Address by
Y.Bhg. Tan Sri Zarinah Anwar
Chairman, Securities Commission Malaysia
at the
2nd Annual World Islamic Banking Conference – Asia Summit

Wednesday 8th June 2011

Opening Keynote Session: Enhancing the Role of Islamic Finance in Creating Stronger Business & Investment Ties between Asia and Other Key Islamic Financial Centres

H.E. Mr. Lim Hng Kiang
Minister for Trade and Industry, Republic of Singapore
& Deputy Chairman, Monetary Authority of Singapore

H.E.Mohd Rosli Sabtu, Managing Director, Autoriti Monetari Brunei Darussalam (AMBD)

H.E. Dr. Halim Alamsyah, Deputy Governor, Bank Indonesia

Distinguished guests

Ladies and gentlemen


I would like to thank the Monetary Authority of Singapore and the organizers for inviting me to speak at this conference. It is a privilege to join delegates from all over the world coming together over these two days to explore and discuss opportunities and initiatives to enhance the role of Islamic finance in strengthening business ties. The Securities Commission Malaysia has invested a significant amount of efforts and resources to expand the Islamic Capital Market internationally and I am therefore particularly delighted to have this opportunity to share my thoughts on this subject with you today.



Following rather slow growth in the 1970s and 80s, Islamic finance has expanded rapidly, registering growth rates of 15% per annum in the last decade, with sukuk issuances growing by as much as 40% in 2009.1 While expansion is most rapid in Asia and the Middle East, it is notable that its growth has increased in non-Muslim-majority nations too. Developed economies have also licensed Islamic banks, and sukuk issues are increasingly managed by large investments banks from the financial centres of London and New York.


Estimates are for Islamic financial assets to expand to US$4 trillion over the next few years from current levels of US$1.2 trillion.2 This growth will be across all asset classes. There is strong upside potential for Islamic finance to play a more active role to translate global liquidity into productive investment instruments to finance global growth. This can happen within countries and regions, and across regions and financial centres, not only in Asia or the Middle East, but across the globe. Opportunities exist to use Islamic finance more aggressively to develop financial sectors and deepen global business connectivity in a safe and sound financial environment.


Today, I would like to focus on two aspects of the contribution of Islamic finance in bringing about new growth opportunities. The first is the role of Islamic finance in financing global growth through mobilizing and intermediating savings and improving access to finance, and the other is the challenge of mainstreaming Islamic finance into the global financial system, thus contributing to current efforts to build resilience and stability in financial sectors.

Islamic Finance Provides New Options to Increase Savings, Investments and Trade


When we aspire to raise the profile and role of Islamic finance in strengthening business ties between regions, we should not just aim to substitute conventional finance with Islamic finance. We should aim for Islamic finance to actually contribute to the growth of financial assets. In this regard, it is important to address the fundamental issue of savings and access to finance. In order to finance new businesses, and for investments and trade to expand, savings must be mobilized and intermediated. In many countries and regions, there is a need to establish Islamic financial institutions to provide financial services to those who prefer to place their funds in a financial system that is compatible with their belief system. This will encourage a larger share of savings to be mobilized to finance economic activities, thus unleashing new opportunities for Islamic investments while facilitating the funding of economic growth, closing the gap in entrepreneurial financing and making available the supply of risk capital to support the creation of new assets in the financial market.


Through collaboration and sharing of learning, countries with experience and expertise can assist in building appropriate institutional, regulatory and legal frameworks to develop Islamic financial markets that will support the goal of sustainable economic development. Increased liquidity in the more advanced Islamic financial markets, is stimulating increased demand for Shari’ah-compliant assets. Such markets can benefit through offering new products, financing at competitive cost, investing in alternative modes, and helping businesses create value with new alternative financial services.


Malaysia has taken major steps in expanding the development of Shariah compliant products and services to contribute towards building demand for Islamic finance internationally as well as developing Shari’ah compliant tools that can be utilized to facilitate and support cross-border transactions.


Our Islamic fund management industry continues to expand as reflected by the increase in the number of Shariah-compliant funds as well as Islamic real estate investment trusts (I-REITs) and Islamic exchange traded funds (I-ETFs). The sukuk market which for several years now has accounted for the majority of the world’s issuances of sukuk continues to attract both issuers and investors including foreign participants, while the IPO shariah screening process provides certainty and confidence in the Shariah-compliant nature of companies listed on the stock exchange. This includes the screening of foreign IPOs which facilitate the promotion of cross-border shariah compliant financing.


Additionally, the Bursa Suq Al-Sila’, an international commodity trading platform managed by the Malaysian stock exchange enables liquidity management by financial institutions through cross-border, multi-currency, commodity-based Islamic financing and investment transactions pursuant to the Shariah principles of Tawarruq, Murabahah and Musawamah.


Late last year the International Islamic Liquidity Management Corporation was established, a collaborative effort by several central banks to assist institutions offering Islamic financial services in addressing their liquidity management.

Expansion of Islamic Finance is Consistent with Objectives of Greater Resilience in Financial Markets and Global Financial Stability

Ladies and Gentlemen,


Increasing the share of Islamic finance in funding new business opportunities will contribute to building resilience and stability in financial markets. Islamic finance offers a value opposition that is based on socially responsible and ethical practices which emphasise sound risk management principles. It is about dealing in real transactions and sharing profits and risks in an equitable manner.


Islamic finance emphasises transparency and disclosure, enhancing discipline that ensures growth with financial stability. Greater integration of Islamic finance into the global financial system therefore, can facilitate discipline and governance, with the strengthened linkage between real economic activities and the financial sector as represented by the inherent requirement that financial transactions must be backed by real assets, thus enabling Islamic finance to provide a natural hedge that will ensure greater stability.

Economic and business relationship between Asia and other Islamic financial centres


It would seem logical to enhance the cross-border connectivity of Islamic finance by involving two regions that are already adopting it on a significant scale. It is natural therefore that we should look towards Asia and the Middle East to spearhead not only further expansion of Islamic finance, but also to deepen business and investment linkages. This appears consistent with recent World Bank work, which found that the corridor approach of agglomeration of economic activities is effective in enhancing growth. By focusing on clusters of economic activities, scale is achieved to build competitiveness and deepen business ties.


Islamic finance institutions and markets in Asia and the GCC provide opportunities for building scale to expand the growth of Islamic finance activities. This is facilitated by the growing expansion in trade and investments within this cluster, which has risen by 12% per year since 2006. There is also increasing Asian foreign direct investments into the oil and petrochemical sectors of GCC economies. Japanese companies have been investing in the region since the early 1960s. On the other hand, Kuwaiti and Saudi oil companies are investing in refineries in China 3. Other GCC investments are also seen across Asia, for example in the telecommunications sector 4, driven in part by an extended period of low interest rates and low yields in the US and European markets, as well as the adoption of new policies to manage oil surpluses and to seek higher returns on investments.


There are therefore enormous opportunities to finance the expanding trade between both regions, the value of which is growing steadily, through Islamic trade instruments. At the same time, capital investments among countries in the two regions can be enhanced by the availability of Shariah-compliant structures to deepen and broaden the capital markets in this cluster which can then serve as a model for similar clusters to develop within other regions as well as across regions.

Ladies and Gentlemen,
Challenges to Expanding Islamic Financial Services to Strengthen Cross Border Business and Investments Ties


Islamic finance clearly offers a unique value proposition both in contributing towards financial stability and in expanding access to finance for both new and existing businesses. The challenge is in further deepening and broadening the role of Islamic finance globally and to facilitate the wider use of Islamic financial instruments for global trade and investments.


Expanding Islamic finance into new territories and across financial centres however requires addressing legal, institutional and regulatory challenges. To enable Islamic finance to create stronger economic and business ties between Asia and the rest of the world, the right supporting infrastructure needs to be in place. There is a need to deepen the legal and regulatory framework to ensure effective resolution of disputes and to facilitate restructuring of problem financing instruments. An important consideration in this regard is the development and availability of clear and consistent documentations that will provide a sound basis for resolving disputes and facilitating the flow of funds and ownership transfers of underlying assets.


At the same time, clarity and consistency with regards to the interpretation of the Shariah will go a long way towards assuring the confidence of

issuers and investors, and preserving Shariah considerations based on the virtues of ethics, shared values and governance. In this regard, Malaysia has taken the approach of making it mandatory for the courts to refer to the rulings of the Shariah Advisory Councils of the Securities Commission and the Central Bank on questions concerning Shariah matters. This referral system preserves the sanctity of Shariah rulings and consistency in the interpretation and application of Shariah principles for Islamic finance transactions in Malaysia. This is especially important in the light of increased product diversification and complexity.


On the regulatory front, a key agenda for Islamic finance is the development of regulatory, supervisory and risk management frameworks that will enhance the resilience and soundness of Islamic finance and strengthen investor protection; a framework that focuses on transparency, accountability, equitability, ethics and better governance. In this regard, a key aspect of Malaysia’s regulatory approach is to ensure that investors in Malaysia’s Islamic capital market receive the same degree of clarity, certainty and protection as an investor in the conventional market. We emphasise a common regulatory approach to regulating our Islamic capital market based on IOSCO’s objectives and principles of regulation.

The requirements for disclosure, transparency and governance apply equally to both Islamic and conventional products, thus ensuring that an investor in an Islamic product receives the same legal and regulatory protection and recourse that would be available to the investor of a conventional product.

Ladies and gentlemen


In order to better facilitate cross-border relationships, there is a need for more intensive international co-ordination of regulatory approaches and supervisory oversights. At the core, will be coordinating risk management and facilitating the exchange of information to ensure satisfactory oversight of the market and the settlement of disputes.


Meeting cross-border needs also calls for a system of regulatory mutual recognition that will enable accessibility and offering of investment products across jurisdictions. Many markets recognise the importance of partnerships and have taken measures to collaborate through the establishment of mutual recognition arrangements with each other. Malaysia has been proactive in this regard and the Securities Commission has signed several Mutual Recognition Agreements (MRAs) including those for the distribution of Islamic mutual funds.



In conclusion, the opportunities for expanding Islamic finance are many. The growing demand for Islamic finance globally and the strong interest shown by international financial markets to develop their own Islamic finance industry will help push the boundaries of Islamic finance further. In this regard, it is heartening to note that the World Bank has formally recognised Islamic finance and has formally designated it as a priority area in its financial sector program, with a commitment to help strengthen the institutional development of the industry.5 This augurs well for efforts to promote a global approach to developing Islamic finance and integrating it into the international financial system.


Much however remains to be done by lawmakers, regulators and market participants to expand the cross-border growth of Islamic finance. Coordinated efforts must be put in place to overcome the challenges faced by the industry, including the need to create a wider diversity of products, enhance the availability of information and sharing of learning, develop a comprehensive and reliable Islamic finance database, and facilitate consistency in the interpretation of Shariah and the resolution of disputes. A critical area that needs attention is the shortage of skilled and experienced professionals in the industry.

Ladies and gentlemen


The global financial crisis demonstrated the need for markets to be founded on sound business principles. In this regard the principles of Shariah with its inherent prudent and socially-conscious orientation, are consistent with on-going global regulatory and supervisory reforms, and will facilitate the mainstreaming and integration of Islamic finance into the global financial system.


Thank you for your attention.


The World Islamic Banking Competitiveness Report 2007-08, “Capturing the Trillion Dollar Opportunity”, McKinsey & Co.


‘JEF 2011 Debates The Future Needs of Islamic Finance’ Global Islamic Finance Magazine (2011)


‘GCC trade and investment flows’ Economist Intelligence Unit (2011)




‘World Bank declares Islamic finance a priority area’ Arab News (2011)