Sunday, March 1, 2009

Malaysia, London can bridge Islamic financial markets

Malaysia and London can pave the way towards bridging Islamic financial markets between the East and the West, according to Bank Negara Malaysia's governor Tan Sri Dr Zeti Akhtar Aziz (picture).
She said the global financial crisis had highlighted several structural weaknesses and imbalances in the international financial system.
"Whilst Islamic finance is not insulated from the effects of the current environment, the Shariah principles and values that underlies Islamic finance provides an important underlying foundation," Zeti said. "This has been further reinforced by the strengthening of the financial infrastructure, the regulatory regime, the supervisory and legal framework, and the crisis management capabilities," she said at the two day Euromoney 8th Annual Islamic Finance Summit on "Islamic Finance and Global Financial Stability" which began in London on Feb 23. The text of her speech was released in Kuala Lumpur on Tuesday.
"As we weather the current environment and prepare for the next wave of the growth cycle, it is also timely to explore the potential synergy that can be optimised between London, an international financial centre, and Malaysia, an international Islamic financial hub," Zeti said. "And in doing so, capitalise on the respective comparative advantage, thereby strengthening the linkages between Islamic financial markets, in particular, between the East and West," she said.
Zeti said with total global Islamic financial assets now estimated at US$700 billion in 2007, the Islamic financial industry was offering a wide range of complex and sophisticated Islamic financial products and services. Of significance, she said, was its greater integration into the international financial system.
As it becomes part of the financial globalisation process, Islamic finance has however become increasingly exposed to the systematic implications of external developments, Zeti said.
"Two issues are of interest. Firstly, as Islamic finance expands, its potential for sustaining financial stability and secondly, how robust is the industry to external shocks. In this regard, there are several areas of potential collaboration," she said.
In the area of liquidity management, Malaysia has an established and vibrant Islamic money market, the central bank governor said. She said the range of Islamic money market instruments could be a viable platform towards the development of a bilateral currency market.
With Malaysia's Islamic infrastructure and London's global reach, a mutual enriching international currency Islamic money market could potentially be developed in which other financial centres could participate and leverage on the enhanced interconnectivity, Zeti said.
In the immediate term, it could accord advantages to Islamic financial institutions in the United Kingdom and Malaysia to manage their liquidity management requirements, she said.
In the area of sukuk, Malaysia has the largest sukuk market while London has one of the most established exchanges. Thus, an area for potential cooperation could be in the area of the cross-listing of sukuk, according to Zeti. — Bernama

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