All eyes on the Islamic finance industry
by Ronnie Teo, [email protected] Posted on April 15, 2012, Sunday
Malaysia is emerging as a leading hub for the growing Islamic financial industry, with more push from the government to establish an Islamic economic and financial system. This industry is rapidly growing, with total global syariah-compliant fund assets estimated at a hefty US$60 billion as at the end of 2011. BizHive Weekly takes a snapshot of the industry and looks at potential areas for growth both locally and internationally for Malaysian players.
Financing: The Islamic way
Akmal Hassan, CEO and executive director of Asian Islamic Investment Management Sdn Bhd
As a country with Islam as its official religion, Malaysia is no stranger to the practices of an Islamic financial system.
As a matter of fact, Malaysia is well on its way to strengthening its global position as a leading hub for the growing Islamic financial industry, capitalising on its long-established dual-banking system.
The government is currently pushing for more progress in this division as exemplified in the Financial Sector Blueprint 2011-2020 which outlines the government’s plans to aggressively push for Islamic banking.
Also, earlier this week, the Malay Consultative Council (MPM) revealed its plans to create an Islamic economic and financial system in its efforts to realise the government’s target of achieving 30 per cent Bumiputera equity holdings in the economy. Under this system, MPM proposed the establishment of the National Islamic Economic Consultative Council, controlled by the Conference of Rulers meeting, as a reference and monitoring body in the implementation of the principles of the Islamic Economic Model.
MPM had also hoped for a separate legislation for Islamic Banking and Finance Act, but this would not contradict the provisions of the existing Banking and Financial Institutions Act 1989. With all this in play, it was no wonder that the industry has been growing leaps and bounds over the last decade. To note, data dictating the growth of the global Islamic fund management industry over the past ten years has been very encouraging, supporting the trend and the size of syariah-compliant funds which accounted for 4.5 per cent of total Islamic finance assets.
In fact, total global syariah- compliant fund assets were estimated to be at US$60 billion as at the end of 2011, with a projected growth of 10 per cent to 15 per cent in 2012. All this encouraged the birth of a diverse range of investments in the Islamic fund management industry across the globe which has started to attract non- Muslim investors, benefitting Malaysia in turn.
“Malaysia’s Islamic finance continues to grow rapidly, supported by a conducive environment that is renowned for continuous product innovation, a diversity of finan-cial institutions from across the world, a broad range of innovative Islamic investment instruments, a comprehensive financial infrastructure and adopting global regulatory and legal best practices,” noted Akmal Hassan, chief executive officer (CEO) and executive director of Asian Islamic Investment Management Sdn Bhd (AII-MAN).
“Malaysia has also placed a strong emphasis on human capital development alongside the development of the Islamic financial industry to ensure the availability and retention of the right talent,” he added.
“All these value propositions have transformed Malaysia into one of the most developed and dynamic Islamic finance markets in the world and put us in the forefront when foreign players think of when they come to Asia.”
An additional factor that has been driving the development of the industry was the push towards the mainstream to attract non-Muslim wealth.
Moreover, rapid liberalisation in the Islamic finance industry has encouraged foreign financial institutions to make Malaysia their destination of choice to conduct Islamic business and finance.
This created a diverse and growing community of local and international financial institutions.
Despite seeing such positive development, director and head of Islamic Banking division of OSK Investment Bank Bhd (OSK Investment), Yazit Yusuff believed the Islamic financial industry still had a lot more potential for growth.
“As an outfit that represents the Islamic banking operations of OSK Investment, we hope the Islamic financial industry would continue to grow at a more rapid pace both locally and internationally,” he told BizHive Weekly.
“On the local front, the industry just barely achieved targets set by the regulator in the first Financial Sector Master Plan which ended in 2010, whereby the Islamic banking industry achieved just over the targeted 20 per cent of the total banking system.
“Takaful contributed only eight per cent of the overall insurance industry.”
Internationally, the Islamic financial markets have also seen more harmonisation in terms of product structure between what was accepted in the middle-east market and what has been practiced in the Asian region, especially in Malaysia.
“For example, we have seen global sukuk issued by the Malaysian government, taking into account syariah view from the Middle Eastern counterpart,” Yazit stressed.
“We have also seen sukuk originating from Middle East institutions that have receivable components in the asset portfolio of more than 70 per cent in appreciation of the accepted view from some Malaysian syariah counterparts whereby debt trading is acceptable,” he added.
“Even though we do not have direct operations in insurance or takaful businesses, being one of the players in the overall Islamic financial system, we do hope that takaful industry can also grow and similarly grow at a more rapid pace.”