Launch of RAM’s Islamic Finance Bulletin and
Signing of Service Agreement Between RAM & IBFIM

Address by
YBhg Datuk Ali Abdul Kadir
Chairman, Securities Commission

8 October 2003
JW Marriott Hotel, Kuala Lumpur

Yang Berbahagia Tan Sri Khalid Sahan, Chairman, Rating Agency Malaysia Bhd;
Encik Mustapha Hamat, Chief Executive Officer, Islamic Banking and Finance Institute Malaysia;
Tan Sri-Tan Sri, Datuk-Datuk, distinguished guests, ladies and gentlemen.

Assalamu’alaaikum wr. wb. and a very good morning.

First of all, I would like to express my appreciation to YBhg. Tan Sri Khalid Sahan for his kind invitation to address this auspicious occasion today. It is my honour to be here with you for the official launch of Rating Agency Malaysia Berhad’s (or better known as “RAM”) Islamic Finance Bulletin.

I would like to commend RAM for having taken the lead to publish this Islamic Finance Bulletin – which is the first of its kind in Malaysia. Such a publication is a great stride towards promoting Malaysia as a key player in the Islamic financial arena. With the Islamic Finance Bulletin, RAM aptly complements the Securities Commission’s (SC) efforts in developing the Islamic capital market – which is a key agenda for our country and has been identified as one of the six strategic initiatives in the Capital Market Masterplan (or “CMP”) that was unveiled in February 2001.

Ladies and gentlemen,

To achieve the objective of positioning Malaysia as an international Islamic capital market centre, we have laid out a comprehensive plan for the progressive evolution of the Islamic capital market, as encapsulated in 13 recommendations of the CMP covering the various segments within this market. Amongst others, the CMP has recommended a more concerted effort in raising the level of awareness of Malaysia’s Islamic capital market on the domestic and international fronts. Therefore, a comprehensive educational and promotional programme, including high-level presentations, publications and conferences, must be developed and implemented to achieve this goal.

At the domestic level, the programme should be aimed primarily at enhancing the general awareness among Malaysian issuers and investors. Equally important is to educate them on the merits of Islamic financial instruments as funding options. On the international front, programmes should be actively pursued to familiarise and promote to the foreign intermediaries – such as fund managers, investment bankers and other financial services providers – the many Islamic financial and capital market products, instruments, services and supporting infrastructure available in Malaysia.

In particular, promotional efforts should be aimed at international markets which are home to the main sources of Islamic funds, such as those held by the governments and religious bodies in the Middle Eastern countries, and high-net-worth Middle Eastern individuals, and the large Islamic communities residing in the United Kingdom and the United States. Currently, the majority of these funds are being managed by intermediaries in London and New York. Therefore it is crucial for all parties, both in the government and the private sector, to play its part in developing and promoting our Islamic capital market to attract these funds to Malaysia.

The SC firmly believes in the creation of a pool of well-informed investors against the backdrop of a knowledge-based economy, as envisaged by our honourable Prime Minister. One of the challenges to the growth of Islamic capital markets is lack of awareness and understanding of its vast and diverse investment opportunities.

It is therefore timely, with the coming of the OIC (Organisation of the Islamic Conference) gathering next week here in Malaysia, that RAM has developed this Islamic Finance Bulletin. Together with all present here today, I would like to applaud this effort by RAM to focus on educating the market, especially in relation to the Islamic capital market, which will greatly benefit the Malaysian financial market as a whole. We believe that the Islamic Finance Bulletin will fill a vacuum on information about the Malaysian capital market and the Government’s and private sector’s efforts and commitment towards developing Malaysia as an international capital market centre. More importantly, it would promote greater awareness amongst the various parties involved in the Islamic capital market, not only in Malaysia but the world over. We hope that in future, others would also emulate this exemplary effort and take the initiative to further improve industry and public awareness, through promotion and education, particularly on the Islamic financial and capital market segment.

Ladies and gentlemen,

The Malaysian debt capital market has evolved in terms of size, efficiency, and range of instruments. Such progress has enhanced its role in supporting economic growth and transformation. In particular, these developments have been geared towards nurturing the capital market, filling the institutional gap in the financial system and complementing the role of traditional lenders.

I am pleased to note the significant progress of the Islamic capital market in Malaysia, which has been one of the SC’s top priorities. In this respect, the SC had approved 11 issues of Islamic bond worth RM4.17 billion or about 20% of the total value of bonds approved by SC during the first half of 2003. This is a clear indication of continued strong interest in the issuance of Islamic bonds from our local corporates and intermediaries.

Today, the Islamic debt capital market is one of the anchor components of the overall financial market in Malaysia. Its role is equally important to those other components which underpin the economic growth of the country. The Islamic debt capital market has functioned in parallel with the conventional one, for both capital seekers and providers. It has played a complementary role to the Islamic banking system in broadening and deepening the Islamic financial market in Malaysia.

Meanwhile, the various initiatives to expand the range of Islamic capital market products and services have led to the issuance of Malaysia’s first sovereign Islamic bond and the world’s inaugural global Islamic bond issue, the launch of the first Syariah-based index fund and the first Islamic asset-backed securities transaction. There has also been much progress in the establishment of a facilitative tax framework for this market. Tax incentives for Islamic securities that adopt the principles of mudarabah, musyarakah and ijarah and, more recently, istisna are merely some examples of the Government’s initiatives to promote innovation in this field and to attract investors seeking Syariah-compliant instruments. We believe that the introduction of a more comprehensive tax treatment and deductions for expenses incurred in the issuance of Islamic securities will also assist in expanding the range of Islamic capital market instruments and investment products offered.

The SC’s continuous efforts in developing the Islamic capital market as well as Malaysia’s position among the international regulatory community have been recognised through the mandates given by the Executive Committee of the International Organisation of Securities Commissions (“IOSCO”) – and the SC is honoured to have been entrusted the responsibility to lead a task force on Islamic capital markets. This task force has been mandated with the responsibility to assess the developments and regulatory implications of the global Islamic capital markets. Moving forward, the SC, with guidance from our Syariah Advisory Council, will do our utmost to invigorate and facilitate the development of the Islamic capital market in Malaysia.

Ladies and gentlemen,

Although we have seen substantial progress in our Islamic capital market, we cannot afford to rest on our laurels. We must constantly remind ourselves that there is still a lot to be done, in addition to ensuring that we always keep abreast of the latest challenges and development in the market. Sharing knowledge is one way through which we can prepare and improve ourselves with regard to the task ahead.

May I once again express my thanks and appreciation to RAM in their successly launch of this Islamic Finance Bulletin. It is my sincere hope that RAM will continue with this noble effort to share knowledge with others, with the objective of promoting Malaysia as an international Islamic capital market centre.

Thank you.

Securities Commission