Welcome Remarks
by
YBhg Tan Sri Dato’ Seri Ranjit Ajit Singh
Chairman of Securities Commission Malaysia
ASIA Pacific Financial Forum Conference on
Developing a Work Program for the Islamic Infrastructure Investment Platform
10 October 2017
Sheraton Imperial Kuala Lumpur

The Honourable Kiatchai Sophastienphong, Vice Minister for Finance, Thailand,
Tan Sri Azman Hashim, Chairman, AmBank Group; Member, APEC Business Advisory Council (ABAC) Malaysia,
Distinguished guests,
Members of the media,
Ladies and gentlemen,

1. Good morning everyone. I would first of all like to thank the Vice Minister for Finance of Thailand, the Honourable Kiatchai Sophastienphong, for honouring us with your presence this morning. I would also like to sincerely thank Tan Sri Azman and ABAC Malaysia for the invitation to speak at the Asia-Pacific Financial Forum Conference.
2. The Islamic Infrastructure Investment Platform is a commendable initiative that provides an innovative idea of using market-based financing to address the very significant infrastructure financing needs faced by APEC member countries.1 The platform recognises the growing prominence of Islamic finance and how Islamic finance can provide an alternative mechanism for fulfilling these needs.
Infrastructure financing for a productive and competitive economy
Ladies and gentlemen,
3. This conference is happening at a timely occasion. There is a synchronised pick-up in growth happening across the world, on the back of improving economic fundamentals and increased investment. As policymakers work towards ensuring that the present economic upturn can sustain itself, one of the key imperatives we have as policymakers has been to ensure that infrastructure is sufficient and adequate to serve the growth needs of society and the economy.
4. A plethora of academic literature has shown how good quality infrastructure may have a positive and long-term impact on output, productivity and economic growth2, with some studies estimating that every dollar invested in infrastructure generates two dollars in economic performance3. This is particularly pertinent in the Asia-Pacific region, given the enormity of its size and diversity, where infrastructure will go a long way in unlocking economic opportunities and allowing for such growth to be shared through local and regional connectivity.
5. To quantify the importance of this imperative, the Organisation for Economic Co-operation and Development (OECD) estimated this year that the world requires USD $95 trillion of financing for infrastructure development up till 2030.4 In Asia, where major emerging economies are seen as key drivers of future global growth, the demand for infrastructure investment has been projected to be USD $26 trillion from 2016 to 2030.5
Capital markets as a source of long-term financing for infrastructure
6. Globally, capital markets have become increasingly important as a conduit for capital-raising6, especially for large-scale and long-term financing typically required by infrastructure developments. At a time where public funding for infrastructure has become constrained, capital markets can facilitate the allocation of private capital using risk-diversifying techniques, guarantees, and the alignment of investor and borrower interests.7
7. McKinsey estimates that more than USD $5 trillion a year is potentially available for infrastructure investment across the spectrum of investor groups.8 As investors begin to consider the value proposition of alternative asset classes, the infrastructure asset class is increasingly recognised as a viable option, with potentially consistent income streams over a long period, and a lower sensitivity to business cycles as well as lower correlations to other asset classes.9 These characteristics are desirable particularly for investors with a lengthier investment horizon and an appetite for diversification.
8. At the same time, financing infrastructure projects can also give rise to inherent challenges for investors. Infrastructure assets are highly complex in legal and financing structure,10 and require specialised expertise in evaluating the construction, operational, legal, regulatory and political risks involved, which tend to be greater during the earlier phases of development.
9. With its emphasis on risk-sharing and asset-backed financing, the Islamic capital market has been recognised by international organisations the likes of the World Bank and the International Monetary Fund as a potential solution to finance the world’s infrastructure development needs. In addition to being able to tap into a wider investor base, Islamic finance provides a viable alternative with no significant additional costs, and possibly lower financing costs as part of a dual financing structure.
10. Sukuk in particular offers flexibility through the various ways in which medium to long-term instruments can be structured.11 Sukuk instruments also allow for the alleviation and management of risk with its ability to be combined with support and guarantee features.12
Ladies and gentlemen,
The Malaysian Islamic capital market provides depth as well as innovative financing solutions
11. In Malaysia, the capital market has demonstrated itself as a solution for managing the country’s infrastructure development needs. Malaysia’s established and liquid bond market – today the 3rd largest as a percentage of GDP in Asia – provided long-term financing capabilities, contributing to over half of private-sector infrastructure investments since the early 1990s.13
12. Recognising the benefits of diversifying the capital market in addition to the promising potential of sukuk, the Securities Commission Malaysia has over the years laid down the foundations for a facilitative ecosystem that will enable the sukuk industry to grow organically. These initiatives included a supportive regulatory framework that would provide investors with certainty and flexibility, a facilitative approval process for greater efficiency as well as tax incentives to encourage participation.
13. Malaysia’s Islamic capital market is today a global leader, accounting for 48% of the world’s outstanding sukuk.14 The established size and depth of the sukuk market has enabled it to be a conduit for the mobilisation of long-term capital towards developmental needs in addition to carving a global niche – 61% of the world’s infrastructure sukuk was issued in Malaysia.15
14. Building upon this position of strength, the SC has sought to widen the sukuk asset class range, with the introduction of a framework for Sustainable and Responsible Investment (SRI) Sukuk to cater to the rapidly growing demand for ethical and green investing, which lends synergy with the principles of Islamic finance and investment. The framework is complemented by tax incentives which allow the tax deductibility of issuance costs of SRI sukuk. We are encouraged to have the launch of the world’s first green sukuk under the framework earlier this year, raising RM250 million which will go towards funding a large-scale solar project.16
The value of multi-stakeholder collaboration and industry participation
Ladies and gentlemen
15. There have in recent years been various initiatives introduced by capital market regulators and policymakers all around the world, who have collaborated with stakeholders including multilateral development banks, financial industry practitioners and investors.
16. The International Organisation of Securities Commissions (IOSCO) established a task-force – of which I co-chaired as Vice Chair of the IOSCO Board – to produce a report for the G20 containing market-based solutions for long-term infrastructure financing.17 From a regional front, the ASEAN Capital Markets Forum (ACMF) partnered with a multilateral development bank to establish the ASEAN Infrastructure Fund (AIF) to help finance critical infrastructure in countries with developmental gaps.18
17. With that said however, while the regulators can facilitate the levelling of the playing field and smoothing of divergences in regulatory frameworks, the ultimate success of any initiative necessitates consistent commitment that must come from industry as much as it does policymakers. Regulators require proactive participation and feedback from the industry, especially through the process of developing commercially viable and relevant initiatives. Involvement from the private sector can help reinforce the economic case of initiatives, and assist in efficient resource allocation, though such arrangements should of course also provide value for money.
18. Industry-driven collaborations, such as the Islamic Infrastructure Investment Platform that is the focus of the conference today, are important in identifying and addressing the key practical issues that investors and issuers face in today’s environment of increasingly open and interconnected markets.
19. I look forward to being updated on the outcomes of today’s conference. I wish you a fruitful and productive discussion ahead.
20. Thank you.

1 Asia-Pacific Economic Cooperation (APEC) is a forum for 21 Pacific Rim member economies that promotes free trade throughout the Asia-Pacific region.

2 London School of Economics, Infrastructure and Growth, for the LSE Growth Commission’s Report 2017

3 Federal Reserve Bank of San Francisco (2012); Credit-Suisse (2016)

4 OECD, Technical Note on Estimates of Infrastructure Investment Needs, July 2017

5 Asian Development Bank, 2017

6 Ratio of global capital market to banking assets is 3:1, according to McKinsey Global Institute, Haver, BIS, Deutsche Bank estimates

7 IOSCO, Market-based Long-term Financing Solutions for SMEs and Infrastructure, September 2014

8 McKinsey, Making the most of a wealth of infrastructure finance, June 2015 – NOTE: Investor groups include institutional investors, infrastructure funds, public treasuries, development banks, commercial banks, corporations and retail investors.

9 Asian Development Bank Institute, ADBI Working Paper No. 555, Infrastructure Investment, Private Finance, and Institutional Investors: Asia from a Global Perspective, January 2016

10 Bank for International Settlements, BIS Working Paper No. 454, Understanding the challenges for infrastructure finance, August 2014

11 IMF, Islamic Finance: Opportunities, Challenges, and Policy Options, April 2015

12 IOSCO, Market-based Long-term Financing Solutions for SMEs and Infrastructure, September 2014

13 McKinsey, The Infrastructure Conundrum: Improving Productivity, April 2015

14 As at June 2017

15 ISRA, figures cover the period from 2012 to 3Q2015

16 The first green SRI sukuk was issued by Tadau Energy on 27 July 2017

17 IOSCO, Market-based Long-term Financing Solutions for SMEs and Infrastructure, September 2014

18 ASEAN Investment Report 2015 projects ASEAN’s infrastructure financing needs to be USD $110 billion a year.