Islamic finance sector to hit RM3t this year, says Bursa chairman

It has a resilient financial system and an innovative ecosystem that is accessible globally, says Abdul Wahid

by DASHVEENJIT KAUR/ pic by TMR FILE

MALAYSIA’S Islamic finance industry is expected to sustain double-digit growth to achieve a value of close to RM3 trillion this year, according to Bursa Malaysia Bhd chairman Tan Sri Abdul Wahid Omar (picture) .

The potential of the Islamic capital market remains promising both at home and abroad, he said during his keynote address at the inaugural Shariah Investing Virtual Conference 2020 yesterday.

In Malaysia alone, the Islamic funds industry has demonstrated impressive growth, he added.

“The Malaysian Islamic capital market indeed has much to offer. It has a resilient financial system and an innovative ecosystem that is accessible globally and a supportive government on initiatives that can enhance the country’s proposition as a global Islamic finance hub,” he said.

As of March 2020, Shariah funds stood at RM170 billion, representing 23% of total industry assets under management (AUMs), while the net asset value (NAV) of Shariah unit trust funds of RM99 billion represented about 23% of the overall industry NAV.

Continued promotion by the asset management industry can help contribute to a greater awareness of Shariah investing to a broader group of investors, Abdul Wahid said.

“There are opportunities for further product innovation and development to provide a more extensive array of Shariah-based products for the industry.

“For example, real estate has been a significant part of asset allocation in the Islamic world and accounts for some of the largest Shariah-compliant funds.”

He said the recovery in equities can also help boost Islamic exchange-traded funds and capitalise on the growing global popularity of this asset class due to its easy accessibility, low-cost diversification and trading opportunities.

As of May 2020, 732 or 79% of the 932 listed companies on the local stock exchange were Shariah-compliant.

Shariah market capitalisation makes up 70% of local listed entities’ total market capitalisation of RM1.6 trillion, while the average daily trading value (ADV) of Shariah-compliant securities makes up 70% of the overall ADV of RM2.8 billion.

Some 71% of the companies on the FTSE4Good Bursa Malaysia Index are both Shariah-and environmental, social and governance (ESG)-compliant.

The index measures the performance of Malaysia’s private limited companies demonstrating strong ESG practices.

“Our Shariah indices have consistently outperformed their conventional counterparts over the last 10 years,” Abdul Wahid noted.

The FTSE Bursa Malaysia Hijrah Shariah Index, comprising the 30 largest Shariah-compliant companies on the FTSE Bursa Malaysia (FBM) Emas Index, has consistently outperformed the FBM KLCI, growing about 32% between 2010 and May 2020. Over the years, value-based and ESG investing have provided comparable returns, and in some cases — better financial returns — than conventional investments.

“More recently, for all the downside that the Covid-19 pandemic has caused to the market, most ESG investments have outperformed their non-sustainable equivalents,” Abdul Wahid said.

He said the local bourse operator will continue to develop the Islamic capital market through continued product innovation and strengthening of the ecosystem to add further depth in the country’s Shariah-compliant product and service offerings.

Through the Bursa Malaysia-i, an end-to-end Shariah-compliant investing platform which offers exchange-related facilities, and other factors, the country has become the forefront of Islamic finance, taking the lead in promoting socially responsible propositions based on its shared values with Islamic finance.

Malaysia is the third-largest market for global Islamic finance products and the world’s largest issuer of sukuk (Islamic bonds) in an industry which has grown to be worth US$2 trillion (RM8.56 trillion).

In 2019, the nation ranked first globally in terms of Islamic funds AUM with a 34% market share worldwide.