MIFC: Liberalising Islamic finance system

Malaysia has been progressively liberalising its Islamic financial system to increase foreign participation, as it forms an integral and competitive component of the country's overall financial system.
The Islamic financial system operates on a parallel level in relation to the conventional banking system, servicing both the Muslim and non-Muslim communities.
Raja Muda of Perak, Raja Dr Nazrin Shah said last Saturday that the Shariah principles which underline Islamic finance have contributed towards its stability and resilience in facing issues such as the current global financial turmoil.
"Therefore, it comes as no surprise that during the current global financial turmoil, Islamic funds have seen less volatility, risk and as a result have performed better compared with conventional funds," he said.
He said this in his speech at a luncheon talk with investors in conjunction with the Malaysia International Islamic Financial Centre (MIFC) roadshow to Kuwait and Saudi Arabia, in Riyadh. Liberalisation of Malaysia's Islamic financial system has taken the form of the issuance of new licences and increasing foreign participation within Islamic banks and takaful companies, coupled with new licences issued to foreign fund managers and foreign stockbroking firms.
Raja Nazrin also cited Syariah injunctions like those prohibiting excessive leverage and speculative financial activities as having insulated Islamic funds from too much risk exposure, thus limiting their exposure to the meltdown of the financial system in the US and Europe.
"It therefore comes as no surprise that during the current global financial turmoil, Islamic funds have seen less volatility, risk and as a result have performed better compared with conventional funds," he said.
Raja Nazrin said Malaysia believes there is a tremendous upside potential for Islamic finance and that the current financial turmoil provides an opportunity for Islamic finance to position itself as a complementary, if not alternative, to conventional finance by providing investors with other asset classes and markets that provide stability.
He said over the last few years, there has been an increasing interest among the Middle Eastern investors in the Asian market with Saudi Arabian financial institutions already having made their presence felt in Malaysia including Al-Rajhi Bank and Rsud Bank's shareholding in the Asian Finance Bank. To date, one of the more prominent investments in Malaysia is Saudi Telecom's US$3 billion (RM10.74 billion) stake in local telco firm, Binariang.
"We welcome the continued participation of these Saudi financial institutions and investors in Malaysia, especially to take advantage of the numerous opportunities offered under the MIFC initiatives," he said.
Raja Nazrin also explained that Malaysia could be the perfect gateway for investors to take advantage of the Asean region which comprises a potential market of about 600 million people and a combined gross domestic product of US$1 trillion.
The MIFC was launched in 2006 as part of Malaysia's initiative to globally integrate within the international Islamic financial community and to position the country as an international Islamic financial centre. Since then, significant progress has been made as the Islamic financial system in Malaysia today comprises Islamic banking institutions, takaful (insurance) and re-takaful industries as well as Islamic money and capital markets. — Bernama (The Malaysian Reserve, Oct 28, 2008, Page 9)