The MIF 2008 Forum saw the launch of Malaysia International Islamic Financial Centre’s global communications campaign, as part of the country’s efforts to strengthen its connectivity with the rest of the world. The campaign highlighted opportunities and offerings in Malaysia for investors, issuers, industries in the economic sectors, and for professionals and practitioners with interest in the Islamic financial services industry.
In sync with the launch, this year’s MIF Forum focused on Malaysia’s efforts to further strengthen its economic and financial linkages with the rest of the world.
Tan Sri Dr Zeti Akhtar Aziz, governor of Bank Negara Malaysia; Dato’ Zarinah Anwar, chairman of Securities Commission Malaysia; and Devanesan Evanson, chief market operations officer of Bursa Malaysia, delivered the keynote addresses.
In her speech, Zeti expressed Malaysia’s firm conviction that as an international Islamic financial hub, strengthening its economic and financial linkages with other parts of the world is an important element in facilitating the realization of this aspiration. She said other traditional financial centers such as Hong Kong, Singapore, Dubai and London have also intensified their participation in the Islamic financial system.
Zeti said Malaysia presents itself as a meeting place for those with surplus funds and those seeking to raise funds from any part of the world. As an Islamic financial hub, the Islamic financial intermediaries are supported by institutions of learning for human capital development in Islamic finance.
In her keynote address, Zarinah said Malaysia is committed to working closely with other centers to create an Islamic capital market (ICM) network that will enable it to optimize opportunities in unlocking Islamic savings through effective intermediation, and create opportunities that will stimulate cross-border investment flows.
According to Zarinah, the leadership and support of the government through the facilitation of policies and incentives have ensured the effective translation of vision and aspirations into reality over a relatively short time. ICM has thrived to the extent that it now accounts for a significant portion of the overall Malaysian capital market.
Zarinah said Malaysia, which pioneered the development of the global Sukuk market with the launch of the first sovereign five-year global Sukuk in 2002, saw Sukuk making up 76% of bonds approved by SC last year. She said the challenging market conditions this year have naturally had an impact on the issuance of bonds.
Nonetheless, the first six months saw the approval of 22 Sukuk issues totaling RM17.7 billion (US$5.28 billion), accounting for 31% of total bonds approved during the period. She said Shariah compliant unit trust funds chalked up sales totaling almost RM3 billion (US$896.3 million) this year, a growth of 84% compared to last year. The robust growth in this market segment is significant when compared to the 11% growth in net sales for conventional products over the same period.
Zarinah pointed out that SC has also approved products for other regional markets, indicating new areas of growth to increase market share and hence, the challenge is for intermediaries to be innovative in their Shariah product offerings with more structured features capturing the entire horizon of investibles in line with the changing appetites of investors. She emphasized that Malaysia offers a strong overall Islamic finance and Shariah framework, thereby providing a core foundation for fund management companies to use as a base to establish their Islamic fund management businesses.
“From our perspective, while Malaysia has the products, the delivery channels particularly in reaching investors across our borders are still not fully developed. Similarly, it would benefit from the listing of international Islamic products such as equities and Sukuk as well as the increased availability of fund products from other Islamic centers,” Zarinah said.
Therefore, Zarinah said as Malaysia pursues developmental initiatives to widen access of its markets to regional and global issuers and investors, it is equally important for our domestic intermediaries to increase their visibility abroad and to enhance their focus on regional and global expansion.
She said a number of Malaysian intermediaries have already taken steps to forge strategic alliances with intermediaries in other jurisdictions and are venturing into regional markets, enabling them to acquire skills and expertise in new products and overseas investments.
Their ability to partner with other players and leverage off each other’s strengths in product manufacturing and distribution will inevitably expedite the growth of Islamic markets and intermediaries.
On Bursa Malaysia’s part, Evanson said it has been working towards producing solutions that will meet investors’ needs on the Islamic front, both domestic and international. An upcoming project is an Islamic spot-commodity exchange known as the Commodity Murabahah House, or CMH, which will start off as a single-commodity ringgit market and eventually evolve into a multi-commodity and multi-currency market that will fulfill international market demands.
He said the equity and Sukuk markets have definitely taken center stage and hence, there is still room for the growth of other Islamic products such as Islamic real estate investment trusts, Islamic exchange-traded funds, Islamic derivatives and structured products. It is, therefore, in the interest of everyone — be it regulator, issuer, intermediary or investor — to work together to ensure that the development of these products come to fruition for the sustainability of the global Islamic financial space.
Furthermore, he said cross-border linkages and strategic alliances among exchanges have established the stepping stone necessary for becoming a globally competitive capital market and are deemed an area of growth.
The panelists on the Issuers Day discussed several topics that focused on Malaysia’s role in the global and regional financial system, the impact of the global financial uncertainty on Islamic capital market issues in Southeast Asia, and the issues on and challenges for Malaysian structures in the GCC.
Surachet Chaipatamanont, CEO of Aseambankers, said in the context of the development of Islamic finance and expanding the agenda on the global stage, he sees interest coming from Hong Kong, Singapore and the Middle East as complementary which will further develop Malaysia.
Badlisyah Abdul Ghani, CEO of CIMB Islamic, said it is easy to market Malaysia overseas as Malaysian products, particularly most of the Sukuk that were structured overseas, originated from the Malaysian market.
Jamelah Jamaluddin, MD of RHB Islamic, said with the initiatives of Bank Negara Malaysia through MIFC, more and more foreign issuers are coming to market which they see as lucrative enough to explore opportunities for meeting their capital raising needs.
Mohd Safri Shahul Hamid, director and regional head of Islamic banking at Deutsche Bank, said the difference in structuring Sukuk between the Middle East and Malaysia, coupled with the global uncertainties and the resolution by the Accounting and Auditing Organization of Islamic Financial Institutions (AAOIFI) in February this year, has made the structuring of Sukuk more challenging and interesting.
“… for global issuance, the Sukuk must adhere to AAOIFI’s standard because the standard that comes from the accounting body is deemed final and most of the global Shariah scholars sit on the board of AAOIFI. However, despite the challenges in the structuring of Sukuk, the evolution of the Sukuk market is set to continue,” he said.
Discussions on the second day centered on the use of Islamic finance to attract GCC investment and liquidity to Asian markets, opportunities and growth in Islamic wealth management and private banking and the key risk management issues for investing in Islamic securities.
Asim Basharullah, head of corporate and investment banking at Al Rajhi Bank, said MIFC is a great platform for both issuers and investors to raise capital and fund management activities. “MIFC offers, among others, a fantastic tax regime to both issuers and investors. That’s why foreign Islamic banks create a presence under MIFC. There are enough opportunities for banks especially from the Middle East to set up under MIFC to attract investors from the Middle East in terms of capital raising or fund management activities,” he said.
Gerald Ambrose, managing director of Aberdeen Asset Management, said that the level of sophistication among investors in the Middle East has increased dramatically particularly in the area of Shariah compliance. Institutions in the Middle East use a third party due diligence institution to analyze whether everything is done in a Shariah compliant manner before making the decision to invest.
David Rutledge, CEO of Dubai Multi Commodities Centre, said: “A very important part of total investment space is commodities but it has not been available to Islamic investors in the past. There is no doubt that for the long term, commodities will be an important and interesting part of the investment space. Many new investment products that are Shariah compliant may be based on commodities.”
On the third day, panelists discussed the role of Malaysia in the global and regionally equity markets, technology and systems for Islamic stock screening, innovation in the Islamic equity-linked products and the role of Shariah indices.
Nik Norishky Thani, executive director of Islamic finance at Dubai International Financial Centre (DIFC), said Malaysia is well known for its innovative policies and DIFC considers Malaysia an important model for Islamic finance as well as in debt and equity markets. Hence, capital seekers and providers should use MIFC as a springboard to venture abroad and to raise funds, not only in the domestic market.
Dr Mohd Bakar Daud, president and CEO of the International Institute of Islamic Finance, said product developers have to understand the demands of investors as some of the products may not be suitable for certain profiles. There are many products which have not been duplicated such as American depository receipts (ADRs) structure and contracts for difference (CFD) and these are new equities which are common in the western market but are not seen in the Islamic market.
Dr Aznan Hasan, an assistant professor at International Islamic University and Shariah adviser of Bursa Malaysia, said the choice of screening should be based on the suitability of one’s situation for one’s particular region.
“It is difficult to say which of the methodologies is more Shariah compliant,” he said. He classified the various types of screening into two categories — the Malaysian and the international standard. There is no financial ratio screening under the Malaysian approach while in the international standard, there is also sin screening apart from financial ratio screening.
Concluding the forum, Abdulkader Thomas, CEO of SHAPE Financial Corporation, said the role of Malaysia is expanding, with regard to its position in the Islamic marketplace and attracting people to utilize its facilities and skills.