Malaysia focus on Islamic capital market

Malaysia’s recently announced 2014-2015 Budget contains measures to continue to foster the country’s Islamic capital market, including an extension of tax deduction for another three years until 2018 for expenses incurred in the issuance of Sukuk based on Ijarah and Wakalah principles. In future Malaysian Government Securities (MGS) and Government Investment Issues (GII) may be listed in Bursa Malaysia’s Exchange Traded Bond and Sukuk (ETBS).

The Malaysia Government also plans to introduce a new Shari’ah-compliant invest product called the Investment Account Platform (IAP). The IAP will provide opportunities to investors in financing entrepreneurial activities and developing viable SMEs. At the same time, IAP will be a platform to attract institutional and individual investors, including high net worth individuals to invest in the Islamic financial market.

In the detailed Economic Report 2014-2015, published alongside the Malaysian Finance Ministry’s budget proposals, the Ministry notes that the country has an established base of domestic institutional investors. “The Sukuk marketplace is supported by a robust regulatory and supervisory framework, an efficient price discovery platform and a deep primary and active secondary Sukuk market… Malaysia leads in global Sukuk issuance, accounting for 63 per cent or $41.7 billion of the total global Sukuk issued and 57.3 per cent or $161 billion of the global Sukuk outstanding during the first half of 2014.”

It also noted that Shari’ah-compliant securities listed on Bursa Malaysia accounted for 73.2 per cent of total market capitalisation as at end-July and that Malaysia’s Islamic banking assets, at MYR 580.8 billion, were 25.1 per cent of total banking system assets at the same time. Malaysia’s Islamic banking industry continues to be well-capitalised with the CET1 capital ratio (12.6 per cent), tier 1 capital ratio (12.7 per cent) and total capital ratio (16.1 per cent) well above the regulatory minimum requirements as at end-July 2014.

“The global Islamic finance industry has been recording tremendous growth, averaging 15-20 per cent annually over the last decade. In this respect, Malaysia is at the forefront of promoting Islamic finance at the domestic and international levels. The recent launch of the SRI [Socially Responsible Investing] Sukuk Framework is reflective of Malaysia’s innovative efforts to introduce Shari’ah-compliant sustainable and responsible investments. Leveraging Malaysia’s robust and comprehensive Islamic finance ecosystem coupled with pro-business environment, efforts will be intensified to promote Malaysia as a preferred destination of Islamic finance. This will include developing new Shari’ah-compliant products that can cater to evolving market needs. Meanwhile to further spur SME development, efforts will be undertaken to expand Islamic financing to SMEs, especially those at the start-up stage to help them grow and expand."