many countries. However, in the rapidly changing global economy, the country cannot rest on its laurels especially when its competitors come from the engine of global growth - Asia. There are many aspirants out there which are raising their game to get a slice of the US$1 trillion (RM3.3 trillion) Islamic banking assets such as Singapore and Hong Kong. Tokyo- and Seoul-originated sukuks are also possible in the foreseeable future as South Korea aspires to be North Asia's financial centre, while Japan wants to solidify its standing as one of Asia's international financial hub. Some analysts opined that the relative youth of Syariah-compliant products in these markets would make it harder for them to achieve the same depth as Malaysia. Yet, Singapore and Hong Kong are competing hard, especially in the Islamic capital market, given their position as Asia's centres for conventional private banking and fund management. Although it may be some time before these latecomers catch up with Malaysia, it may not be as far as one expects. Given appropriate regulatory push and incentives, the competitors can leapfrog and overtake Malaysia. Malaysia, thus, needs to build on the momentum it achieved so far to maintain its leadership in the sector. Industry observers believe that to sustain the country's competitiveness, players should come out with more innovative products and not merely offer the Islamic alternative to conventional banking and financial products. In fact, it is timely for players to rally their best experts and think out of the box to design and develop innovative products as differences in syariah interpretation within the Muslim world have narrowed. Internationally, the standardisation issue is almost no longer an obstacle. This is due to greater efforts by syariah scholars to deepen their understanding of rulings in different jurisdictions and the fact that more Islamic products are being structured for the global marketplace. Malaysia may have achieved economies of scale in consumer banking given its large Muslim population, but a lot more needs to be done in the Islamic capital market. Some observers have noted that local Islamic banks are mainly focusing on financing although Islam offers a large scope for the development of financial products. At the same time, Malaysia cannot afford to be lax in human capital development. A knowledgeable workforce is vital to keeping it at the forefront in Islamic banking and finance in future decades. http://www.btimes.com.my/Current_News/BTIMES/articles/MONVIEW4/Article/