Keynote Address at The 2nd Islamic Venture Capital and Private Equity Conference 2009 - "Rooting Islamic Investments and Strategic Funds in Light of the Economic Crisis"
20 May 2009 |  By Mr Goh Ching Yin, Executive Director, Strategy & Development, Securities Commission Malaysia

Keynote Address
by
Mr Goh Ching Yin
Executive Director, Strategy & Development
Securities Commission Malaysia

The 2nd Islamic Venture Capital and Private Equity Conference 2009
Rooting Islamic Investments and Strategic Funds in light of the Economic Crisis

20 May 2009
Kuala Lumpur Convention Centre, Kuala Lumpur

Yang Berhormat Datuk Dr Awang Adek Hussin, Deputy Minister of Finance

Tan Sri-Tan Sri, Dato-Dato

Distinguished guests,

Members of the media

 

Ladies and gentlemen,

Introduction

1.

I am honored and privileged to be here to deliver the opening address at this second Islamic Venture Capital and Private Equity Conference 2009. The key themes to be discussed and deliberated for this conference will be the possibilities and issues pertaining to sourcing Islamic investments and forging cross border partnerships amidst the global economic crisis.

2.

May I congratulate the organizers, Malaysian Venture Capital and Private Equity Association (MVCA) and Islamic Banking Finance Institute of Malaysia for organizing this annual conference. I was informed that this conference is made possible due to the overwhelming support and encouraging attendance during the inaugural event last year.

Origins and Importance of VC industry

3.

The first venture capital company in Malaysia was established in 1984, when the Singapore-based South East Asian Venture Investment (SEAVI) set up Malaysian Ventures with a fund size of approximately RM13.8 million. Since then, the Malaysian venture capital industry has grown in providing financing to companies where direct bank lending or financing through the equity or debt market is hard to obtain.

4.

Venture capital activity is now recognized not only as an engine of economic growth. It stimulates new business activities leading to the creation of new companies and increasing employment level while acting as a catalyst towards greater innovation in science and technology.

5.

The capital market has also benefited from venture capital as investee or VC-backed  companies are listed on the local stock exchange which serves as an exit for the venture capitalists. Venture capitalists provide the pipeline to the stock exchange, creating a capital market with greater depth and breadth.

Commitment and support from the Government

Ladies and Gentlemen,

6.

The Malaysian venture capital industry is indeed privileged to have received immense support from the Government. As at the end of 2008, RM2.2 billion was sourced from the government which represented about 48% of the total funds under management by the industry. Funding from the government has been prevalent at each stage of the funding spectrum i.e. from the pre-seed right up to late stage as administered by various Ministries and government-backed venture capital companies.

7.

Apart from funding, the government also set up the Malaysian Venture Capital Development Council (MVCDC) in January 2005 under the chairmanship of the SC.  With Council members drawn from both the public and private sectors; its main task includes advising the government on overall development of the VC industry and to facilitate greater co-ordination of strategies and initiatives relating to the VC industry.

8.

Complementing the efforts, the government also accorded attractive tax incentives for VC industry players.  Budget 2009 granted a five-year tax exemption on venture capital companies investing at least 30% of their funds in seed, start-up or early stage financing. 

Performance of the VC industry

9.

Let me share with you the performance of the Malaysian VC industry thus far.  Funds under management as at the end of 2008 has grown by 38% to RM4.57 billion from RM3.308 billion in 2007, of which 48% are funds committed by the government agencies.  

10.

During the year, a total of 134 investee companies received funding amounting to RM477 million.  The year 2008 saw the entrance of Japan Asia Investment Co. (JAIC), one or the largest venture capital company in Japan, making its entry as the first foreign venture capital corporation (VCC) registered with the SC.  We also saw the launching of Musharaka Venture as the first Islamic venture capital fund in Malaysia following the release of the Guidelines and Best Practices of Islamic Venture Capital in May 2008.

11.

I am pleased to announce that information on venture capital industry performance, venture capital companies and management companies, the regulatory framework, tax incentives etc are now compiled into a first edition of the Venture Capital and Private Equity Directory 2009.  This directory, will serve as a single reference point to create the much-needed awareness among industry players from both the venture capitalist and entrepreneurial side on the various requirements, benefits and funding availabilities that currently exist in the VC & PE market.  Indeed, greater awareness is key to the creation of more venture capital activities, as well as the entry of new talent and skills which will drive greater vibrancy into the industry.  

Moving towards innovation economy

Ladies and gentlemen,

12.

The government’s commitment to move the economy up the value chain is clearly reflected under the Ninth Malaysia Plan where efforts will be intensified to generate new sources of wealth in technology and knowledge-intensive sectors.

13.

In this regard, access to financing, including venture capital financing for SMEs is crucial.  The venture capitalists play an important role not only in funding but also in inculcating excellence, high performance culture and good corporate governance in start-up companies, to position Malaysia as a preferred destination for investments in ICT services and facilities and biotechnology. 

14.

We have seen many success stories such as Job Street Corporation Bhd, mTouche Technology Bhd, e-pay Asia Limited, Green Packet Bhd as proofs that venture capitalists are equipped to identify revolutionary and strategic technologies that put Malaysia’s success stories prominently on the world map. This is from envisioning tomorrow’s needs, identifying and acquiring the necessary technologies today and improving them to meet the ever-changing market demand tomorrow.

Science and Societal well-being in the Islamic world

Ladies and gentlemen,

15.

We would all agree that venture capital concepts and Islamic finance was already embedded in the business of the Muslim community even in the early days.  

16.

The activities of venture capitalist was not only crucial in spurring business activities in the Muslim community but was also the means for greater advancements in knowledge. It was widely known that support of powerful benefactors became a vital element for the development of science across the Muslim empire. In the early 11th century, the Fatimid ruler al-Hakim invited the renowned mathematician and physicist Alhazen to teach in his court, greeting him in person at the gates of Cairo, an extraordinary honor that gave a tremendous boost to the prestige of science in Egypt.  This is merely an example but one which resulted in the birth of renown Muslim scientists and scholars in key areas of mathematics, science and medicine in the period between 8th and 14th century who have all led the Islamic Golden Age in science. 

17.

Unfortunately it is claimed by some quarters that the Muslim ummah today have fallen behind. A study by academics at the International Islamic University Malaysia showed that OIC countries have 8.5 scientists, engineers, and technicians per 1000 population, compared with a world average of 40.7, and 139.3 for countries of the Organisation for Economic Co-operation and Development.  Forty-six Muslim countries contributed 1.17% of the world’s science literature, whereas 1.66% came from India alone and 1.48% from Spain.  Twenty Arab countries contributed 0.55%, compared with 0.89% by Israel alone[1]

18.

Muslim leaders today have realized that economic growth flow from technology, and have called for speedy scientific development and a knowledge-based society. With that, funding for science and education has grown sharply in recent years, as it should be.  In this, the VC’s contribution in terms of funding and its role as a catalyst for innovation is crucial not only for the Muslim ummah but for Malaysia as a whole.

Malaysia’s edge under MIFC’s initiatives

Ladies and gentlemen,

19.

Malaysia has built the lead in Islamic Finance with the adoption of an internationally accepted legal framework and regulatory best practices and an evolving Shariah governance framework under the purview of SC’s Shariah Advisory Council (SAC). Besides being strategically located between the eastern and western regions that makes opportunities logistically viable, Malaysia has continuously develop its Shariah capabilities in terms of its product offerings spectrum.

20.

In recognizing the need to develop the skill sets of Islamic finance professionals, various incentives are extended to attract experienced Islamic scholars to reside in Malaysia, share their experiences and build the talent pool needed to grow the industry. Incentives include withholding tax exemption on income received by non-resident experts in Islamic finance, relaxation of foreign equity ownership rules for foreign companies to be locally established and facilitative immigration policies or "Green Lane" for expatriates in Islamic finance and their immediate family members. By promoting knowledge sharing, Malaysians will stand to gain in the long term by having the necessary human capital to become an international center of Islamic finance.

Opportunities for the industry

 21. The current financial and economic crisis has opened the doors for greater opportunities by Private equity companies. In supporting this, I am pleased to state that the SC had recently allowed the establishment and listing of Special Purpose Acquisition Company (SPAC) on Bursa Malaysia as a new vehicle for private equity.
 22. A SPAC is basically a shell company that has no operations but goes public with the intention of merging with or acquiring operating companies or businesses with the proceeds of its initial public offering. It is observed that SPACs listed abroad are usually formed by a small group of professional managers with relevant private equity, corporate finance and/or industry experience. A SPAC, which is a pooled investment vehicle, allows public investors to invest in private equity-type transactions which ordinarily are the domain of private equity players and hedge funds.
 23. Essentially, investors would be relying on the management team’s experience in a certain industry, and its ability to identify attractive acquisition targets and secure proprietary deals. Once a SPAC has merged with or acquired an existing operating company/business, it will focus on conducting business for profit. Certainly, it is hoped that the listings of SPAC will generate greater interest in private equity investments.  
 24. Complementing this, the SC has also announced the revamp of the MESDAQ market to what is known as the ACE Market where sponsor advisers play a greater role in bringing listings to the market.  Another key reform to the ACE Market is that it will now be open to companies of all sizes and from all sectors, with no prescribed minimum operating history or profit track record requirements for entry to the alternative market. These flexibilities accorded will enhance the ACE Market as an avenue to float and/or exit for the venture and private equity players.

Conclusion

Ladies and gentlemen,

25.

I have provided you with a state of play of the VC industry today,  that has the commitment and support from the government.  The importance of VC to the overall economic well being and the opportunities abound today despite the financial crisis. I trust that this information would be useful in your deliberations on this conference. 

 26. I hope that this conference will be a regular congregation of Islamic venture capital and private equity players, practitioners and professionals to identify problems, challenges and ultimately solutions that would lead to the development of the industry locally, as well as abroad.  
27.

On that note, let me conclude by thanking the organizers again and I wish you all a productive conference ahead.

   
Thank you

1http://islamicvoice.com/January2008/Islam&Science/index.php 

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