Tuesday, January 8, 2013

BADLISYAH: In reality, Malaysia shows the way in Islamic finance

Last week, I went on a business trip to the Middle East, visiting four different cities in the Arabian Peninsular. Within a span of five short days, I met with a diverse group of chief executive officers and royals on the value of dealing with CIMB Group Holdings Bhd, particularly in Islamic finance, for their investments in Asean and Asia Pacific.

Having conducted Islamic finance in the Middle East for the last 15 years, this was just another routine trip for me. Nonetheless, for some of my colleagues who were there for the first time, this trip was an eye-opener.

Like many typical Malaysian bankers, my colleagues have this preconceived idea that since the Middle Easterners are much closer to Makkah than us here in Malaysia, they would know Islamic finance far better than us. Supposedly their products are far more advance and more Shariah-compliant than that of ours in Malaysia.

They soon learned that many of the Middle Easterners are keen to conduct Islamic finance in the manner that we do it in Malaysia. Despite this keenness, they could not do so due to the lack of a comprehensive industry infrastructure and regulatory framework, be it domestically or regionally.

It was enlightening for some of my colleagues to find out how much the Middle East Islamic bankers and Shariah scholars are envious of the unparalleled Islamic financial market that we have in Malaysia. You can imagine my satisfaction while seated in the various meetings as I wish that many more Malaysians could get such enlightenment — in order for them to stop wasting time trying to emulate something that does not really exist or do something that we have as an industry decided not to do because it was proven to have failed or identified as a non-starter.

I strongly share what some academicians have ventured to say — that Malaysia has suffered a lost decade where innovation and creation of new products became stagnant as a result of this irrational preconceived idea. They are asking why Malaysia is considering dropping certain products that has made us the largest, deepest and most dynamic Islamic financial market in the world. If we continue like this, we would even run the risk of causing our industry to regress.

When Malaysia started Islamic equity capital market ie the trading of shares on the stock exchange, Middle East scholars said it was “haram” or prohibited because trading of shares was considered gambling. About 15 years later, these same scholars said it was fine.

When Malaysia started Islamic bonds or sukuk market, Middle East scholars also said that it was haram because one cannot trade debt at a price other than par, but 11 years later, these same scholars said it was fine.

I experienced this first hand when I handled the first global corporate sukuk for Kumpulan Guthrie Bhd in 2001 during my time at Bank Islam (Labuan) Ltd. The Shariah boards of every Islamic bank in the Middle East that we approached to invest in the deal said the sukuk structure we proposed was “haram”. The ironic thing about this is that the structure used was the Sukuk Al-Ijarah, which today is the most widely accepted sukuk structure in the world.

I am sure many of you reading this would be surprised to know that Sukuk Al-Ijarah when it was first introduced was declared “haram” by everyone in the Middle East except for one enlightened Middle East Islamic bank that did proceed with the deal. We pushed the structure knowing that history will repeat itself — that the Middle East will eventually follow suit. It did!

All in all, we must take comfort in the knowledge that what we do in Malaysia is right under Shariah, even when others seem to think otherwise. This is one reality about Islamic finance that we in Malaysia must fully appreciate so that we stop questioning our own credibility and doubt ourselves.

[Badlisyah Abdul Ghani is CIMB Islamic Bank Bhd executive director and chief executive officer. This is his second column, entitled STRAIGHT TALKING, in the 10 Dec 2012 issues of The Malaysian Reserve, a busness/finance daily printed out of Kuala Lumpur]