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| Banking |
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Comprehensive Islamic financial system
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THE Malaysian experience
in Islamic banking has been unique. The nation has successfully
developed an Islamic banking system that operates in
parallel with the conventional banking system. The Islamic
banking is governed under a dedicated Islamic Banking
Act 1983 while it is subjected to similar regulatory
and supervisory framework to that of the conventional
banking.
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Malaysian Islamic
financial system has successfully integrated key structural
components of the industry comprising the Islamic banking
industry, the takaful industry and the Islamic money
and capital market to become a comprehensive, efficient
and dynamic Islamic financial system. It has also
achieved global integration with the foreign participation
in the Malaysian Islamic financial system. Recently,
three new Islamic banking licences were issued to qualified
foreign players namely Kuwait Finance House, Al Rajhi
Banking & Investment Corporation and Asian Finance
Bank Berhad.
A comprehensive regulatory and supervisory framework
that caters to the unique characteristics of Islamic
finance operations has been put in place. Stronger standards
have been set for corporate governance, transparency,
disclosure, accountability, market discipline, risk
management and customer protection.
Malaysia has also taken the initiative to position itself
as a centre of excellence for Islamic banking and finance
education, training, consultancy and research to complement
the industry players with the supply skilled and competent
talents in Islamic banking and finance. The International
Centre for Education in Islamic Finance (INCEIF) was
established with the main focus of developing a group
of competent professionals in Islamic banking and finance.
In addition, a RM200 million “Fund for Shariah
Scholars in Islamic Finance” was established as
part of its commitment to foster talent management solution
and enhance research capacity in the field of Shariah
and Islamic finance as well as to hold regular discussions
and dialogues among Shariah scholars at the regional
and international level.
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| Islamic
Banking Industry |
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The Islamic
banking sector in Malaysia has undergone significant
transformation over the last two decades. From
a mere one per cent in 1980s, the market share
of Islamic banking sector in Malaysia today increased
to about 12 per cent of the total banking industry.
The Malaysian Islamic banking landscape today comprises
10 full-fledge Islamic banks as well as 8 conventional
banking institutions that operate as a window that offers
Islamic products and services.
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| Takaful
Industry |
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The Malaysian
takaful industry represents an important component in
the overall Islamic financial system given its role
in the mobilisation of long-term funds and its role
in providing risk protection. The development
of the takaful industry in Malaysia in the early 1980s
was improved by the prevailing needs of the Shariah
compliant alternative to conventional insurance, as
well as to compliment the operation of the Islamic bank
that was constituted in 1983.
Since then, it has grown; from an industry comprising
a single player with limited basic product has now become
a viable industry that has been integrated into the
mainstream financial system. The takaful industry
in Malaysia has consistently registered strong growth.
The industry recorded annual growth rates of 57.9per
cent and 44.0 per cent in assets and net contributions
respectively since 1986. It has now reached a
market penetration rate of 6.1 per cent in 2006.
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| Islamic
Money Market |
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The Malaysian
Islamic Interbank Money Market (IIMM) may be regarded
as among the most structured Islamic money market in
the world. Introduced in January 1994, the IIMM serves
as a short-term intermediary to provide a ready source
of short-term investment outlets based on Shariah principle.
Among the instruments available in the Islamic money
market are the Government Investment Issues (GII), Bank
Negara Negotiable Notes (BNNN), Malaysia Islamic Treasury
Bills, Islamic Commercial Papers, Islamic private debt
securities (bond and commercial papers) and also Islamic
Negotiable Instruments.
BNNN and GII are the most traded securities, recording
a turnover volume of RM32.5 billion and RM2.9 billion,
respectively in 2006. Money market transaction
such as mudharabah interbank placement reached a staggering
volume of RM81.3 billion until the end of May 2006.
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| Islamic
Capital Market |
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Islamic capital
market is increasingly commanding global attention as
a source of financing as well as for investment activities
that adhere to Shariah principle. Malaysia has
led the way in issuing the first global Islamic bonds
by the government as well as the corporate issuers.
Since then, many new Shariah compliant instruments have
been developed and introduced resulting in greater depth
and breadth of the Islamic capital market.
Malaysian Sukuk exceeded RM103 billion which accounted
for 47 per cent of domestic corporate bond market and
represents the largest Islamic bond market in the world.
The first global sukuk index (known as Dow Jones Citigroup
Sukuk Index) was formally launched in Kuala Lumpur recently,
which measures the performance of global Islamic fixed-income
securities that comply with investment guidelines. In
Malaysia, more than 80per cent of the stocks listed
on Bursa Malaysia (Malaysian Stock Exchange) are classified
as Shariah-compliant securities.
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| International
Islamic Financial Centre |
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Against the backdrop
of rapid development in the international Islamic financial
markets, Malaysia is continuing its efforts not to only
develop further the Islamic financial infrastructure
but also to implement measures and initiatives that
will strengthen its position as an international Islamic
financial hub. The Malaysian Government has therefore
launched an initiative known as the Malaysia International
Islamic Financial Centre or MIFC with the mission to
create a vibrant, innovative and competitive international
Islamic financial services industry in Malaysia, supported
by high caliber human talents, world class infrastructure
and best international standards.
The MIFC aim is to be the centre for offering of Islamic
financial products and services by a diversified range
of financial institutions from anywhere in Malaysia
in any currency to non-residents and residents, with
a niche in:
i) Origination, issuance and trading of Islamic capital
market and treasury instruments;
ii) Islamic fund and wealth management services;
iii) Islamic financial services in international currencies
(including deposits and financing); and
iv) Takaful (Islamic insurance) and retakaful.
Apart from it, MIFC also aimed to position Malaysia
as a centre of excellence for Islamic banking and finance
education, training, consultancy and research.
Malaysia continues to undertake measures and initiative
to further deregulate and liberalise the Malaysian Islamic
financial system to strengthen its position as an international
Islamic financial centre. These measures are aimed
at promoting the growth in Islamic financial activities
in international currencies in these areas of origination,
issuance and trading of Islamic capital market and treasury
instruments, Islamic fund and wealth management, international
currency Islamic financial services market (including
deposit and financing) as well as in takaful and retakaful.
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By Abu Hassan Aishari Yahaya
Director, Corporate Communications Bank Negara
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