One of the sessions at the Global Islamic Finance Forum (GIFF) yesterday had discussed whether there was a need for a separate Islamic capital market given the robustness of the global Islamic finance sector.
The industry is certainly booming as more countries such as Japan, China and India are becoming more open to the idea of raising funds via the issuance of sukuks and other Islamic financial instruments.
In reality, however, creating a separate Islamic capital market would be impractical when vibrant and established conventional marketsthere already existed.
Creating parallel Islamic financial markets that co-exist with the conventional markets is the way to go.
Malaysia, Bahrain, Brunei, Indonesia and Saudi Arabia have very strong parallel Islamic financial markets.
More than half the bonds issued in Malaysia in the past two years are Islamic and the momentum is picking up.
The fact is Malaysia is a good role model for countries interested in developing Islamic finance.
The country has moved swiftly to liberalise its market, allowing conventional banks to create Islamic finance units and allowing foreign Islamic banks to operate here.
Malaysia has not just the infrastructure but also the legislation in place.
Although the harmonisation of syariah principles is a global issue, Malaysia has made significant progress and today Malaysian issuers create products that the market demands.
The whole journey had been one of adapting quickly to changes. Since early this year, there have been a flurry of announcements to further liberalise the sector.
Malaysia means business and welcomes competition because it knows too well that money has no loyalty, as it would search for the best returns. The country’s neighbours would do anything to get the foreign money into their markets.
There is no denying that Malaysia lost out to Singapore in its bid to become a regional conventional banking hub, but this time around the country seems to be moving in a coordinated fashion to maintain its leadership position in the Islamic finance world.
Bank Negara and the Government deserve a pat on the back for a job well done to strengthen and deepen the Islamic finance market. Scale and profitability is crucial and Malaysia realises that it is better to have 1% of the global market than remain in control of a very small market.
But more needs to be done. Since the GIFF attracted a lot of foreigners, it is time to seize the moment by showcasing to them what the real investment opportunities are. One great investment opportunities is the Iskandar Development Region. It is crucial, therefore, to sustain the interest and create the right products to ensure that Middle Eastern funds find a good home.
And Malaysia’s parallel Islamic capital market with its depth and breadth of activities is the best platform to facilitate its development initiatives under the Malaysian Islamic Financial Centre (MIFC) agenda.
Any party from anywhere in the world can explore opportunities by using the MIFC to raise funds for the development needs in their respective countries. The beauty of the parallel market is that it has scale, something a separate market would not have.
Things are certainly moving in the right direction for the Malaysian Islamic finance sector and it is creating a lot of wealth, thanks to the Government. But if the Government were to put in the same amount of effort and dedication to develop other sectors of the country, just imagine how the country and its people would benefit in the long term.
source : the star