The Islamic finance sector has seen robust growth over the years, blossoming to become the fastest growing segment in the global financial industry. In tandem, the Malaysian Islamic finance realm has scaled new heights as it represented over 20 per cent of the Malaysian banking sector’s total assets as at June 2012. BizHive Weekly takes a look at the the current state of the industry, challenges faced by players and measures taken to grow and move forward.
Tracking the growth path of Islamic finance
Islamic finance has seen tremendous growth and acceptance over the recent years in Malaysia and on a global scale in over 70 countries from financial centres in Malaysia to the Middle East.
It is considered as the fastest growing segment in the global financial industry.
Global Islamic financial assets have increased significantly over the past three decades, crossing US$1 trillion in 2010 and estimated to have exceeded US$1.2 trillion in 2011 from about US$5 billion in the late 1980s, according to the World Bank.
The resilience of growth in the Islamic finance sector against the backdrop of the ongoing global financial crisis had proven to be a ‘defining period’ for the industry, according to BNM governor Tan Sri Dr Zeti Akhtar Aziz.
Nonetheless, the industry must now work towards ‘bridging economies’ to foster growth moving forward, the central bank governor said while adding that better understanding and clarity on syariah matters would also help to attain convergence.
“Islamic fi nance needs to be dynamic and innovative, with an emphasis on the development of diversifi ed and comprehensive syariah-compliant fi nancial solutions that meet the differentiated needs of different businesses, including the requirement of international businesses and thus facilitate cross-border investment,” she said.
Expanding on the ever-growing acceptance of Islamic finance practices, chief executive officer and executive director of Asian Islamic Investment Management Sdn Bhd Akmal Hassan believed the key principles in Islamic finance, such as ethical, transparent, prohibition of excessive risk, leverage and speculation appealed to many investors especially after the devastating global financial crisis four years ago.
“The global financial crisis in 2008 highlighted one of the main basics of investing: ‘buy what you understand’,” he pointed out to BizHive Weekly.
“The bundling of subprime loans in a convoluted structure and sold to investors as a high grade bond highlights the pitfall of investing when one does not truly understand what one is buying into.
“That also calls for the need of more transparent and less risky products, which Islamic finance could help to address.
“Besides, Islamic law prohibits making money from money, in other word interest or ‘riba’, as wealth can only be generated through legitimate trade and investments in assets reminded many investors that it is time to go back to basics,” he emphasised.
(Borneo Post Online / 21 Oct 2012)
Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com