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Monday, 22 July 2013

Islamic finance and Malaysia’s assertive role

In this interview, Ashar Nazim extrapolates on the role of the International Islamic Liquidity Management Corp (IILM), the need for Malaysia to be more aggressive in pushing Islamic banking globally and the need for global connectivity in the sector.

Ashar said establishing Malaysia as a market place for businesses to raise funds was definitely a niche which Malaysia has to capitalise upon and Islamic banking units should be empowered to take strategic decisions to drive its own fate.

Ashar Nazim, a partner of Ernst & Young and head of its Islamic banking excellence centre, spoke to The Malaysian Reserve at the sidelines of an event in Kuala Lumpur, recently.

How can Malaysia enhance its global presence in the regional I slamic banking sector?

A: In the case of global connectivity, Malaysia must give importance to the knowledge ecosystem.

More collaboration is needed among standard setting bodies, whereas research and development is very important and there is a need to fund education which is even more compelling in the sector. Attracting foreign specialists, that is the best of minds, to help develop the markets is necessary.

There are several new market players like Libya, Egypt, Turkey and Oman opening up to Islamic finance for the first time. Now is the time to influence these new markets with the framework and the standards already in use in Malaysia in order to get them to adopt these principles.

What are the solutions you propose to achieve the regional influence?

A: Today the situation demands that the Islamic banking units should be empowered to take strategic decisions, should be capitalised to pursue those growth and opportunities and should have the talent, the technology to drive its own fate and not be dependent on a hybrid structure.

Maybe it is time, and this is a caution that we put out to the industry, for the industry to re-look at the business model of a hybrid institution towards an Islamic bank because once you’ve got stand alone banks, you’ve got a much more powerful brand in the market. This will allow them to go regional and subsequently international.

Are Malaysian institutions ready to go regional, global? 

A: From a talent perspective we see them challenged. They are stretched due to lack of talent but collaborations and joint ventures, taking a more balanced view between a shortterm commercial viability in the domestic market versus a strategic medium-term view, could be the answer.

Does this call for consolidations among Islamic banks? 

A: Consolidation should be one of the options and the reason is today among the top five Islamic banks, by the assets or by capital, none are Malaysia. If we are talking about global leadership, then we need to have institutions that can become global leaders.

What about the delays that has bogged down the IILM? 

A: IILM has an important role to play in the development of the Islamic capital market. It had a couple of relaunches and change of management team. Maybe it is time to carefully evaluate the business model and the leadership in order to ensure the purpose, but the demand is definitely there.

In the capital markets, the biggest demand today is access to capital and a market place that has the confidence of the investors.

Establishing Malaysia as a market place for businesses to raise funds is definitely a niche which Malaysia has to capitalise upon. But it should not just be limited to IILM. There are other initiatives and institutions that should be created to compliment IILM’s role to complete the cycle.

(The Malaysian reserve / 22 July 2013)

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