Business

Tuesday June 28, 2011

The Islamic finance industry grows at 14% annually to RM3.1 trillion

By EDY SARIF
edy@thestar.com.my


Solid growth in 2 decades

KUALA LUMPUR: Islamic finance has achieved a substantial growth in the past two decades, annualising a growth rate of about 14% over the past 15 years.

Securities Commission Malaysia (SC) Islamic capital market executive director Zainal Izlan Zainal Abidin said the Islamic finance industry that was currently estimated to be worth about US$1 trillion (RM3.058 trillion) had made further headway in the Islamic traditional markets such as Malaysia and the Gulf Cooperation Council countries, while penetrating new markets such as in Europe and Africa.

“While Islamic banking assets account for a large part of this value, the segment that has enjoyed especially strong growth in the more recent years is sukuk,” he said yesterday at the 6th Islamic Market Programme.

Zainal: Sukuk enjoys especially strong growth in the more recent years.

Zainal Izlan said over the last 12 months to May, the value of sukuk outstanding globally increased by 30% to slightly above US$140bil (RM428.1bil) while at for the same period, the size of global Islamic funds was valued at US$48bil (RM146.8bil).

“While the facts and figures for Islamic finance are very encouraging, it is instructive for us to remain cognisant of the challenges facing the industry which, if not overcome, may retard its growth momentum in the future,” he said.

He added that one such challenge was addressing uncertainty, and in some cases disparity in the legal, regulatory and tax frameworks for Islamic finance when compared to its conventional part.

“The challenge becomes more acute when we go into cross-border situations where multiple legal, regulatory and tax jurisdictions apply,” he said.

As a result, Zainal Izlan said, going through the Islamic finance might at times, be less clear or economical than the conventional route.

“Until these issues are satisfactorily addressed, there will be some degree of apprehension among industry players and practitioners to fully embrace Islamic finance,” he said.

Achieving greater harmonisation in interpretation of syariah principles also represented a major challenge for the industry.

He said while the differences in opinion were not prevalent, the inability to achieve complete harmonisation was, to some extent, affecting the industry's efforts to build up scale in terms of product development, distribution and expertise, as well as cost efficiencies.

“The SC has been actively and proactively implementing various initiatives to provide a conducive environment for the adoption of Islamic capital market practices in the country,” he said.

He added that guidelines to govern the issuance and offering of a wide range of capital market products and services had been put in place to ensure orderly development of Islamic capital market, and these guidelines were regularly reviewed to ensure their relevance and effectiveness.

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