Introduction
On behalf of the Securities Commission, may I thank you for your presence here today at the start of the first International Islamic Capital Market Conference held in Kuala Lumpur. Alhamdulillah, we are indeed gratified by your interest and support. We trust you will find the programme over the two days useful in bringing together views on how we can develop the Islamic capital market in Malaysia, taking into account our past experiences, and the requirements for such a market not only in the present, but in the future.
To our foreign guests, we bid you a warm welcome to Malaysia and hope that your visit would not only be a productive one, but will enable you to return home with fond memories and a wish to visit us again in the near future.
Islam and the development of the capital market
Ladies and gentlemen,
As a prelude to the Conference, members of the Commission staff undertook a brief survey of the literature on the subject of developing Islamic capital markets over the last twenty five years. We were struck by a noticeable and positive change in the subjects discussed, and the manner in which they are presented. While early contributions tended to focus on theoretical constructs, and broad aspects of dogma, recent contributions have taken on a more applied and pragmatic approach. They have tended to describe specific instruments that have been created, institutions that have been formed, or intermediaries that have offered new products based on the Syari'ah.
This transition from the general to the specific signals a willingness by market participants to address the tenets of an Islamic capital market in a business-like fashion, with a commitment by intermediaries to offer products and services which are taken up by investors. Indeed, one is pleasantly surprised by the size and the depth of Islamic capital product offering from centres such as London. A number of international financial powerhouses, including some present here today, have devoted whole organizations to the origination and distribution of Islamic securities and financial products.
A related trend has been for recent studies to sound less apologetic and to be more pertinent to present day requirements. This is yet another encouraging development. While it is useful to recognize the venerable antecedents of modern Islamic capital market instruments, it is clear that the central prescriptions of the Holy Quran, the Sunnah of the Holy Prophet (s.a.w.) and the methodology of fiqh are for all times and are as relevant today as they were in the days of the Prophet and his companions.
To my mind, these positive developments have come about through a convergence and cross-fertilization of views between judicial scholars on the one hand, and market practitioners on the other. If our experiences in Malaysia are anything to go by, I will aver that these efforts at developing a common vocabulary, a common objective and a common world view -- a tassawur, if you will, of ad-din al-fitrah -- are still at an early stage of development. Therefore, the promise of Islam as a blessing to all mankind, insofar as its capital market prescriptions are concerned, are yet to achieve their full flowering. Much remains to be done in our effort to create Islamic capital market instruments, intermediaries and institutions and to educate investors as to the benefits of an Islamic capital market framework. But some firm foundations have been laid, and much trail blazing work has taken place in other segments of the financial services industry such as Islamic banking. I am therefore in the happy position of expecting more good things to come.
In Malaysia, the Securities Commission has been privileged to be at the confluence of two streams of thinking -- that of Islamic jurists who have much to offer on the subject fiqh muamalat, and market practitioners who have much to contribute as to the needs of a modern market place. Through the activities of the Islamic Instruments Study Group (IISG), so ably chaired by Y Bhg Sohibus Samahah Datuk Sheikh Azmi, the Mufti of Pulau Pinang (Penang), whose report will be tabled before you later this morning, the process of exchange and communication has begun and I daresay all parties involved have learned a lot from the interaction.
On its part, the Commission is committed to build up skills in fiqh, not with the objective of supplanting the expertise of the jurists whom we will always consult on matters of jurisprudence, but to enable its staff to appreciate, on a first hand basis, the depth of knowledge and due care that has been given by fiqh to key principles of market regulation and development. To pick but one example, concepts in relation to the structuring of forward or deferred payment transactions are so well developed in fiqh that we have been at a loss at times to find analogous terms or equivalent concepts within the common law.
Armed with a renewed appreciation of the process and the methodology of fiqh, and the Sunnah of the Prophet (s.a.w.), modern scholars and market practitioners need no longer feel that they are working from a position of the second best. Instead, they can boldly lay claim to the wisdom of the ages and realistically plan to bring about a system that will be a blessing, not only to the ummah, but to all mankind.
Towards a variety of Islamic instruments
The rich tradition of Islamic scholarship has resulted in a wide variety of capital market instruments of all sorts. One finds instruments that are parallel to both equity and fixed assets, as well as derivatives such as options and forwards. A cursory perusal of the work of Ibnu Khaldun, in his magnum opus Mukqaddimmah, should be sufficient to convince one of the depth and breadth of economic transactions that have been considered and assayed by scholars of the past.
Not only is there potentially a vast array of Islamic capital market instruments, the application of such instruments to a wide range of situations is evident at the same time. Take the concept of bai al dayn, a particularly fecund concept for our era of rapid securitization. Not only does it find application in allowing banks to adjust their asset portfolios, it has potential in infrastructure financing and asset securitization as well. In all humility, we could say that for this one instrument alone, we are just at the tip of the iceberg in terms of appreciating its potential usefulness.
Towards a range of Islamic intermediaries and investors
Like the rich variety of useful of Islamic instruments, Islam also recognizes a wide variety of intermediaries and the functions they could play within the capital market. We are all indebted to Justice Mohamad Taqi Usmani, who will be speaking to you later today on the panel discussion, for bringing to light the relevance of the principle of limited liability from the viewpoint of the Syari'ah. The acceptance of the concept of a juridical person within the teachings of Islam is a cornerstone for intermediaries and investors alike. Indeed, as Justice Mohamad Taqi has pointed out, some of the institutions of Islam already well known to us, such as waqf and the baitulmal, are examples of juridical persons.
Having established the legal standing of intermediaries and investors, their functions are also recognized. On this subject, one is drawn to the distinction between usury and legitimate transactions, so clearly delineated in the Holy Quran. In the latter part of Ayat 275 of Surah al Baqarah, rendered by Mohammed Pickthall:
"...whereas Allah permitteth trading and forbiddeth usury. He unto whom an admonition from his Lord cometh, and (he) refraineth (in obedience thereto), he shall keep (the profits of) that which is past, and his affair (henceforth) is with Allah. As for him who returneth (to usury) such are the rightful owners of the Fire. They shall abide therein."
Likewise, the Prophet, (s.a.w.), has said:
"..There is no riba except in nasiah"
At the risk of going over old ground, the concept of riba is key to the understanding of investments, investors and intermediaries in an Islamic capital framework. For a start, the role of intermediaries and investors in taking on a risk bearing role is established. In essence, the admonishment of riba al-nasiah prohibits the fixing of a positive return in advance of the outcome of a transaction. Having thus established the cardinal relationship between return and risk, fiqh then goes on to the principles underpinning the manner in which risk and reward can be allocated amongst intermediaries and investors.
Fiqh scholars also highlight another aspect of riba which is riba al-fadl. Intermediaries, in carrying out their activities, are prohibited from exploitation and unfair dealing. There are hadiths wherein the Prophet (s.a.w.) equates the cheating of unsophisticated market participants and market rigging to riba al-fadl. Hence, within the interpretation of riba alone, we have the kernel of investments and investor behaviour, as well as clear guidelines for market participants in terms of what constitutes acceptable market behaviour.
Towards an Islamic institutional framework
As Islam has provided guidance for the formulation of instruments and the behaviour of market participants, so has it valuable insights to offer for the development of an institutional framework. On this subject, Prof. Kurshid Ahmad, a former Federal Minister of Planning and Development in Pakistan, has made the following observations:
"The major contribution of Islam lies in making human life and effort purposive and value-orientated. The transformation it seeks to bring about in human attitudes and pari passu in that of the social sciences is to move them from a stance of pseudo-value-neutrality towards open and manifest value-commitment and value-fulfillment."
The positive values speak not only to the integration of Islamic values in the building of institutions, but the injunction that we are all enjoined to uphold -- the social values of al-adl wal ihsan. Islamic institution building is not all about negating riba alone, but highlights the establishment of a framework which is transparent, efficient, just and equitable. This framework must be relevant to the issues of the present. To the extent that classical scholars have devoted their time and efforts towards solving the issues of their generation, so must modern scholars and practitioners strive to do the same.
The Malaysian experience
Ladies and gentlemen,
Through the activities of the IISG, the Securities Commission has come to a deeper understanding of the way ahead in the development of Islamic capital markets in Malaysia. To the extent that our experience is relevant, we would be happy to share our findings with other Islamic countries in the hope that we can learn from one another. We are open to collaboration with other organizations with similar interests, but we would never dream of holding our experience out as a model for any other country. Our own exposure to the different schools of law has opened our eyes to the richness and organic integrity that is Islam, and our own understanding of a variety of issues has benefited from a rigorous analysis of the different opinions of scholars, both past and present.
Conclusion
I would like to place on record the Commission's deep gratitude to jurists, scholars and practitioners who have contributed to our process of learning. We hope this process of sharing can be effected through a wider circle among those represented here today.
Our conference would not be possible without the effort of the distinguished panel of speakers and paper presenters. I am particularly grateful to Dr. Yousuf Al-Qaradawi for having consented to come all the way to Kuala Lumpur to deliver the keynote address.
Needless to say, a conference of this magnitude could not have been successfully organised without the support, cooperation and commitment of various persons and organisation. I wish to thank in particular, Commerce MGI who have helped us in organising this conference right from conceptualisation to actualisation and to the management and staff of the Institute of Islamic Understanding (IKIM), Pusat Islam and the International Islamic University. I would be indeed remiss if I did not add a word of thanks to members of staff of the Department of Economics, International Islamic University who agreed to take on the often unrecognized and thankless job of translating for all of us.
The conference secretariat has worked long and hard to make this meeting possible and we are all grateful to them for their untiring efforts.
To YAB Datuk Seri Anwar, whose encouragement in the preparation of this conference has been a source of inspiration and support to us, the Commission would like to place on record its gratitude. YAB Datuk Seri has not only consented to share with us his thoughts on the theme of this conference, but has made time to attend part of this morning's proceedings as well.
Ladies and gentlemen,
Finally, once again I would like to thank our guests, speakers and participants of this conference. Wabillahi taufiq wahidayah warahmatullahi wabarakatoh.
It is with great pleasure that I now invite Yang Amat Berhormat, Dato' Seri Anwar Ibrahim, Deputy Prime Minister and Minister of Finance, to address the Conference.
