Use M’sia as Islamic finance base, investors told

malaysia mosqueIN LINE with efforts to promote Malaysia as an Islamic financial centre, investors are being encouraged to use the country as a gateway for investment and base for financial activities.

“Let’s jointly promote Islamic finance in the international market and the mutual acceptance of each others’ financial products while marketing them together,” the Crown Prince of Perak, Raja Dr Nazrin Shah ibni Sultan Azlan Shah, urged.

He said Malaysia is generally a business-friendly place and there are lots of attractive policies in place for foreign investors, wanting to invest in the country.

Raja Dr Nazrin Shah, who is also the financial ambassador of the Malaysia International Islamic Financial Centre (MIFC), led a roadshow delegation comprising regulators and industry players to Qatar and Bahrain on Oct 10-15.

Tracing the development of Islamic finance in Malaysia, he said in 1983, the first Islamic bank was established in the country and in the 90s, banks were invited to open windows within their system to start trading in Islamic products.

He said the MIFC intiative was established in 2006 to establish Malaysia as the centre for Islamic finance and to integrate the country within the Islamic financial community.

“We (Malaysia) now have an Islamic capital market and are the largest producer of sukuk (Islamic bonds). I think 60 per cent of sukuk originates from Malaysia. We have Islamic insurance, re-insurance and asset management, developed over the last few years,” he said.

Raja Dr Nazrin Shah said the underlying principle of Islamic finance is basically to prohibit excessive risk taking and speculative activities. He said non-Muslims are also beginning to use Islamic products, especially in Malaysia.

“I think we have progressed much and Malaysia is the centre for Islamic finance,” he said, when asked how far had Malaysia come as an international Islamic financial base.

He also said there was a need for greater collaboration and dialogue to promote Islamic finance in international markets. “These are the basic pillars that have to be considered on a continuous basis in order to promote Islamic finance,” he added. “In 1997, Malaysia went through a financial crisis and that was a wake up for us. Since 1997, we have strengthened our financial system while putting in place stronger regulatory and supervisory considerations, for greater corporate governance and best practices.”

source : Btimes

Islamic Finance – The Benefits and Post Crisis Position

 imagesMalaysia International Islamic Financial Centre – Malaysia’s latest offering

To encapsulate Malaysia’s almost 30 decades of expertise and experience in Islamic finance, the Malaysia International Islamic Financial Centre (or MIFC) was launched in August 2006; sukuk origination has been identified as one of the 5 pillars that will solidify the country’s position as an international Islamic finance hub. The other 4 pillars are: Islamic fund and wealth management; international Islamic banking; international takaful business; and human capital and thought leadership.

The sukuk market provides an avenue to channel excess funds and savings from resource-surplus countries, such as oil-rich Gulf nations, to the Asian region – given the latter’s massive infrastructure and other commercial funding requirements. There are still funding and investing opportunities, especially in real estate, financial services and infrastructure (power, oil and gas, and roads). More importantly, the sukuk market could convert Asia’s export surpluses into investment opportunities, rather than investing in the sovereign debts of advanced economies. The Islamic finance market can step into these areas that would traditionally have been filled by the conventional market.

Following the liberalisation of foreign-exchange administration rules in Malaysia, several foreign multilateral development banks and agencies, quasi-sovereign agencies and multinational corporations have joined local companies in tapping the domestic sukuk market for funds. There is no doubt that sukuk has become a global phenomenon, attracting increasingly more issuers from a larger pool of countries. Indeed, Shariah-compliant financing is set to continue providing issuers with non-bank alternatives to longer-term funding.

Under the MIFC, service providers are welcome to use Malaysia as a platform for Islamic financial activities, leveraging on the nation’s comprehensive system and conducive environment for Islamic financial activity. The incentives include new licences for conducting foreign-currency businesses, attractive tax incentives and facilitative immigration policies. These measures lead to operational cost efficiency, a shorter learning curve, less time to market, access to new markets and surplus funds. They have been designed to provide operational flexibility, cost efficiency and an encouraging environment for Islamic finance in international currencies, making Malaysia even more attractive to foreign investors.

What makes Malaysia an

international Islamic finance hub?

The rapid and undeniable growth of Malaysia’s sukuk market has been nothing short of remarkable. As a pioneer in the Islamic capital market, Malaysia has set standards and provided leadership by example on many fronts, for instance:

The Malaysian Islamic capital market has all the hallmarks of a sound and efficient setting for fund-raising and investment activities, placing it ahead of other financial centres. Malaysia’s Islamic capital market effectively replicates the service elements that are expected in any established conventional capital market.

Principles of

Islamic finance

The cornerstone of Islamic finance is based on the principle that funding is not provided for monetary returns. Rather, Islamic finance is based on contracts of exchange. Hence under such contracts, assets or services will be exchanged for monetary consideration, or for other assets. This gives rise to sale and purchase contracts or leasing contracts. Another positive development is the increasing interest in Islamic asset-backed securities and the ongoing research and development towards the use of the partnership-based contracts of Musharakah and Mudharabah in the sukuk market.

The encouraging response to the nation’s sukuk issuances, especially from Middle Eastern investors, has paved the way for Malaysia to further explore the international Islamic financial arena. There has been a notable shift from debt-based bonds, premised on cost-plus-sale agreements or cost-plus production agreements, to lease-based or profit-sharing sukuk, including the issuance of convertible sukuk, following the shift towards a wider variety of Islamic investors. It is only natural that products are tailored to meet the requirements and preferences of specific target markets. This is because each market regulator and institution has its own Shariah board; opinions on permissible structures vary from country to country as well as from one investor group to another. There is now a tendency for Shariah boards to comprise both local and internationally prominent scholars, qualifying them to address issues and operate across the different schools of thoughts.

On the national front, the shift in the types of sukuk has also been partly influenced by the additional tax incentives accorded to specific types of sukuk.

Islamic finance’s position in the capital market after the current financial turmoil

The Islamic financial market has undoubtedly also been afflicted by frozen credit markets and the current confidence crisis, along with the backlash from the global financial mayhem. Nonetheless, it has mostly escaped the direct fallout from the sub-prime crisis that had begun in the United States, thanks to the Shariah prohibition of investing in the kinds of instruments that had sparked off the current chaos. This is perhaps because of the “built-in antibody” that Islamic finance has in the form of its Shariah conformity, which has provided some degree of stability and resilience in facing the current global financial turmoil.

Once market conditions attain some semblance of normalcy, RAM Ratings expects it to be business as usual. Sukuk issuance is envisaged to resume its impressive growth, fuelled by massive investment and financing needs, notably of countries in the Gulf area and Asia. In this context, Islamic finance, and sukuk in particular, is an emerging asset class that will sit well with investors across the globe.

Moving forward, we also foresee Islamic ratings playing a catalytic role in advancing the growth and development of domestic sukuk markets, and in promoting cross-border issuance and investments, especially inter-regional flows between Asia and the Middle East. The Malaysian sukuk market has benefited from having a reference benchmark for credit risks, as the rating of Islamic securities in Malaysia – similar to conventional debt instruments – have been compulsory since 1992. Bonds rated by RAM Ratings account for 75% to 85% of the domestic sukuk market.

This series of articles on non-conventional financial instruments is brought to you by RAM Ratings (Lanka) Ltd.

sourece :  dailymirrorlk