Moderator Abdulkader Thomas began the first day with a brief opening address emphasizing two main points. Firstly, the impact of the western credit crunch on Islamic finance, as now big banks like HSBC and Deutsche would, to some extent, be affected. These players, together with the European investors, have been significant participants of the Islamic space. Will the crunch now cause a slowdown in the Islamic market as well or will Islamic finance keep growing? Secondly, in order to move towards innovation, Islamic banks have to re-evaluate whether they are merely extending credit or are taking a broader business risk. This would be vital to demonstrating how Islamic finance would add value to business, the market, investors, savers and the financial system as a whole.

After briefly introducing the panelists, Abdulkader asked for their views on the integration between Malaysia and other markets in Islamic finance. Dato’ Vaseehar Hassan Abdul Razack replied that Malaysia needs to propel two main components to realize its vision of becoming an international Islamic finance hub. First, local players need to be more aggressive and do more outside deals. “Although Malaysia has a 67% share of the global Sukuk issuance, 90% of that is inward looking, i.e. domestic deals. We need to go out there and develop expertise,” he said.

Secondly, international banks in Malaysia need to play a bigger role to help internationalize the country. Vaseehar explained that these banks need to book more international Sukuk from Malaysia. In this sense, Kuwait Finance House (Malaysia) has played an active role in cross-border transactions, he noted. “The Daar Sukuk was the first Saudi paper to be marketed in Malaysia and KFH (M) has underwritten US$150 million from Malaysia. This is the kind of deal we would like to see move forward.”

Salman Younis stressed that KFH’s presence in the country is not merely to compete with any institution, rather it is here to lend its expertise and take the industry to the next level. “Malaysia has done so much for Islamic finance what no other country has. To support innovation, we bring in an issuer and tell them that there are alternative structures in Malaysia that have been successful. Malaysia is the regional hub and we will need to ensure that the industry grows if we would like to prosper. We need to remember that we will never be bigger than the industry,” he said.

As for the implications of the credit crunch, Salman pointed out that the subprime market is not new and had started in March. He also noted that the international bond market would be affected to some extent.

Responding to a question from Raina Razif on advice for Malaysian lawyers seeking growth opportunities, Badlisyah Abdul Ghani said issuers would be looking for competent practitioners. “Lawyers must be able to advise on Shariah. Shariah advisers are essentially lawyers. Thus, why should law firms not retain Shariah advisers as partners in firms? Currently, there is no regulatory framework that governs Shariah advisers. If they are absorbed as partners in law firms, they would be bound by the regulatory framework of professional lawyers,” he reasoned.

There was also concern regarding the lack of secondary trading of Sukuk in the GCC. In response, Salman said there are generally two reasons for this. First, there is a trend towards issuing Sukuk Murabahah, in which no secondary trading is allowed. Second, when there is an issue, investors were inclined to buy and hold the security until maturity rather than trade it on the secondary market.

Abdulkader then sought the panel’s view on the benefits that Malaysia could provide to issuers. Vaseehar said that nowadays, issuers are allowed to issue ringgit Sukuk and swap them with other currencies. In addition, they can issue both ringgit and non-ringgit Sukuk.

Effendi added that Malaysia already has the necessary infrastructure in place for issuers while Badlisyah said, Malaysia would offer issuers the best support. Salman agreed, saying that, “Malaysia has the framework and the track record. It is the right place — it has the transparency and we will see more investments from GCC coming into this region.”