Malaysia hailed as most vital Islamic-finance hub

KUALA LUMPUR: Malaysia is the world's most important Islamic-finance centre, although the richer Gulf states and Saudi Arabia have bigger Islamic banks and Indonesia the largest Muslim population, influential financial news magazine The Economist says.

Malaysia also dominates the global market for sukuk, or Islamic bonds, the magazine said in an article headlined Banking on the ummah:Malaysia leads the charge in Islamic finance, in its latest issue on Jan 5.

“Leadership in financial services is not an obvious one. Yet, in some ways the country is the world's most important Islamic-finance centre,” said the magazine.

“Just over a fifth of the country's banking system, by assets, is Syariah-compliant; the average for Muslim countries is more like 12%, and often a lot less,” it added.

On the Islamic bonds, the magazine said the country issued the world's first sovereign sukuk in 2002 and in the first three quarters of 2012, it was responsible for almost three-quarter of total global issuance.

It said Malaysia was home to the Islamic Financial Services Board, an international standard-setting body.

“These are big achievements for a relatively small country of just 30 million people, of whom only about 60% are Muslims.

“In neighbouring Indonesia, which is home to the largest Muslim population in the world, only about 4% of the financial sector is Syariah-compliant.

“Although the much richer Gulf states and Saudi Arabia have bigger Islamic banks, it is Malaysia that is the centre for thought leadership in Islamic finance,” said the magazine, quoting Dubai's Fajr Capital investment fund founder and CEO Iqbal Khan.

The magazine said Malaysia's Muslim heritage, outward-looking nature and links with financial hubs like Britain and Singapore made the place a natural candidate to bridge the worlds of religion and capitalism. The central bank, Bank Negara Malaysia, is also supportive.

It said two institutions in particular the International Centre for Education in Islamic Finance (INCEIF) and the Islamic Banking and Finance Institute of Malaysia (IBFIM), both set up by the central bank have contributed to Malaysia's pre-eminence in the field.

INCEIF, set up in 2005 and boasting about 2,000 students, is the world's leading university for the study of Islamic finance.

The International Syariah Research Academy, housed within INCEIF, brings together scholars to produce an internationally acceptable rule-book for Islamic finance.

The IBFIM concentrates on vocational training, offering a variety of certificates in Islamic finance as well as acts as a consultancy to banks and firms that want to become syariah-compliant.

Bank Negara head Tan Sri Dr Zeti Akhtar Ungku Aziz was quoted by the magazine as saying that these bodies were the “pipeline to provide the banks with talent” and not just in Malaysia.

“All these give Malaysia greater status within the ummah and the global Islamic community,” she said, adding that they were important to a country that often felt on the periphery of the Muslim world.

Dr Zeti argues that Syariah-compliant banks are inherently more stable than conventional peers.

“Speculation is forbidden and, because charging interest is prohibited under syariah law, returns are based on profit-sharing,” she said.

(The Star Online / 07 Jan 2013)

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Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com