The country also led in the Islamic wealth management industry with RM109.5b as at end-2017, says report
NG MIN SHEN / Pic By TMR File
Malaysia has great potential to broaden its market share and strengthen its leadership in Islamic financing, a sector that is slowly but surely taking the world by storm.
According to the latest report by the Malaysia International Islamic Financial Centre in collaboration with the Islamic Corp for the Development of the Private Sector entitled “Islamic Finance in Asia: Reaching New Heights”, Asia’s Islamic financial assets amounted to US$528.7 billion (RM2.05 trillion), or 26% of the world’s Shariah-compliant financial assets as at end-2017.
The region was the largest market for both sukuk and Islamic funds, having contributed 60.7% to the global sukuk outstanding and 42.8% of global Islamic assets under management (AUM) as at end-2017.
Last year, 52.5% of sukuk worldwide were issued out of Asia, while the largest US dollar-denominated transaction in Asia was a US$3 billion sovereign sukuk issued March 2018 in Indonesia last year.
The Islamic financial industry in the country, characterised by having comprehensive market components ranging from Islamic banking, takaful, Islamic money market and Islamic capital market, continues to lead the pack.
“Malaysia continued to be the main driver for both sukuk outstanding and issuance for the year, with a market share of 51% and 36.2% respectively as at end-2017,” the report said.
The nation’s sukuk market is largely driven by corporates and government-related entities at 66.8%, and has been a viable funding tool for various mega infrastructure projects.
July 2017 also saw the issuance of the world’s first green sukuk by Malaysia’s Tadau Energy Sdn Bhd, closely followed by another green sukuk issued by Quantum Solar Park Malaysia Sdn Bhd in August 2017.
Both issuances were the result of a collaboration between Bank Negara Malaysia and the Securities Commission Malaysia (SC), along with the World Bank Group in an effort to develop a facilitated ecosystem for the growth of green sukuk.
The country also led in the Islamic wealth management industry with US$28.3 billion (36.5% global share) as at end-2017 as a key domicile for Islamic funds worldwide.
It also ranked first in terms of number of funds with a total of 394 funds and 27.9% global share, followed by Pakistan with 147 funds and Indonesia with 143.
In the banking sector, Malaysia ranked third globally after Iran and Saudi Arabia with a total Islamic banking assets of US$204.4 billion as at end-2017.
“The Islamic finance environment in Malaysia is vibrant with a diverse set of industry players such as legal, accounting, technology and rating companies, along with commodity trading platforms. The financial institutions and professional ancillary service providers in Malaysia have vast experience and are instrumental in facilitating the growth of the industry beyond national borders.
“The country also places focus on the industry’s human capital development, and in recent years has spearheaded a number of innovative developments, which aim to spur the industry’s vibrancy,” noted the report.
The report said the country’s 40-year track record in building the domestic Islamic financial industry gives it a solid ecosystem, which adds to the richness, diversity and maturity of the system.
Last year, 106 out of 137 new global Islamic funds were launched from Asia, with the region’s Islamic AUM reaching US$33.2 billion, or 42.8% of the global share by year-end.
Malaysia commanded an 85.2% market share of the total region’s Islamic AUM followed by Pakistan with 7.2% and Indonesia with 5.7%. Several positive initiatives in the Islamic funds industry are expected to spur the region’s Islamic funds market growth momentum.
The SC recently announced the launch of the sustainable and responsible investment (SRI) framework for investment funds as part of the effort to strengthen Malaysia’s position as the world’s Islamic finance marketplace, “This framework will widen the range of SRI products in the funds segment, therefore reinforcing other SRI initiatives in the Malaysian Islamic capital market. This is aligned with the global growth of SRI. In 2016, SRI AUM grew to almost US$23 trillion, which accounted for more than 30% of all professionally managed assets worldwide,” the report noted.
According to the report, in countries with a growing share of Muslim population, Islamic finance presents significant potential to improve financial inclusion, although Islamic finance has transcended beyond Muslim-majority nations.
“A study conducted by the Pew Research Centre concluded that in Asia Pacific alone, there are about 985.5 million Muslims, which make up more than 60% of the global Muslim population.
“Therefore, the region’s significant Muslim population signifies a ready market for the introduction and distribution of Shariah-compliant products and services, particularly to those that have refrained from conventional banking services due to strong religious or ethical convictions.”
It added that apart from banking players that can fulfil the basic needs of Muslim societies, there are various other social institutions and finance structures as well, such as waqf, or commonly known as Islamic endowment.
While growth opportunities abound for Islamic finance in Asia, the industry as a whole faces several multi-dimensional challenges, such as incomplete legal and regulatory frameworks and shortages of Islamic finance talent.
Private entities along with the various stakeholders including regulatory bodies and practitioners of the Islamic finance industry in Asia need to play a more active roles to chart further growth.