KUALA LUMPUR: Malaysia has emerged as a leader in Islamic finance with just over a fifth of its banking system, by assets, to be syariah-compliant.
With the average of syariah-compliant banking for other Islamic countries at about 12%, Malaysia is the world’s most important Islamic finance centre, according to a recent article in The Economist.
In many ways, Malaysia has led the charge in getting Islamic finance accepted. The country issued the world’s first sovereign sukuk in 2002; in the first three quarters of 2012 it was responsible for almost three-quarters of total global issuance. Malaysia is also home to the Islamic Financial Services Board, an international standard-setting body.
The Economist article said these are big achievements for a small country of just 30 million people, of whom only about 60% are Muslim.
It said in neighbouring Indonesia, which is home to the largest Muslim population in the world, only about 4% of the financial sector is syariah-compliant.
The magazine quoted Dubai’s Fajr Capital Investment Fund’s Iqbal Khan who said that although the much richer Gulf states and Saudi Arabia have bigger Islamic banks, it is Malaysia that is the centre “for thought leadership in Islamic finance”.
Malaysia was able to carve out its niche in Islamic finance mainly through its Muslim heritage, outward-looking nature and links with financial hubs like UK and Singapore. These assets, plus the support of Bank Negara Malaysia (BNM), made Malaysia a natural candidate to bridge the worlds of religion and capitalism.
BNM’s setting up of the International Centre for Education in Islamic finance was particularly instrumental in raising Malaysia’s pre-eminence in supplying the knowledgeable workers for the sector.
It also set up the Islamic Banking and Finance Institute of Malaysia (IBFIM) which concentrates on vocational training, offering a variety of certificates in Islamic finance. IBFIM also acts as a consultancy to banks and firms that want to become Shariah-compliant.
These two bodies are the pipeline to provide banks with talent versed in Islamic finance, the article quoted BNM governor Zeti Akhtar Aziz.
Zeti went on to say that syariah-compliant banks are inherently more stable than conventional peers because speculation is forbidden and returns are based on profit-sharing, not interest.