Keynote Address


Dr Nik Ramlah Mahmood
Deputy Chief Executive, Securities Commission Malaysia


IFN 2013 Issuers & Investors Indonesia Forum
Tuesday 16th April 2013
Hotel Mulia, Senayan, Jakarta, Indonesia

“Advancing Sustainable Development of the Islamic Capital Market”


Distinguished guests, ladies and gentlemen,

Assalamualaikum warahmatullahi wabarakatuh and a very good morning



It is a privilege to be here today to share my thoughts on advancing sustainable development of the Islamic capital market. Sustainable development, especially in the context of Islamic finance is critical to ensure that the objectives and goals of Islamic finance remains firm and viable.


I would like to thank the organisers of the IFN Indonesia Forum, Redmoney, for the invitation to speak on this subject. It is most appropriate that it is here in Indonesia that we discuss on ways to advance sustainable development of the Islamic capital market – not only because Indonesia is the most populous Muslim nation, it also has strong economic achievements and promising outlook. The key requisite in advancing and sustaining the Islamic capital market is ‘working together’. Allow me to elaborate.

Sustaining the Islamic Capital market


But first, before we talk about advancing the Islamic capital market, it is paramount to ensure that it is sustainable. And indeed it is. The Islamic capital market has begun to make inroads into the global market place and interest is seen not only among Muslims but also among non-Muslim issuers and investors. There are four factors that further reinforce the sustainability of the Islamic capital market.


First, socially responsible investments are gaining traction and increasingly investors are viewing investments in companies that value ethical practices and governance as sustainable investments. Shariah principles built on the foundation of financial transactions which promote justice, fairness and transparency resonates well with principles of ethical behavior in finance. Shariah further stipulates that capital should be allocated to those who create value for the investors in their business affairs and promote environmental protection, social good and corporate governance excellence. The main tenets of Islamic commercial law which are prohibition of riba (interest), gharar (uncertainty) and maysir (excessive speculation) further promote sound and sustainable development of financial markets which may in turn serve to mitigate the occurrence or at least the severity of future financial crises.


Second, the potential growth and large market size will sustain development of Islamic capital market. The world’s Muslim population which is about one-fifth of the global population, is expected to increase by about 35%, from 1.6 billion in 2010 to 2.2 billion by 2030 . In comparison, the size of Islamic finance is less than 1% of global financial assets and this presents real opportunity for Islamic capital market to achieve sustainable growth over the long term. The Muslim population is also located in the world’s fastest growing economies, increasing the potential for market expansion. Among Non-Muslims, Islamic capital market provides alternative instruments to diversify risks through its risk sharing characteristics.


Third, the increasing global mobility of financial sector experts supports sustainable development of the Islamic capital market across regions. As an early developer of Islamic finance, our region has put in place facilities to develop talent pools in Islamic finance. Institutions in Indonesia, Malaysia and the Gulf region are already collaborating in human capital development for Islamic finance. Of course more can be done. Availability of talent will ensure sustainable development of the sector.


Fourth, the international community support and the work of multilateral organisations in facilitating the sustainable growth of the Islamic finance industry globally. The international standards being developed to ensure stability of financial institutions and systems is also applied in Islamic finance. These standards ensure the development of relevant and robust financial architecture and infrastructure. The Islamic Financial Services Board (IFSB) and the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) play important roles as standard setters and promoting observance of standards. The Asian Development Bank and the Islamic Development Bank group are facilitating socio-economic development, including through Islamic finance, in their respective constituents, promoting cooperation and technical assistance among member countries.

It’s time to act


To a certain extent, we are still in a crisis. Europe continues to grapple with the financial crisis, and growth among developed economies remain relatively weak and less stable. Downside risk and uncertainties remain.


However, at the same time, the Minsky moment – financial systems are inherently imperfect and will end with a crisis – presented us with an opportunity to offer a stable and sustainable alternative to the conventional financial system. The windows of opportunity are presented upon us to advance the Islamic capital market. We must seize these opportunities.


But to seize this opportunity requires cooperation and collaboration from every stakeholder, thus the important requisite of working together.


Average 5-year global economic growth during and after the global financial crisis was 2.9% p.a. as opposed to 4.8% p.a. for the 5-year period before the crisis. However the Islamic finance industry growth remains robust. Today, the size of the industry is estimated to be US$1.3 trillion, following average annualised growth of about 15% over the past 10-15 years, and is expected to reach US$1.8 trillion by 2016. Within the industry, the sukuk segment has enjoyed especially strong growth in recent years with global issuance registering an annual average 5-year growth rate of 24% .


Growth rates in the Asian region continued to remain high, providing a strong underpinning to drive global growth in the medium-term. In Developing Asia, Indonesia showed the highest post crisis growth rates next to China and India registering average growth of 5.9% p.a. for the last 5 years. Malaysia also exceeded expectations with GDP growth of 5.6% in 2012, surpassing the average GDP in the last 5 years of 4.4% .


Accordingly, capital markets in Asia continued to expand, providing the long-term financing needed for infrastructure and investment activities. In Indonesia, the large market of 13% of the world’s Muslims enjoying rapidly rising incomes has fuelled a rapid increase in Islamic banking assets. Economic growth and investments also meant sukuk issuance is also growing at phenomenal rates, an annualized rate of 25%, while the Net Asset Value of Islamic funds increased by 30% , in response to higher savings and greater awareness of Islamic investment products.

ASEAN as an important driver of future growth

Ladies and gentlemen,


The ASEAN-5 has been identified as one of the key growth drivers of the global economy for 2013 and 2014 with projected growth of 5.5% and 5.7% respectively.


This growth will fuel expansion of conventional and Islamic capital markets. Greater awareness, concerted policies on Islamic finance, both in domestic markets and across borders will certainly support sustained growth of Islamic capital markets. The mobilization of savings, which is expected to rise on the back of robust domestic-driven economy, corporate expansion and infrastructure spending by the government bodes well for sustainable development of the Islamic capital market across the region.


On a longer-term perspective, sustainable development is also made possible when scale has been achieved. Scale enables greater competition and lowering of costs. It is also catalytic in attracting more market players, incentivizing innovation and promoting competition. In turn best practices will prevail.


This phenomenon is seen in Malaysia where during the period of the First Capital Market Master Plan from 2000 to 2010, the Islamic capital market grew at an annualized rate of 13.6% to a size of RM1.05 trillion . Between 2010 and 2012, the Islamic capital market registered further growth at an annualized rate of 16.2% to RM1.42 trillion . Having reached this scale, continued efforts to enhance the infrastructure and institutional strength becomes increasingly important. Hence, growth promotes better infrastructure and services, and begets further growth, which makes for sustainable development of the Islamic financial market.


The growth in GDP leads to expansion in the real assets, an important prerequisite influencing the capacity to raise funds via Islamic instruments. This option of capital raising also allows businesses to acquire new capital leveraging on real assets owned, and therefore overcome the need for high leveraging and sophisticated risk management. This is a key supporting factor for sustainable development of Islamic finance.

Working together towards a Common Goal


We must work together to ensure the Islamic capital market remains sustainable, as well as to make it the preferred option for investors. Greater understanding of each other’s Islamic capital market practices will strengthen the overall ecosystem and enhance the presence and participation of investors, issuers and intermediaries across our borders.


Discussions pertaining to Shariah issues in Islamic finance for instance, are held through regular regional Shariah dialogues and forums or muzakarah. This will assist Shariah scholars and advisers to understand and appreciate regional Shariah issues and work towards harmonization.


Collaborative efforts between our countries to promote standardization of Shariah rulings will facilitate greater cross border transactions of Islamic capital market products and services.

Leveraging on a regional platform


Size and scale are significant in supporting sustainability and competitive edge of the Islamic capital market. Scale provides the market with breadth and depth which in turn will facilitate participants of the capital market to undertake efficient and competitive transactions. As a basic value proposition, Islamic capital market products and services need to be as efficient and competitive as their conventional equivalents.


In Southeast Asia, driven by scale considerations, the authorities are leveraging on the significant achievements of the ASEAN Capital Market Forum (ACMF) and the progress made in the Implementation Plan to meet the objectives of the ASEAN Economic Community Blueprint 2015.


The ACMF initiatives now include a study on regional collaboration on Islamic capital market to promote awareness and to identify areas for further work to facilitate greater regional cooperation in Islamic capital market. Building scale within ASEAN is critical in ensuring sustainability of development of the Islamic capital market. ASEAN has a population of around 617 million with Muslims making up about 40%. Combined GDP amounts to US$2.3 trillion or 3.3% of global GDP. Collective number of listed companies exceeds some of the developed economies and combined market capitalization would put ASEAN at par with some of the leading exchanges.


A larger ASEAN market and its offering of greater choice will also make the ASEAN capital market a leading candidate to act as the primary venue for institutional and retail investors for Islamic asset and wealth management to service global demand, including demand from GCC and other parts of the world.



While Islamic finance has achieved laudable milestones over the past two decades, it is right that such development must follow the course that ensures sustainable growth. This sustainable growth is particularly challenging in the changing global landscape, where speed and cross-border nature of transactions have created new risks. Together we have the resources to propel the Islamic capital market forward. We both have a shared history of a determined struggle to overcome odds that were greatly stacked against us. We can do it again. InsyaAllah

Thank you.