International test for Malaysia’s Islamic ambition

Kanika Saigal
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The country has the potential to cement its position as the world’s leading centre for Islamic finance, but a lack of standardization is causing problems, particularly for international expansion.

Malaysia has established itself as one of the world’s leading centres for Islamic finance. With growth in the sector now outstripping that of conventional finance, Malaysia could be on the brink of establishing its pre-eminence.

Cheah King Yoong, a Kuala Lumpur-based vice-president of equity research at Alliance Research, says Islamic banking in Malaysia registered a compound growth rate of 23% between 2008 and 2011, far exceeding the 11.4% growth rate of total loans in the Malaysian banking system. In the first seven months of 2011, Malaysia’s Islamic banking assets rose by 15% to reach M$389 billion  ($126 billion).

In the bond market, two-thirds of global outstanding sukuk issuance, $165 billion, has been issued in Malaysia. As a result, many experts are lauding Malaysia as the global hub of Shariah-compliant financing.

And its burgeoning popularity is not based solely on religion. "People choose Islamic...