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| Dato’ Sri Mohd Najib Razak, prime minister of Malaysia |
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Malaysia has the world’s most sophisticated market for Islamic finance. Some people might quibble with that judgement: the banks are bigger in the Gulf, and the asset management volumes are bigger in Saudi Arabia. But in terms of a tried, tested, supportive, well-thought-out infrastructure within which an Islamic finance industry can flourish, Malaysia leads the field.
Clearly, financial services players such as CIMB have played a vital role in the evolution of Malaysia’s industry. But they would be the first to admit that they have been assisted by the regulators and policymakers who have done everything they possibly can to enable the industry to thrive. What truly distinguishes Malaysia from its rivals is that the central bank, the securities regulator and the government have worked together, with a clear vision of what Islamic finance could bring to their country, from the outset.
This award recognizes the policymaker side of this important combination – and in particular Malaysia’s prime minister, Dato’ Sri Mohd Najib Razak, who also serves as the country’s finance minister. The award, as he will doubtless acknowledge, reflects the contribution of many people in the Malaysian state apparatus: in his own team Tan Sri Dr Wan Aziz Wan Abdullah, the secretary general of treasury, and Dato’ Dr Mohd Irwan Serigar Abdullah, deputy secretary general of treasury (policy), for example. Equally, no discussion of Islamic finance in Malaysia can move far without acknowledging the vast contribution of Tan Sri Dr Zeti Akhtar Aziz, governor of the central bank, Bank Negara Malaysia, who has been a driver of Islamic finance for a decade and a key voice in global debate about it. And her counterpart at the Securities Commission, Tan Sri Datuk Zarinah Anwar, has been instrumental in helping the sukuk market take off, while a number of people at the stock exchange, Bursa Malaysia, have tried to steward the development of listed securities, Islamic derivatives and commodity markets. This has been a team effort, and that is exactly why it has worked.
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| Dato’ Sri Mohd Najib Razak, prime minister of Malaysia |
None of it could have happened, though, without clear-sighted government commitment. Some governments are unwilling to give Islamic finance the level playing field it needs: they worry about a loss of tax revenue in changing laws around sukuks, for example. Malaysia has never worried about any short-term impediments and instead has got on with building a platform. In recent years, Malaysia’s focus in Islamic finance has moved towards something altogether more ambitious than a sophisticated domestic market. Since the launch of the Malaysian International Islamic Finance Centre in 2006, the country has sought to become a hub through which Islamic capital transacts. It has seeded international fund managers to build Islamic businesses in Kuala Lumpur, and has opened the doors to all-comers in an attempt to become something of a City of London for the Islamic world.
Much of the momentum of Islamic finance development was under way well before Dato’ Najib became prime minister in 2009 but his support for it has been unequivocal. “Thanks to the foresight of past leaders, Malaysia has had a head start in Islamic finance and today offers comprehensive coverage of Islamic financial services across banking, takaful and the capital market,” he said at his annual Invest Malaysia address in April 2011. “Our task now is to shift the focus of Islamic finance from serving domestic needs towards tapping the tremendous growth opportunities from intermediating international investments and corporate transactions.”
That day, Najib announced Malaysia’s second Capital Market Master Plan, designed to strengthen the role of markets in promoting capital formation in Malaysia, from start-up to new projects and green technology. The plan aims to more than double Malaysia’s capital market size to M$4.5 trillion ($1.48 trillion) by 2020, and potentially much more through greater internationalization.
Najib recognizes that Islamic finance must be at the heart of that internationalization, and ensured that CMP2 included initiatives to improve it still further: increased capacity to structure cross-border transactions so as to make further inroads into international sukuk; more Shariah-compliant stockbroking products and services; greater critical mass in onshore portfolio management; and a seeding strategy for Islamic fund management, particularly venture capital and private equity.
This, too, has been typical of the Malaysian approach: constantly looking for ways to improve Islamic infrastructure even if it’s already best in class. It’s equally evident in the human capital institutions that have been built, particularly those to train Shariah scholars.
Malaysia continues to be at the vanguard of benchmark cross-border sukuk issuance. In June Malaysia priced a $2 billion dual-tranche global sukuk, amid great market volatility: the sovereign’s largest dollar deal to date. The deal attracted some $9 billion-worth of orders. Also, over the past 18 months, Khazanah, the investment holding arm of the Malaysian state, launched two landmarks: a M$500 million-equivalent CNH bond – the first sukuk in the Chinese currency – and a five-year and 10-year S$1.5 billion ($1.19 billion) sukuk.
Malaysia has in the past rarely stood out as a champion in a regional, much less global, sense in any industry or profession. But Islamic finance is its big chance to be a world leader in a growing and vibrant field, and the backing of the prime minister has been instrumental in Malaysia seizing that opportunity.
