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The Malaysian retail industry for Islamic banking has seen rapid developments in the past year, with Islamic banks now offering a range of retail products from savings to financing with varying structures. Islamic personal financing has increased in popularity due to its fixed repayment rate, which gives customers the assurance that they won’t be affected by external interest or inflation hikes.
With Malaysia positioned as a regional Islamic financial hub, there has been a relaxation of Bank Negara Malaysia (BNM) regulations to facilitate the entry of more foreign Islamic banks and give foreign fund houses greater control over the Islamic assets under management. These events have prompted conventional banks in the country to open wholly owned subsidiaries to oversee their Islamic banking operations and keep abreast with developments in Islamic finance. Due to the variety of choices where Islamic finance is concerned, the Malaysian market has become more sophisticated.
New player
One of the newer foreign Islamic banks in Malaysia is Al Rajhi Bank, the world’s largest Islamic bank (with a market capitalization of US$29 billion as at 31st March 2006) and the first Saudi financial institution to be awarded a full banking license by BNM. A household name in Saudi Arabia’s banking and business world, Al Rajhi has grown from a strong base, focusing on serving the needs of the nation and its citizens, contributing to the kingdom’s construction and development, all the while operating within the framework of Shariah principles.
Last October, Al Rajhi began operations in Malaysia with the opening of its main branch on Jalan Ampang, Kuala Lumpur. Since it opened, the bank has seen good response to its products and services from Muslims and non-Muslims alike. The products and services (developed locally with the assistance of Al Rajhi Saudi Arabia) are also geared towards Middle Eastern investors and tourists who want to deal with a familiar and trusted bank.
Why Malaysia appeals
The fact that Malaysia is an Islamic country enhances its attractiveness to Middle East investors. It has proven to be a place where Arabs feel at home as the environment and lifestyle, coupled with stability, fit their requirements. This is evident from the increasing flow of Arab tourists.
Affordability is another factor. By and large, properties in Malaysia are still attractively priced compared to those in cities such as Dubai, London or Singapore. The Malaysian government’s policies on encouraging foreigners to buy property have given foreign home ownership in the country a tremendous boost.
Perception of Malaysian market
From an Islamic banking market perspective, Malaysia offers huge potential. As Al Rajhi is very much a retail-dominated institution, the country’s population base will provide it with leverage where its retail activities are concerned. The bank constantly strives to be competitive in its product range, benefits, service and branch ambience as it believes that all these serve to attract the non-Muslim customer. It tries to not only be different in terms of structure but also the level of professionalism, service and product variety. Its products have been structured in accordance with Middle East Shariah principles and structures. The products and services are also fully supported by and subject to an end-to-end Shariah audit, from the product design to rollout and its deployment to customers.
Al Rajhi views Malaysia as a complex market but at the same time, one that is open to the products that best meet the specific requirements of its people. While it considers the venture into the Malaysian market as timely, it intends to use it as a platform to expand its financial products in the region. The bank views Malaysia as a potential gateway to other regional markets, chairman Abdullah Sulaiman Al Rajhi has said.
With the increasingly bright outlook for Islamic finance globally, Middle Eastern banks look set to play a big role in a variety of ways. One aspect would be product diversification, in terms of offering structures similar to those available in the Middle East. In this instance, Al Rajhi’s activities would help bridge Malaysia and the oil-rich kingdom.
While Al Rajhi is keen to see a steady flow of investments from Saudi Arabia into Malaysia, it believes having a familiar and trusted banking partner in such transactions would facilitate the process. Therefore, it foresees itself playing a bigger role in these deals in the near future. After all, it has an enviable network of nearly 600 branches in the oil-rich kingdom that it can easily tap into.
For now, the bank intends to focus on building its base in Malaysia, where it plans to open 50 branches nationwide by 2010.
Al Rajhi Banking & Investment Corporation (Malaysia), the world’s largest Islamic bank, is the only Saudi bank with a license to operate in Malaysia.
Tel: +603 2301 7000 or visit www.alrajhibank.com my |
