Kuala Lumpur: Malaysia has been declared the most vital hub of the Islamic Finance in the world by a seasoned financial magazine even though it faces extreme competition from the richer Gulf States and Saudi Arabia having larger Islamic banking setup and Indonesia having the world’s biggest Muslim population.
The financial magazine, The Economists, published an article under the headline “Banking on the ummah: Malaysia leads the charge in Islamic finance” in its latest issue on January 5. The magazine said that Malaysia dominates the global market for sukuk or Islamic bonds.
“Leadership in financial services is not an obvious one. Yet, in some ways the country is the world's most important Islamic-finance center,” said the magazine.
“Just over a fifth of the country’s banking system, by assets, is Shariah-compliant; the average for Muslim countries is more like 12 percent, and often a lot less,” it added.
On the Islamic bonds, the magazine said that the country issued the world’s first sovereign sukuk in 2002 and in the first three quarters of 2012, it was responsible for almost three-quarter of total global issuance.
It also said that Malaysia is home to the Islamic Financial Services Board, an international standard-setting body.
The magazine quoted Dubai’s Fajr Capital Investment Fund’s Founder and CEO, Iqbal Khan, as saying, “These are big achievements for a relatively small country of just 30 million people, of whom only about 60 percent are Muslims.
He said, “In neighboring Indonesia, which is home to the largest Muslim population in the world, only about 4 percent of the financial sector is Shariah-compliant.”
“Although the much richer Gulf States and Saudi Arabia have bigger Islamic banks, it is Malaysia that is the center for thought leadership in Islamic finance,” he added.
The magazine said that Malaysia’s Muslim heritage, outward-looking nature and links with financial hubs like Britain and Singapore made the place a natural candidate to bridge the worlds of religion and capitalism. The central bank, Bank Negara Malaysia, is also supportive.
It added that two institutions in particular the International Centre for Education in Islamic Finance (INCEIF) and the Islamic Banking and Finance Institute of Malaysia (IBFIM), both set up by the central bank have contributed to Malaysia’s pre-eminence in the field.
INCEIF, set up in 2005 and boasting about 2,000 students, is the world’s leading university for the study of Islamic finance.
The International Shariah Research Academy, housed within INCEIF, brings together scholars to produce an internationally acceptable rule-book for Islamic finance.
The IBFIM concentrates on vocational training, offering a variety of certificates in Islamic finance as well as acts as a consultancy to banks and firms that want to become shariah-compliant.
Bank Negara Head, Tan Sri Dr. Zeti Akhtar Ungku Aziz, was quoted by the magazine as saying that these bodies are the “pipeline to provide the banks with talent” and not just in Malaysia.
“All these give Malaysia greater status within the ummah and the global Islamic community,” she said, adding that they are important to a country that often felt on the border of the Muslim world.
Dr. Zeti argues that Shariah-compliant banks are inherently more stable than conventional peers.
“Speculation is forbidden and, because charging interest is prohibited under shariah law, returns are based on profit-sharing,” she said.