TMR: Widening scope for Shariah-compliant financial tools

By Kazi Mahmood

The Islamic banking sector has enlarged its scope of business, covering a wider range of commercial needs for working capital and trade financing among others, said a report published by the Malaysian International Islamic Financial Centre (MIFC).

“Shariah-compliant financial solutions now range from working capital, trade financing, re-financing and capital expenditure needs as well as the household and the retail sector,” the report entitled "Shariah compliance in all matters, the priority of a robust Islamic finance ecosystem" said.

The report indicated the retail sector is well covered with Islamic financing products that meet their asset financing needs, such as home financing or car financing, personal financial and other retail liquidity needs.

In addition, the government and government-related entities have been actively tapping into the Islamic finance sector to raise funds to support their fiscal, revenue and infrastructure expenditures, it said.

The report offered an insight on the progress of the Islamic banking and financial sector in Malaysia in 2013.

As at the end of 2013, Malaysia’s Islamic banking sector held over US$130 billion (RM98.34 billion) in assets and the country has the largest and most liquid sukuk market with amounts outstanding over US$158 billion.

The sukuk market in Malaysia represents over 58% of the global sukuk outstanding.

Furthermore, Malaysia also has the largest Islamic funds sector (in terms of number of funds domiciled) with over US$16.3 billion of assets under management while it has the second-largest takaful market with total gross contributions estimated at over US$2.2 billion.

The Malaysian Islamic finance sector also provides lucrative investment opportunities to investors globally seeking healthy and ethical returns and over the years, the sector has attracted substantial inflows of funds from global investors, particularly from the Middle East.

Since the inception of the Islamic finance industry in Malaysia three decades ago, the country has successfully embarked on a number of strategies and initiatives to develop the industry.
Among these include the robust and sound development of a comprehensive Islamic finance ecosystem that guide the country’s
Islamic financial institutions in effectively managing the Shariah compliance of the operations.

“These have been critical in substantially attracting Islamic finance business in the country from both domestic and global stakeholders,” the report indicated.

To date, Malaysia has the world’s most progressive Islamic finance marketplace, leveraging on the country’s long track record of over 30 years of experience in building a successful domestic Islamic financial industry, the MIFC said in the report published in late February 2014.

“Rapid liberalisation in the Islamic finance industry, coupled with facultative business environment have encouraged foreign financial institutions to make Malaysia their destination of choice to conduct Islamic banking business,” the report added.

[THE MALAYSIAN RESERVE, 17 March 2014]

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)