Business

Tuesday October 18, 2011

Malaysia can strengthen its position as Islamic capital market hub

By Edy sarif
edy@thestar.com.my


PETALING JAYA: Greater internationalisation of the Islamic capital market (ICM) will allow Malaysia to strenghten its position as a hub for ICM activities, said Securities Commission managing director Datuk Dr Nik Ramlah Mahmood.

“The outlook for the Islamic capital market remains very promising,” she said in her keynote address entitled Islamic Capital Market Gearing for the next phase of growth at the IFN 2011 Issuers & Investors Asia Forum here yesterday.

New markets, enhance integration and liberalisation of economies and financial markets would help drive further internationlisation of the Islamic capital market, she added.

“Greater internationalisation will be a key element of the Islamic capital market as it continues to chart further progress in the coming decade,” she added.

Ramlah: ‘The ICM has contributed significantly to the growth of the overall Islamic finance industry in Malaysia.’

The number of jurisdictions and industry participants that embrace Islamic finance would be a major factor in stimulating more cross-border transactions and activities.

“These include fund managers managing international mandates for investors outside the managers' home countries, diverse international representation of investors in sukuk issuances, and the offering of syariah-compliant funds out of international centres such as Luxembourg, among others.”

Looking ahead, she said an increasing number and broader range of similar cross-border activities could be expected to feature more prominently in the Islamic capital market landscape.

“In addition, there will be more concerted efforts towards the syariah-based, as opposed to syariah-compliant, approach involving greater innovation of investment products that are structured based on more equitable risk-sharing arrangements and on productive, real economic activities,” Nik Ramlah said.

She added that the Islamic finance industry in Malaysia had grown rapidly in the last 10 years, accounting for 22% of the total financial assets currently, as compared with 6.9% in 2000.

At the global level, the value of Islamic financial assets is estimated to expand to US$4 trillion over the next few years from US$1.2 trillion.

“The ICM has contributed significantly to the growth of the overall Islamic finance industry in Malaysia.

“As at end-2010, the size of Malaysia's ICM stood at RM1.05 trillion, or 52% of the size of the overall Malaysian capital market, as compared to only RM294 billion as at end-2000,” she said adding that it had registered an average annual growth rate of 13.6% over the last 10 years .

Malaysia accounts for almost two-thirds of total sukuk outstanding globally as at end-2010.

In addition, Malaysia continues to be a pioneer in creating innovative sukuk structures.

Nik Ramlah said under the Capital Market Masterplan 2, the size of Malaysia's Islamic capital market was projected to reach almost RM3 trillion by 2020 with an average growth rate of 10.6% per annum over the 10-year period.

“This growth projection is expected to be achieved primarily through the widening of the Islamic capital market's international base, which would also generate scale efficiencies,” she said.

However, she said in spite of having made great strides, issuers of Islamic capital market products continue to face challenges in relation to product innovation, development and structuring.

“In this regard, the presence of international syariah advisers who sit on various syariah boards of Islamic financial institutions across different jurisdictions can serve to bridge the gap through constructive discussions during the course of discharging their duties.

“Furthermore, the sharing of the rationale for sy ariah rulings or interpretation across jurisdictions can also create better awareness, and hopefully appreciation, within the industry,” she said.

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