Malaysia has been progressively liberalising its Islamic financial system to increase foreign participation, as it forms an integral and competitive component of the country’s overall financial system.
The Islamic financial system operates in parallel with the conventional banking system, servicing both the Muslim and non-Muslim communities.
Pointing this out, the Raja Muda of Perak, Raja Dr Nazrin Shah Saturday said the syariah principles which underline Islamic finance have contributed towards its stability and resilience in facing issues such as the current global financial turmoil.
“Therefore, it comes as no surprise that during the current global financial turmoil, Islamic funds have seen less volatility and risk, and as a result have performed better compared with conventional funds,” he said.
He said this in his speech at a luncheon talk with investors in conjunction with the Malaysia International Islamic Financial Centre (MIFC) roadshow to Kuwait and Saudi Arabia, here.
Liberalisation of Malaysia’s Islamic financial system has taken the form of the issuance of new licences and increasing foreign participation in Islamic banks and takaful companies, coupled with new licences issued to foreign fund managers and foreign stockbroking firms.
Raja Dr Nazrin also cited syariah injunctions like those prohibiting excessive leverage and speculative financial activities as having insulated Islamic funds from too much risk exposure, thus limiting their exposure to the meltdown of the financial system in the United States and Europe.
“It therefore comes as no surprise that during the current global financial turmoil, Islamic funds have seen less volatility and risk, and as a result have performed better compared with conventional funds,” he said.
Raja Dr Nazrin said Malaysia believed there was tremendous upside potential for Islamic finance and that the current financial turmoil provides an opportunity for Islamic finance to position itself as a complementary, if not alternative, to conventional finance by providing investors with other asset classes and markets that provide stability.
He said over the last few years, there has been increasing interest among the Middle Eastern investors in the Asian market with Saudi Arabia financial institutions already having made their presence felt in Malaysia including Al-Rajhi Bank and Rsud Bank’s shareholding in Asian Finance Bank.
To date, one of the more prominent investments in Malaysia is the Saudi Telecom’s US$3 billion stake in local telco firm, Binariang.
“We welcome the continued participation of Saudi financial institutions and investors in Malaysia, especially to take advantage of the numerous opportunities offered under the MIFC initiatives,” he said.
Raja Dr Nazrin also explained that Malaysia could be the perfect gateway for investors to take advantage of the Asean region which comprises a potential market of about 600 million people and a combined gross domestic product of US$1 trillion.
The MIFC was launched in 2006 as part of Malaysia’s initiative to globally integrate within the international Islamic financial community, and to position the country as an international Islamic financial centre.
Since then, significant progress has been made as the Islamic financial system in Malaysia today comprises the Islamic banking institutions, the takaful (insurance) and re-takaful industry, and the Islamic money and capital markets.
Raja Nazrin said significant progress has been achieved, in particular, in positioning Malaysia as a centre for the origination, distribution and trading of Islamic bonds or sukuk.
“The Malaysian sukuk market has now evolved into the world’s largest Islamic bond market, accounting for about 60 percent of the global sukuk outstanding.
“Malaysia is also becoming a centre for Islamic fund and wealth management services and for international Islamic banking business, as well as a centre for Islamic finance education, training, consultancy and research,” he said.