Islamic Finance Showing Evolution And Strong Growth, Malaysia Says

Kuala Lumpur, Malaysia | November 28, 2008 by D-8 Secretariat

Islamic finance has continued to grow

Islamic finance has continued to demonstrate its evolution and strong growth during the challenging international financial environment, Bank Negara Malaysia governor Tan Sri Dr Zeti Akhtar Aziz said Tuesday.

“Islamic finance has now become a new vehicle contributing to increasing the financial linkages not only within Asia but also with the rest of the world, thereby facilitating cross-border allocation of capital globally,” Zeti said.

“Indeed, a number of international financial centres have recognised Islamic finance as an integral part of their financial system in order to complete the suite of financial products and services being offered, and therefore are actively developing this segment,” she said at the launch of HSBC Amanah Malaysia Bhd, the first Islamic Bank within the HSBC group here.

According to Zeti, the Islamic finance industry has not only continued to grow but it has also been able to present a higher level of dynamism.

The key indicators of the Islamic banking sector continued to record a progressive pace of development whereby the Islamic banking assets have expanded by 23 percent to RM234.9 billion compared with a year ago, she said.

The Islamic banking industry now accounted for 16.7 percent of total assets in the industry, she added.

Similar trends could be observed in the growth of deposits that have reached RM180.4 billion, up by 27.7 percent from a year ago, while total financing increased by 24.5 percent to RM143.4 billion, Zeti said.

“This growth has also accompanied by an increase in the number of full-fledged Islamic banking branches,” she said.

From January to September this year, 93 new branches were opened, thereby enhancing the outreach of Islamic financial products and services.

Another area that has seen significant growth is the sukuk or Islamic bond market, Zeti said.

The Malaysian sukuk market has expanded significantly with an average annual growth rate of 22 percent since 2001, she said.

“Despite the current market conditions that have affected the volume of new bond and sukuk issuance, the Islamic capital market has continued to structure innovative Islamic financial instruments,” Zeti said.

By the first half of 2008, the composition of the more innovative sukuk musharakah had increased to 84 percent as compared to 58 percent of the total sukuk issuance in 2007, she said.

Touching on the potential role of foreign Islamic banking subsidiaries, Zeti said the policy for establishment of the subsidiaries was also part of the initiative to enhance the outreach of Islamic finance and to strengthen international linkages.

“It reflects part of the further liberalisation of the Islamic financial services industry in Malaysia,” she said.

Zeti said the foreign subsidiaries have the potential to promote innovative product development and enhanced international integration of the Islamic financial system.

“By leveraging on the global networks available, the foreign subsidiaries are well positioned to engage in innovative product development in a more cost-effective manner,” she said.

The foreign subsidiaries also have an important role in enhancing the international linkages of the Islamic finance industry regionally and internationally, Zeti said.

“Reinforced by a well-developed legal, regulatory and Syariah framework and with three decades of experience, our Islamic financial system offers a unique platform as a meeting place between those that require funds and those with surplus funds,” she said.

Several years ago, the development of Islamic finance was regarded as an infant industry and considered concentrated only in countries where the Muslim population was significant. “But in recent years, Islamic finance has made a rapid growth and is present in more than 75 countries both in Muslim and non-Muslim dominated communities,” said D-8 Economist, Esen Gonen.

She said that there is a growing number of the international financial centers that are beginning to offer Islamic financial products and services such as in London, Singapore and Hong Kong. The number of Islamic banking institutions worldwide including conventional banks that are offering Islamic banking services have doubled to more than 300. She noted the total Islamic financial assets under their management are now estimated to exceed one trillion US dollars, about fivefold its magnitude five years ago.

“Therefore Islamic finance, I believe, has a bright future prospects within the globe, especially D-8 countries that also represented major population and economy of OIC member countries,” she added.

News contributor: BERNAMA

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