Malaysia And Islamic Finance
In fact, Islamic finance in Malaysia is growing by leaps and bounds and at such a rapid pace that the world has begun to take notice. A World Islamic Banking Competitiveness Report 2013-14 published by Ernst and Young revealed Malaysia’s market share, growth rate, and value of Islamic assets in comparison to five other countries that, along with Malaysia, makes up 78% of international Islamic banking assets.
What sets Malaysia apart?
Despite being a country where a majority of its population are Muslims, Malaysia ranks far below Indonesia in terms of Muslim population. Further, richer Gulf states and Saudi Arabia are homes to bigger Islamic banks. So, what sets Malaysia apart? The answer: the country, its support structure, and its people.
The Economist, in its report titled Banking on the Ummah: Malaysia Leads Charge in Islamic Finance, recognised Malaysia as the world’s most important Islamic finance centre in its own ways and has awarded Malaysia top marks for its progressive leadership in Islamic finance – in particular its dominance in Islamic bonds (also known as sukuk).
In 2002, Malaysia issued the world’s first sovereign Islamic bond or sukuk and by the first three quarters of 2012, was responsible for almost three-quarters of total global issuance.
In Malaysia, Sukuk is an additional investment instrument based on Shariah principles for citizens aged 21 and above. In 2010, the Ministry of Finance issued Sukuk 1Malaysia 2010 amounting to RM3 billion with a 3-year tenure and an annual return of 5%.
Malaysia also houses the Islamic Financial Services Board, an international standard-setting board that promotes and enhances the soundness and stability of the Islamic financial services industry by issuing global prudential standards and guiding principles.
The support structure
In Malaysia, two institutions set up by Bank Negara Malaysia (BNM) play a huge role in developing and growing Islamic Finance. The first of these two is the International Centre for Education in Islamic Finance (INCEIF), which incidentally is also the world’s leading university for the study of Islamic finance, boasting approximately 2,000 students.
The university also houses the International Shari’ah Research Academy, produces internationally accepted rule book for Islamic Finance.
The second institution, the Islamic Banking and Finance Institute of Malaysia (IBFIM) focuses on providing vocational training and also acts in a consultancy capacity to banks and firms that want to become Shariah-compliant.
Malaysia has no shortage of talent in the area of Islamic finance. Aside from those produced by INCEIF and IBFIM, an article published by Free Malaysia Today states that according to a list in the February issue of ISFIRE, a quarterly magazine published by London-based Edbiz Consulting Ltd, 15 out of 20 top women in Islamic finance are Malaysians. Most notable among them is Tan Sri Dr Zeti Akhtar Aziz, the head of Bank Negara Malaysia (BNM), Malaysia’s central bank.
All these three components combined has propelled Malaysia to the top in the world of Islamic finance which in turn will inspire confidence in consumers and increase take-up.
Not familiar with Islamic Banking? Find out how it works here.