IFN 2012 Issuers & Investors Asia Forum
17 October 2012 |   By : Zainal Izlan Zainal Abidin, Executive Director, Islamic Capital Market, Securities Commission Malaysia
Keynote Address 
by YBhg Dato Dr Nik Ramlah Mahmood 
Deputy Chief Executive, Securities Commission Malaysia 
at IFN 2012 Issuers & Investors Asia Forum 
Tuesday 2nd October 2012 

KL Convention Centre, Kuala Lumpur 

 “Islamic Capital Market – Ensuring Sustainable Growth”

Distinguished guests, Ladies and gentlemen, Assalamualaikum and a very good morning


  1. I would like to thank the organizers for inviting me to speak at today’s conference. The IFN Issuers and Investors Asia Forum I understand, draws delegates from the entire spectrum of the Islamic finance industry. So I am delighted to have this opportunity to share my thoughts on this subject with you today. 

Strong Growth
  1. Though affected to a certain extent by the global weakness caused by the global financial crisis, Islamic finance has nevertheless achieved remarkable growth over the past three decades. The industry is currently estimated to be worth about US$1.1 trillion by end of this year1 and is expected to grow to US$1.8 trillion by 20162 . However, in comparison, Islamic financial assets still constitute less than 1% of the total global financial assets. 3 
  2. On the home-front, the Islamic capital market has contributed significantly to the development of the overall capital market in Malaysia. Between 2000 and 2010, the period of the First Capital Market Masterplan, the Islamic capital market more than tripled in value to RM1.05 trillion, growing at an annualized rate of 13.6%. The sukuk segment expanded at a rate of 22.2% per annum over the same period and made up 28% of the Islamic capital market as at the end of 2010. As at July 2012, Malaysia’s sukuk outstanding accounts for 69% of global sukuk outstanding (USD153.88 billion out of total USD 233.18 billion) . The total value of sukuk issued from Malaysia in 2011 accounted for 73% or USD67 billion of sukuk issuance globally. During the 1st half of 2012, the total value of sukuk issued from Malaysia was US$50.0 billion. 
  3. Shariah compliant securities on Bursa Malaysia has a market capitalisation of RM931 billion representing 65% of total market capitalisation as at July 2012. The NAV of Shariah compliant unit trust funds has also grown to RM33 billion in 2011 from just RM1.7 billion in 2000. 
  4. The SC believes that this growth momentum is sustainable. In fact under the Second Capital Market Masterplan (CMP2), the Islamic capital market in Malaysia is projected to grow further at an average rate of 10.6% per annum over the ten-year period to 2020, to take its value to almost RM3.0 trillion by the end of year 2020. 

Ladies and Gentlemen, 

Growth Strategies
  1. Statistics have shown us as to how fast the industry has grown. While the facts and figures for Islamic finance are very encouraging, it is imperative for us to remain cognizant of the challenges facing the industry which, if not addressed, may retard its growth momentum in the future.
  2. The CMP2, launched last year, outlined the growth strategies for Malaysia’s capital market. Among others, CMP2 identified the need to build scale in the various segments of the Islamic capital market in order to sustain the growth that has been achieved. They include the need to strengthen the service and operational infrastructure, promote Shariah-based approach, and increase international collaboration on Shariah research and product development. 
  3. Implementation of the CMP2 has begun in earnest. We have embarked on various initiatives that are intended to support and enhance the growth of the capital market in general and especially so for the Islamic capital market. These initiatives include the following:

First: Widening of Asset Classes
  1. As part of the drive to create new business models for both issuers and intermediaries, the SC recently introduced the legal framework for business trusts including Islamic business trusts.  
  2. Providing the platform for the establishment of an Islamic business trust is consistent with our aim of promoting more risk-sharing Shariah-based products. This initiative is in part a response to the call for more participatory type of products so I hope the market would seize the opportunity so as to realise the vast potential of a more flexible proposition – for the issuer, having a wider investor base for the industry and promoting risk diversification. 

Second: Facilitating Cross-Border Transactions
  1. In the sukuk market, our intermediation capability in originating, arranging and distributing sukuk issuances not just by foreign issuers tapping the deep Ringgit market but in structuring foreign currency sukuk by Malaysian issuers globally is well known. 
  2. Recent quasi-sovereign and corporate issuers such as those from Khazakstan, Abu Dhabi and Singapore underscores Malaysia’s growing significance as a centre of intermediation for Islamic finance. Similarly it is noteworthy that even Malaysian companies are now diversifying their funding mix, seeking non-Ringgit capital via the global sukuk market. The recent issuance of Renminbi sukuk by Malaysian corporate which attracted wide international participation is yet another clear demonstration of our domestic intermediation capability in structuring and distributing global mandates. This trend towards increasing cross-border transactions is expected to grow and sustain as Malaysia’s lead in Islamic finance is further entrenched by the implementation of the various growth strategies. 

Third: Revised Screening Methodology
  1. In view of the developments and sophistication of the Islamic finance industry since the introduction of the screening methodology in 1995, the SC announced in June this year, a revised screening methodology to determine the Shariah-compliant status of listed companies. Under this revised methodology, a two-tier quantitative approach which applies the business activity benchmark and the newly established financial ratio benchmarks is adopted. In addition, the existing qualitative assessment will continue to be applicable. 
  2. The streamlining of the business activity benchmarks and the inclusion of the financial ratio benchmarks will enhance the robustness of the screening methodology for listed securities and, in turn, is expected to bolster the competitiveness of Malaysia’s Islamic equity market and Islamic fund management industry at both domestic and international levels, in line with the growth strategies under the CMP2. 

Fourth: Framework for Retail Bonds and Sukuk
  1. The SC last month launched Malaysia’s retail bonds and sukuk framework. Under this framework, retail investors will have direct access to invest in a wider range of investment products such as bonds and sukuk. 
  2. This launch is in line with the initiative to facilitate greater retail participation in the bond and sukuk market. Retail bonds and sukuk to be issued could be traded either on the exchange (Bursa Malaysia) or over-the-counter (OTC) via appointed banks. It is our hope this initiative will further improve liquidity in the secondary trading in the bond and sukuk market. 

Fifth: Private Retirement Scheme
  1. As most of you are aware the SC recently launched the Private Retirement Scheme. This new voluntary scheme is one of the initiatives that will help to promote the innovation of new Shariah-compliant investment products and will potentially increase the amount of money going into Islamic investments. The PRS will not replace the EPF but instead complement it. Contributors will be able to allocate savings to a wide range of products offered by private-sector fund management firms. 
  2. Under the PRS, fund managers will be required to offer a minimum of three “core” products catering to different investor risk profiles. A maximum of seven products can be launched under the scheme by a single PRS provider, but as an added incentive, under the guidelines, a provider can offer up to 10 products if it intends to offer both conventional and Shariah-compliant options. To date SC has approved 2 Islamic PRS, each with the core funds.  

Ladies and gentlemen, 

Way Forward: Developing Talent Pool and Capacity Building
  1. Growth thus brings new challenges. The continued growth and sustainably of our Islamic finance industry is dependent on our ability to continue to manage potential vulnerabilities to the system by observing good governance, to maintain prudential standards and manage risks. These would require focused initiatives to develop and strengthen efforts for capacity building and talent development. 
  2. In this regard, I am pleased to inform that yesterday marks the graduation of the 7th intake of our highly successful Islamic Capital Market Graduate Training Scheme (ICMGTS). As a measure of its success, 95% of the graduates from the earlier six batches have been absorbed into the industry. Similarly, the SC last year embarked on a programme to provide continuous professional development in the areas of Shariah, Islamic capital market, finance, regulatory, legal, accounting, auditing and tax via the I-Advisor modules. The participation of Shariah advisors and market professionals and has been encouraging, proving again the effectiveness of such programmes in developing talent and capability within the industry. The importance of these efforts cannot be underestimated as without the appropriate talent pool the growth opportunities for our ICM will be limited. 

Fostering Greater Connectivity and Regional Collaboration
  1. The internationalisation of the Islamic capital market is underpinned by the need to foster greater connectivity and regional collaboration. Greater connectivity between jurisdictions is now being shaped with the developments in regulatory frameworks by certain jurisdictions to facilitate cross-border distributions. Growth has brought with it globalisation, and local capital market development can no longer be addressed in isolation. Instead, it needs to be approached in the context of broader global issues now. 
  2. Collaborative arrangements may be made in the areas of product development and distribution, Shariah advisory and research, capacity building and regulatory supervision, to name a few. In order to facilitate development in these areas, initiatives to harmonise and standardise certain aspects of the industry are already being undertaken with the primary objective of creating an enabling environment for Islamic finance to truly flourish at the international level. 
  3. For instance, the SC recently co-organised a Roundtable with two key standard-setting organisations, the Islamic Financial Services Board (IFSB) and the International Organization of Securities Commissions (IOSCO), to discuss and deliberate on the need to enhance disclosure requirements in the Islamic capital market. Similar international initiatives can also be seen in other segments of Islamic finance, all with the main aim of broadening and deepening the industry globally. 


Ladies and gentlemen
  1. In considering the need for a sustainable development of the ICM, we should not overlook the other underlying elements that will guide the process towards achieving this objective. In this regard, virtues of strong governance, disclosure, proper due diligence, transparency, ethics, and corporate as well as social responsibility need to be observed. 
  2. We have been fortunate to take lessons from the global financial crisis, and it has given us the opportunity to revisit our business model; to one that will ensure public good and will promote greater shared prosperity and economic stability through greater equitability and trust. 
  3. The industry has recorded tremendous achievements within these three decades. As it progresses, it must continue to overcome the mentioned challenges, build scale and reach the critical mass in order to sustain growth and put the industry in a position of strength. 
  4. In conclusion, I believe that the outlook for Islamic capital market remains promising and expect the current growth momentum to sustain moving forward as we continue to support and invest in the key drivers for growth. I would like to emphasise that the orderly development of Malaysia’s Islamic capital market remains the key commitment and priority of the SC. However the responsibility to achieve sustainability lies not just with the regulators but also on the investors, issuers and other stakeholders.
Thank you.

1 E&Y The World Islamic Banking Competitiveness Report: A Brave New World of Sustainable Growth 2011 – 2012 

2 Sarasin Alpen. Islamic Wealth Management Report 2012. 

3 KFH Research. IFSB 4th Lecture on Financial Policy and Stability 2011: Constraints on Growth in Islamic Finance. Also refer to http://www.reuters.com/article/2012/03/29/islamic-finance-growth-idUSL6E8ET3KE20120329

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