17th December, 2010
KUALA LUMPUR: Malaysia is poised to become one of the biggest Islamic financial hubs globally, thanks largely to the rising number of foreign players plus greater demand for Islamic financing under the country’s ambitious Economic Transformation Plan (ETP).
“This marks tremendous success in the Government’s foresight and its pro-active involvement towards the progress of Islamic financing in the domestic landscape,” said Chief Executive Officer of Maybank Islamic Bhd, Ibrahim Hassan.
Currently there are 24 players including local and foreign financial institutions offering Islamic finance, said Ibrahim.
He said the increase in number of players in the industry would further enhance the position of Malaysia as the international hub for Islamic finance under the Malaysia International Islamic Financial Centre (MIFC).
Under the ETP which was launched in September this year, Islamic banking has been identified as one of the key sectors which is expected to contribute to a higher and more sustainable economic growth.
“This will encourage greater financial and trade flows between Malaysia and foreign countries particularly Asia and the Middle East,” he told Bernama in a recent interview.
The bulk of funding for ETP is expected to come from the private sector of which, a significant portion will come from banks, government-linked companies while the public sector contributes the rest, he said.
Some of these funding needs will be addressed through a sukuk-raising exercise, he said.
Commenting on the liberalisation measures by Bank Negara Malaysia, he said Maybank was supportive of the measures which are aimed to strengthen Malaysia’s economic inter-linkages with other sectors and enhance the role of the financial sector as a key enabler and catalyst of economic growth.
The sector is also expected to see further stimulus from the move allowing the increase in foreign equity ownership of up to 70 per cent in Islamic banks, investment banks and insurance companies.
“We welcome the development and new players. The entrance of new Islamic financial institutions is positive sign in the overall economic sector,” Ibrahim said.
In the last five years beginning 2005, signs of significant upturn for the Islamic banking industry in Malaysia were evident judging from the significant increase in total Syariah-compliant assets, said Ibrahim.
According to BNM statistics, as at September this year, the country’s Islamic banking system accumulated a total of RM250 billion in assets or 16.6 per cent of the total assets of the banking sector, which is RM1.5 trillion.
In terms of ranking in global Islamic finance, Malaysia was at the top position for sukuk followed by UAE, Saudi Arabia, Indonesia and Bahrain. It was also reported that sukuk performed well, garnering 57 per cent or RM172 billion of the total bond issuance of RM301.7 billion.
In the equity market and fund management, Malaysia also ranked first but Malaysia was at third position in terms of Islamic banking and took second place for Takaful.
Among significant developments in Islamic banking this year was the announcement from the Ministry of Finance on the issuance of Sukuk 1Malaysia 2010 amounting to RM3 billion on June 21.
Others were the establishment of the International Islamic Liquidity Management Corporation (IILM) to facilitate greater investment flows of Syariah-compliant instruments across borders.
IILM primary objective is to issue Syariah-compliant financial instruments in order to facilitate more efficient and effective liquidity management solutions for institutions offering Islamic financial services.
Despite the challenging economic times, Malaysia’s state oil company Petronas, was able to successfully launch in August a landmark issuance of US$1.5 billion sukuk which was over-subscribed by six times.
It was the largest U.S. dollar issuance by an Asian entity outside Japan this year.
It showcased Malaysia’s credentials as a centre of origination not only for ringgit bonds and sukuk, but also for issuance of foreign currency denominated bonds and sukuk.
On the overall outlook of Islamic banking in Malaysia, Ibrahim said it was often regarded as more progressive and robust compared with similar banking systems in other countries.
On top of that, Malaysia is now recognised as the pioneer and at the forefront of Islamic banking and finance, he said.
In terms of product development, Malaysia is expected to introduce more new and innovative Islamic banking products including structured deposit and derivatives & hedging products.