The industry is aided by a favourable environment that is recognised for continuous product innovation, robust financial infrastructure and a strong regulatory framework
by S BIRRUNTHA / pic Bloomberg
MALAYSIA’S Islamic finance industry has grown rapidly over the years, with the Islamic capital market accounting for more than 60% of the Malaysian capital market.
Bursa Malaysia CEO Datuk Muhammad Umar Swift said yesterday that the industry is aided by a favourable environment that is recognised for continuous product innovation, robust financial infrastructure and a strong regulatory framework.
“The growth in Islamic finance has been encouraging since the industry first emerged in the 1970’s. As at end 2020, global Islamic financial assets totalled US$3.37 trillion (RM15.03 trillion), an increase of 14% from 2019.
“In Malaysia, Islamic banking assets reached US$264.5 billion, making up some 34.2% market share from the total banking system assets in 2020,” he said during the Invest Shariah Conference 2022 in Bursa Malaysia today.
He also highlighted that while the Islamic capital market has doubled in size over the decade, by the end of 2020, its Shariah-compliant assets were worth RM2.3 trillion, up from RM1.1 trillion in 2010.
Muhammad Umar added while the deployment of financial technology in Islamic financial services creates enormous opportunities, it comes with a number of challenges.
“These include, among other things, a lack of regulatory oversight, cybersecurity threats, Shariah governance uncertainty, and talent scarcity,” he added.
Despite impressive growth over the years, Muhammad Umar said the Islamic finance industry, however, is still relatively young and much smaller in size than its conventional counterpart.
He emphasised that in order to help the industry to thrive further, it is crucial to pinpoint the global megatrends of the industry on which Malaysia can capitalise.
Meanwhile, Refinitiv Islamic Finance head Mustafa Adil said there are six global megatrends and their impact on the countries that make up the Organisation of Islamic Cooperation, as well as the role Islamic finance plays in unlocking the megatrends’ potential to transform these markets.
He noted that the six inter-related megatrends are, namely, digitalisation, artificial intelligence, transformation, inequality, youth and ageing societies.
Refinitiv has highlighted in its recent report that, Islamic finance has proved resilient to current global economic troubles, and is projected to grow at an average annual rate of 8% until 2025.
“According to the Islamic Finance Development Report 2021, the Islamic finance industry has been enjoying solid growth.
“In 2020, there was a 14% rise in Islamic financial assets to US$3.4 trillion, which makes it one of the leading industries in the market.
“Despite the recent global macroeconomic conditions including the increase in Covid-19 cases, the Ukraine conflict, high inflation, and the continued supply chain gluts, Islamic finance maintained a steady growth rate,” it stated.
On another note, CGS-CIMB Malaysia Research head Ivg Ng pointed out that the FBM Hijrah Shariah Index has outperformed the FTSE Bursa Malaysia KLCI (FBM KLCI) in seven out of the past 11 years (2011-2021).
She added that a closer analysis reveals that one of the key determinants of the relative performance of the FBM KLCI versus the FBM Hijrah Shariah Index is the banking sector’s performance.
“This is because six out of the 30 constituents in the FBM KLCI Index are banks that are non-Shariah compliant and this form around 41% of KLCI’s total weightage on June 30, 2022.
“As at June 30, 2022, the key heavyweights in the FBM Hijrah Shariah Index were the food and beverages (27% of total index weight), telecommunication (18%) and utilities (14%) sectors,” she said while presenting the Shariah Market Outlook during the conference.
She noted that the top three companies with the highest weightage in the FBM Hijrah Shariah Index are Tenaga Nasional Bhd, Petronas Chemicals Group Bhd and IHH Healthcare Bhd.
Commenting on the overall market, Ng said moving forward, market sentiment could stay weak in the third quarter of this year (3Q22) before potentially rebounding in 4Q22.
“We see potential upside from the return of foreign workers, better than expected tourist arrivals, easing inflationary pressures and a resolution to some of the environmental, social, and governance concerns related to forced labour.
“We advise investors to take shelter in sectors with defensive earnings and high dividend yields as well as beneficiaries of rate hike cycle and return of foreign tourists,” she said.
Ng noted that CGS-CIMB has maintained its KLCI target of 1,506 points and its top Shariah picks include Bank Islam Malaysia Bhd, MR DIY Group (M) Bhd and Telekom Malaysia Bhd.