Keynote Address
Tan Sri Zarinah Anwar
Chairman, Securities Commission Malaysia
at the
5th International Islamic Capital Market Forum
Thursday, 10 November 2011
Lanai Kijang, Kuala Lumpur

Distinguished speakers, guests, ladies and gentlemen,

Assalamu’alaikum and a very good morning.


It is my pleasure to welcome all of you to our 5th International Islamic Capital Market Forum. I wish to express my appreciation to all of you for taking time off from your busy schedules to join us today. To all our distinguished speakers, thank you for graciously accepting our invitation to share your thoughts and views at this Forum.


Much has been said and continues to be said about the foothold which Islamic finance has gained in the international financial landscape. A range of proof points support this contention and justify further projections of the growth trajectory of Islamic finance in the coming decades.

We have achieved double-digit growth rates for various components of Islamic finance including sukuk, fund management and Islamic banking, whether at the national, regional or international levels. Additionally there has been increasing acceptance of Islamic finance not only in the Muslim-majority countries but also in certain predominantly non-Muslim jurisdictions. We have also witnessed the growing size of funds seeking Shariah-compliant investments and the increasing participation of multi-national corporations, multi-lateral institutions and conventional institutions in sukuk issuances.


It is not my intention today to revisit the benefits of Islamic finance or restate the pre-conditions for its further growth. As I have alluded to, these are well-documented and well-known to all. Instead I would like to share my thoughts on just two aspects of Islamic finance which make up the theme of our Forum this year – the concept of risk-sharing and of public good. These two aspects of Islamic finance are often over-looked or perhaps under-valued.


Islamic finance started as an industry within the conventional framework based on adapted structures that were Shariah compliant with the hope that these would eventually evolve and become more closely aligned with the core principles of the Shariah. However the Shariah compliant industry continued to grow, with most of the available products being largely adaptations of their conventional equivalents. We must acknowledge though that this has been most effective from the marketing perspective and has facilitated understanding and acceptance of these products; indeed it has been instrumental in getting Islamic finance to where it is today.


However, adaptation of conventional products to create Shariah-compliant ones, has meant that there has been less urgency to study and apply valuable Shariah concepts and principles. To some extent, this has diminished the value and spirit of the Shariah in Islamic finance and as a consequence, there continues to be disagreements, uncertainties and concerns with respect to the acceptability of certain Islamic finance products and services.


Furthermore, adaptation has resulted in direct comparisons being made between conventional and Islamic products in terms of risk-return profiles, cost structures and legal, tax as well as regulatory considerations. Often and not unexpectedly, such comparison would result in Islamic products being seen as less attractive.


Thus for Islamic finance to flourish further and sustain its long-term growth, it must be able to offer a more distinctive value proposition that is universal and all-encompassing. In this regard, risk-sharing is one of the cornerstones of the Shariah. Risk-sharing contributes to fairness and collaboration, both of which are universal values. More concerted efforts to facilitate the expansion of Islamic finance towards risk-sharing structures will therefore provide Islamic finance with a distinctive value proposition which will not only broaden its customer base to include investors seeking risk-participatory instruments, but also offers innovative product structures to provide diversification benefits.

Ladies and Gentlemen


Retracing its origins, Islamic finance started with simple Shariah-compliant transactions being undertaken within the prevailing financial system in order to provide the ummah with a solution to riba. But as mentioned earlier, the hope that these would evolve into Shariah-based products and transactions has not materialised in any significant manner.


Islamic finance has continued largely on a path of replication of conventional finance, a model that has not only met the needs of consumers but has also proven to be viable, allowing for the adaptation of the existing regulatory, legal and accounting frameworks, while at the same time ensuring that the contracts used in the transactions comply with the Shariah.


But although the form of contracts for conventional and Shariah compliant financial transactions differ, the problems and challenges are not dissimilar. Continued reliance on debt-based structures perpetuates the element of inequitable risk sharing by virtue of the risks in debt based transactions being largely transferred to the client or investor.


The sub-prime crisis serves to remind us of the fragility of a debt-based system – whereby the securitisation of the bundled sub-prime mortgages by the lenders effectively transferred the entire risks on the mortgages to the investors. Compounding the issue was the fact that these products, which generally lacked clarity and transparency, were being offered to investors who might not have fully appreciated the risks of the structure. As we have seen, risk transfer together with high leverage weakens the link between the financial and real sector and can undermine the entire financial system.

Ladies and Gentlemen


Risk-sharing integrates risk management with value creation. The Islamic concepts of musharakah and mudarabah, for example, target value creation and are good ways of managing risk. In a healthy venture, fear of loss works to counter-balance hope for gain.

When a system allows for the shifting of risk (at a cost), the fear factor becomes inoperative insofar as the seller of risk is concerned1.


Risk-sharing also encourages entrepreneurship.  When project promoters are able to share the business risks of their new ventures equitably with willing investors, more entrepreneurs will emerge, thus contributing to real economic growth and real wealth creation.


While risk-sharing fosters strong commitments, it must have deterrent features that can effectively address any violation of the applicable principles or arrangements. Only in this way can we have a system that is competitive and allows for profit-maximisation. Risk-sharing structures by their very nature will foster greater self and market discipline, thus allowing the regulators to focus on their core business of investor protection, ensuring fair and orderly markets and minimising systemic risks. The risk-sharing concept, therefore, leads to the attainment of public good and promotes ethical and responsible corporate conduct. This brings me to my second point – the link between Islamic finance and the concept of public good.


It must be recognised that modern finance has contributed immensely towards global economic and social development, towards the betterment of humanity. New ethical dimensions have been introduced into the financial services industry, such as CSR programmes, Socially Responsible Investing, green-financing, application of the Equator Principles2 which ensures the commitment of conventional institutions to the pursuit of public good.

I would however argue that ethics and public good are inherent in the Islamic concept of risk-sharing.

Ladies and Gentlemen


In March this year, the SC and the Oxford Centre for Islamic Studies (OCIS) jointly hosted the second SC-OCIS Roundtable on the theme “Islamic Finance and the Public Good”. Attended by leading Shariah scholars, advisors, academicians and practitioners, the Roundtable generated highly insightful, critical and constructive deliberations on the subject matter. The varied and valuable perspectives offered by the select group of participants at the Roundtable was a clear signal to the SC that we have to provide another platform to take the discussions further, hence the theme of today’s Forum.


In his Keynote Address at the 2nd SC-OCIS Roundtable, HRH Raja Dr Nazrin Shah reminded the participants that, and I quote:”We should not be satisfied with just achieving something that is halal, but instead should strive for something that is also good or wholesome. If we are to adopt a similar approach in our endeavour to bring lslamic Finance to greater heights, we therefore must not overlook the need to incorporate the element of tayyib into products and practices. This need is especially relevant when the lslamic Finance industry remains largely in an adaptive, as opposed to innovative, mode. The process of adapting a product or practice from conventional to Shariah-compliant may at times focus on eliminating the haram while neglecting to incorporate the tayyib.” Unquote.


Clearly the ultimate objective of Islamic finance must be to fulfil the objectives of the Shariah, the maqasid shariah3. The kind of measured approach that the Shariah takes to the prohibition of riba, leverage, speculative risk-taking and gharar4 is meant to realise the ideals of social justice and to prevent exploitation. Thus the motivation for partaking in Islamic finance should therefore also include considerations beyond just the rationale that funds are from permissiblesources, transactions are asset-backed, forms are Shariah-compliant and greater transparency are apparent in the structures. Islamic finance need to work for the good of society and towards achieving the aspirations of Islamic economics by fulfilling all the conditions of maqasid shariah.

Ladies and Gentlemen


The virtues of Islamic finance need to be unlocked further. Public good, ethics, shared values,governance, real and tangible contributions to the economy hold the key to innovation and growth. The pursuit of profits guided by a higher social purpose will create not just economic returns but also comply with universal values shared by all of mankind. Indeed it is possible to derive profits from doing good. Putting this in place will strengthen the universality and acceptability of Islamic finance, enabling it to offer a distinctive value proposition.


Today there is increasing interest displayed by both institutional and retail investors who wish to invest according to their closely-held beliefs and values. Ethical investment is no longer a specialist discipline that is of interest to only a small group of investors. More and more investors view it as the basis for a forward looking investment strategy that incorporates a focus on value preservation. Similarly Shariah 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 as part of their value proposition.


Malaysia is well-poised to take Islamic finance to the next level given our success as an established Islamic financial centre where the government, regulators and industry all work hand-in-hand to support Islamic finance initiatives.


Under our Capital Market Masterplan 2, the widening of the international base of the Islamic capital market has been identified as a key growth driver. In this respect, successful implementation of initiatives and strategies to facilitate and expand the Shariah-based approach, with its underlying qualities of promoting ethical and equitable economic and social developments that have universal appeal, will be crucial in supporting the sustainable growth of the Islamic capital market.


It is my fervent hope that with the presence of leading global industry practitioners, scholars and experts at this Forum, all of us will benefit from what I know will be extensive and incisive discussions and debate on the subject matter in the following sessions, and thereafter be able to conduct further assessment on the realisation of risk-sharing structures and transactions towards achieving public good in Islamic finance.



Let me, in concluding, extend my thanks and appreciation once again to our distinguished speakers and to everyone present for your participation. I wish you a productive and enlightening Forum.

Thank you.


Current Financial Crisis and Islamic


The Equator Principles (EPs) are a credit risk management framework for determining, assessing and managing environmental and social risk in project finance transactions


Objectives of Shariah


An Islamic finance term describing a risky or hazardous sale, where details concerning the sale item are unknown or uncertain. Gharar is generally prohibited under Islam, which explicitly forbids trades that are considered to have excessive risk due to uncertainty.