Again, Malaysia Leads Islamic Finance to Promote Sukuk

Kuala Lumpur, Malaysia | August 25, 2007 by D-8 Secretariat

D-8 Organization impressed with Malaysian efforts to continuously promote and progress Islamic Finance policy and programs which allows some products of Banks, such as sukuk, takaful, etc, will benefiting trade, investment and economy in general.

Soon, Malaysia will ease its rules to allow all banks to do Islamic banking business in foreign currencies, the Central Bank (Bank Negara) said recently, further cementing the country’s role in Sharia financing. Non-Islamic commercial bank and investment banks licensed by the government will now be allowed to do Islamic banking business as the country aims to position itself as a global hub for the sector, Central Bank Governor Zeti Akhtar Aziz said in a statement.

“We want and aim to develop Malaysia into a centre for the origination, distribution and trading of sukuks (Islamic bonds) to provide further impetus to the development of an increasingly vibrant and progressive bond market in Malaysia as well as in the Asian region,” Zeti said.

However, according to Islamic finance strict rules, interest payments and profits earned from alcohol, pornography, pork or gambling are still banned. Muslim-dominated Malaysia has the world’s largest Islamic bond market, accounting for about 47 billion dollars or two-thirds of total Islamic bonds outstanding worldwide.

Malaysia Islamic finance industry is worth 38 billion dollars in assets ranging from stocks and insurance to home loans and pawn-broking. Islamic banking assets also make up over 12 percent of total bank assets, the central bank said.

In remarks at an Islamic banking forum Monday, Zeti said Islamic bonds are increasingly becoming more important in channeling funds into emerging market economies.” This is particularly the case for the Middle East and Asia, which are among the fastest growing regions in the global economy,” Zeti said.

“This includes financial needs of the private sector following the privatization and implementation of infrastructure projects. The Islamic bond market was growing by an average of 40 percent yearly, and demands for bonds “significantly exceeds supply” the Chief of Bank Negara said.

Since Malaysia’s first issuance of sovereign global Islamic bonds in 2002, there have been a series of other issuance by countries such as a United Arab Emirates, Qatar, Bahrain and Pakistan. Multilateral lending agencies have also made issues to finance development projects, with Islamic bonds now catching on as an attractive instrument of financing, the Central Bank Governor said.

The role of Malaysia to promote Islamic Finance was discussed last May in Jakarta, at the 23rd D-8 Commissioners Meeting that scheduled Malaysia hosts a meeting on D-8 Working Group on Islamic Finance.

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