Sunday, June 10, 2018

Malaysia Aims to Maintain Islamic Finance Lead

Sometime ago, I argued that there is not much to distinguish conventional banking practices from those of Islamic banking. While others are bound to disagree--especially practitioners of this sort of banking--the concepts we are familiar with such as leases and instalment buying have direct equivalents, as do many other Islamic banking instruments. My scepticism aside, however, Islamic banking promises to be a growth industry given the huge amounts of petrodollars sloshing around the Gulf region. Accordingly, one of the countries with an established history as an Islamic banking hub, Malaysia, has been made to reassess its offerings given emerging competition from the Middle East and elsewhere [1, 2]. Remember, too, that having the Islamic Financial Services Board (IFSB) in Malaysia is a "home advantage" of sorts as it coordinates Islamic banking practices with the Bank of International Settlements (BIS).

The consulting firm PriceWaterhouseCoopers (PWC) has an informative profile on Malaysia's place in the Islamic banking firmament. What is Malaysia's competitive advantage? Tax breaks and more tax breaks. It remains to be seen though whether such incentives are attractive enough to entice those in Arab states to park their petrodollars in Malaysia:

    Islamic banking and finance has become a force to be reckoned with in the global economic scenario. It often forms part of the equation in international finance, whether at a government-to-government or the private sector levels. Its significance has grown over the years and is now present in over 60 countries.

    The Malaysian Islamic financial sector is seen as one of the most progressive and attractive in the world given the numerous incentives planned and further liberation in the coming years.

    Malaysia is the Largest Islamic Banking and Financial Market
    • Islamic banking assets: RM113.5 billion (US$30.9 billion).
    • Takaful assets: RM6.2 billion (US$1.7 billion).
    • Largest Islamic private debt securities (IPDS) market: 45.5% (RM125 billion or US$34 billion) of domestic corporate bonds.
    • Active Islamic money market channelling about RM30 billion - RM40 billion monthly.
    • Critical mass of diversified players - Islamic banks, investment banks, takaful companies, development financial institutions, savings institution, fund management companies, stock brokers and unit trusts.

    Progressive industry developments

    The international financial community has taken note of Malaysia's strategic direction in developing and nurturing Islamic banking and finance. With this, they have acknowledged Malaysia as the leading Islamic financial centre. The strategies are being implemented through clear and deliberate policies spelt out in both the Financial Sector Master Plan as well as the Capital Market Master Plan. Its progressive industry developments include:
    • Pioneering many Global Islamic Banking and Finance initiatives
    • Robust regulatory framework
      Malaysia has a comprehensive regulatory and supervisory framework that caters to the unique characteristics of Islamic finance. Stronger standards have been set for corporate governance, transparency, disclosure, accountability, market discipline, risk management and customer protection.
    • Shariah Framework
      Operate in an environment that offers conducive and effective legal and Shariah framework. The Islamic Banking Act 1983 and Takaful Act 1984 were enacted to govern the conduct of Islamic banking institutions and takaful operators respectively.
    • Liberal Foreign Exchange Regime
    • Resources
      This includes the establishment of the:
    Institute of Islamic Banking and Finance Malaysia (IBFIM)
    International Centre for Leadership in Finance (ICLlF)
    International Centre for Education in Islamic Finance (INCEIF)
    • A wide range of tax exemptions across the Islamic finance spectrum

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