Kuala Lumpur: The guidelines for equities qualifying for Islamic investment are being revisited by the Securities Commission in Malaysia in order to attract the Gulf investors in Malaysia’s Shariah-compliant funds industry.
Malaysia sees great potential of investment from the Gulf region in its Islamic Finance industry therefore the Securities Commission of Malaysia has taken the decision of altering guidelines for equities to lure Gulf investors.
In Malaysia, investment was banned or restricted in companies that are involved in industries deemed to be unethical, such as gambling, alcohol and tobacco under the previous standards.
According to a statement issued by the Securities Commission, these restrictions are now being made more stringent, so that a lower level of exposure to those industries is unacceptable for Islamic investment.
There are two new financial standards in the revised guidelines which filter out excessively cash-rich and debt-ridden companies. The standards are meant to limit exposure to interest payments and pure monetary speculation, which are unacceptable in Islam.
The statement said, “Enhancing the robustness and competitiveness of Malaysia's fund management industry at the domestic and international levels is a motive behind the revisions.”
The new guidelines will come into effect in November and Islamic fund managers will then have six months to comply with them.
The Islamic fund managers said that the attractiveness of Malaysia's shariah-compliant funds to investors from the Gulf has been limited by the fact that Malaysian standards have been less strict than those advocated by many Islamic scholars in centers such as Bahrain and Saudi Arabia. The new Malaysian guidelines should help solve this problem.
The President of an investment firm, Saturna Sdn Bhd in Malaysia, Monem Salam, commented, “This is a step in the right direction. The move would help harmonize industry practices across the globe.”
“Malaysia's methodology is still less strict than the Gulf's, but the inclusion of too many standards could hurt equity portfolios, so the regulator opted for a moderate approach,” he added.
In practice, Islamic fund managers have additional standards of their own on top of the ones dictated by the securities commission, which will cushion the impact of the revision.
Salam said, “It is now up to regulators in the Gulf to respond to Malaysia's initiative in a way that would encourage cross-border investment. The GCC (Gulf Cooperation Council) countries should take note and meet them half-way.”
According to the data of Securities Commission, as of April 30 there were 165 Islamic mutual funds with assets of 29.9 billion ringgit ($9.5 billion) in Malaysia, out of a total of 595 mutual funds of all descriptions.
The Securities Commission's move follows the launch last month of an Islamic interbank facility by the Malaysian central bank, an innovation seen as making the country's money markets more appealing to Gulf-based Islamic banks.