Welcoming Remarks


Tan Sri Zarinah Anwar

at the

Fourth International Islamic Capital Markets Forum

Securities Commission Malaysia

1 July 2010


Distinguished speakers, ladies and gentlemen
Good Morning and As-Salam ‘Alaykum


It is my pleasure to welcome you to the Securities Commission for the Fourth International Islamic Capital Markets Forum with the theme ‘Sukuk: Transferring Best Practices’.


The global financial crisis underscores the interconnectedness of markets. The sharing of learning and the transfer of knowledge through ties with other markets are therefore important. Lessons and experiences learned and shared can help mitigate the risk of contagion which can be devastating to world economies. At the regulatory level, cooperation and exchange of information have been greatly intensified in recent years.


In the Islamic markets, the transfer of knowledge through a forum such as this paves the way to progress through sharing and innovation. Today’s theme of transferring best practices in sukuk is therefore a timely and constructive one.


We know that developing relationships between jurisdictions and learning from our peers’ experiences are valuable in efficiently moving toward a stronger Islamic finance industry. We all have much to contribute, but may sometimes not realize that we are in a position to do so because we are so entrenched in trying to move forward on our own. The theme today, of transferring best practices, was therefore chosen for this forum.


The sukuk market saw a lull in activity towards the end of the global financial crisis, fueled by the tightening of liquidity. At the same time the pronouncement made with regard to certain sukuk structures being inconsistent with the spirit of the Shariah also had some impact.


The debate was on whether the asset tied to the sukuk could be at a pre-determined price [creating a guarantee, which is unacceptable in Islamic law] and whether the sukuk was actually asset backed rather than asset based. The latter issue is one that poses legal challenges to issuers and investors in respect of the legal claim to the underlying assets.


The challenges to do with the rights of investors and their claim on assets, and the responsibility of issuers to act in a fair and transparent manner do not just lie with the issuing agencies; they also have to do with jurisdictions and the laws of the land. Many jurisdictions have made amendments to the law to help the sukuk market grow while the laws in many other jurisdictions remain to be changed.


Another challenge facing the sukuk market is that with a greater volume of issuances there will be a need for common standards and methodologies for analysis to enable sukuk to migrate from being assessed by way of due diligence to being assessed through standardized financial analysis. Having said that, a decade ago no one would have imagined the growth we have achieved in the last ten years.


I hope the program today will provide perspective and insights into the approach towards resolving some of these challenges.

Ladies and Gentlemen,


The range of sukuk instruments available to investors in Malaysia is unparalleled and these issuances come from a broad spectrum of issuers. The recent issuance of the Malaysian Sovereign sukuk led to overwhelming demand with the issue being oversubscribed by almost five times, and with investors coming from the Middle East, Asia, the United States and other regions; making the issuance a truly global one. This reinforces the acceptability of sukuk as a viable investment alternative notwithstanding the challenges raised earlier.


The product advantage of sukuk is the Shariah compliance process which results in additional disclosures relative to conventional corporate bond issuances. Thus it has been observed that the multi-layered securitizations (like CDOs) which are complex and lacking in clarity are unlikely to pass the Shariah screening process. As was seen, a great deal of contractual ambiguity surrounded these instruments that fed the worst of the global financial crisis. It is the prohibition on undue ambiguity in contracts that excluded these types of instruments in Islamic finance.

Ladies and Gentlemen;


We have seen positive developments in the sukuk market in the aftermath of the global financial crisis with global issuances in 2009 increasing to USD 23 billion1 [of which USD 9.7 billion were from Malaysia] from USD 19 billion2 in 2008, during the crisis. This demonstrates continued demand for sukuk in general, although there will always be a continuing demand for sukuk by investors who are permitted to invest only in Shariah compliant instruments. The growing interest in sukuk funds within the global Islamic fund management industry also indicates great potential for the continued growth of the sukuk market.


I’m therefore pleased that today’s forum will cover a wide diversity of issues affecting the growth and development of sukuk globally. These range from legal and regulatory frameworks for sukuk including cross border issues, tax and accounting, the Shariah governance framework and the various components that make sukuk an efficient investment vehicle.


I hope therefore that this Fourth International Islamic Capital Markets Forum will provide useful learnings and insights to all participants. I thank all of our speakers for taking time from their busy schedule to participate in this Forum and to share their experience and expertise with us.

Thank you and As-Salam ‘Alaykum.

1 Source: S&P

2 Source: IIFM