Opening Address at the International Islamic Capital Market Forum
30 July 2009 |  By YB Tan Sri Zarinah Anwar, Chairman, Securities Commission, Malaysia

Opening Address
YB Tan Sri Zarinah Anwar

Securities Commission Malaysia
International Islamic Capital Market Forum

30 July 2009
Conference Hall, Securities Commission

Distinguished speakers

Ladies and gentlemen

Good morning




Welcome to the Securities Commission Malaysia (SC) and to this Third International Islamic Capital Market Forum. The SC started this Forum series with the aim of promoting product and market development, encouraging innovation within the industry, and creating a platform for scholarly exchange, to bring about greater awareness and understanding among scholars, industry practitioners, regulators, intermediaries and investors. Through events of this nature, the SC hopes that the sharing of knowledge and experiences can occur amongst all stakeholders in the industry.


This Third International Islamic Capital Market Forum focuses on Islamic structured products and on the current issues in Islamic finance through a combination of presentations, case studies, and panel discussions.

Ladies and gentlemen


The plunge in financial markets and the disintegration of the finance industry in the United States have caused considerable hardship to and undermined the confidence of investors. In many parts of the world, buyers of Lehman Brothers structured products for example have had their investments destroyed, with victims claiming that they had not been made sufficiently aware of the underlying risks attached to such complex instruments.  While the packaging of basic instruments into structured products with specific investment goals and risk profiles has opened up to the general investing public, investment opportunities traditionally available to institutions and high net worth individuals, these products also raise important investor protection concerns. As can be seen with the Lehman case, retail investors can (and have been) subjected to significant losses as a result of being ill informed about the often complicated payoff structures of such products.  Poor sales practices resulting in the lack of transparency in the description of the risks and returns of such products is a significant source of investor protection concerns.


In general though, what one could say about the global financial crisis is that ‘exuberance had paved the way’. Aggressive financial innovation facilitated by excess liquidity had led to a crisis that has resulted in severe challenges to the financial system.  But in the search for solutions, amidst the severe aversion to risk, it is still necessary to acknowledge that market participants must retain an enthusiastic approach towards new businesses.  Enthusiasm, accompanied by responsibility and the ability to accept and usher in what is new and useful, can effect positive change.


There is therefore a need to look for, identify and take advantage of opportunities where they lie. In this regard, it is incumbent on the market-players to recognize that there are investors who continue to explore opportunities during this trough, to continue to innovate and create new products and to position themselves appropriately for when market conditions improve and investor sentiments recover.

Islamic Finance


The lessons from the crisis though have served to emphasise the need to address the ethical considerations of finance as underscored by the Shariah with its strict rules on certainty, transparency, leverage and risk taking.  For instance, the requirement on the part of someone selling something to help the buyer understand the product before purchasing is a critical principle especially when viewed in the context of the distribution of the Lehman structured products I mentioned earlier.  The fact that there is emphasis on contracts and documenting of transactions is equally important. The prohibition on ambiguity in Shariah helps ensure the ability for specific performance of a contract.


Today, more than ever before, the values underlying Islamic finance have great significance as a moral compass, and as a new and legitimate way of approaching business. As we begin to realize the range of opportunities that can be harvested from the current crisis, it is apparent that the future for innovation in Islamic finance is promising.  But as the crisis has shown, there is need for markets to be founded on sound business principles, and that the requirement for disclosure, transparency and governance is paramount.  Users of financial products whether conventional or Islamic must be assured that sufficient safeguards exist to adequate care for consumer interest and investor protection.

Ladies and gentlemen


In an effort to broaden and deepen the Islamic capital markets in Malaysia, a diverse range of Shariah-compliant securities such as sukuk, Shariah compliant funds, warrants, crude palm oil futures contracts, REITs and ETFs have been made available for investors. The list of these securities continues to grow and as structured products can comprise a range of these securities, I expect the growth of Islamic structured products to continue and the debate on surrounding issues to become more robust.

The International Islamic Capital Markets Forum


While structured financing has grown exponentially worldwide both in size as well as in complexity, in Malaysia the market is still small.  Since April 2006, the SC has approved 42 structured products programs, of which nine were Islamic programs worth RM22.8 billion.  But with the growth in the market and the increasing complexity of the nature of these products, risk management is particularly challenging especially for the complex structured finance transactions, including concerns on general market stability risks due to concentration, as we have observed happened during this current crisis.

10. Using such innovative finance for credit transfers and enhanced risk management therefore requires all parties involved to observe the appropriate standards of conduct, with financial institutions investing resources to develop and maintain robust internal control frameworks and risk management infrastructure that will enable to identify, assess and address the risks associated with these products.

At the regulator’s level, this entails a dynamic and continuous process of assessing risks to ensure that controls at the firm level are commensurate with the level of risk being undertaken. It is important that regulators and industry continue to be vigilant to identify new risks and to ensure that appropriate risk management measures are in place.


In my view, the principles underpinning Islamic finance can help bring focus and more clearly define roles, responsibilities, and motives.



I am very pleased that today a group of knowledgeable scholars and practitioners will be taking you through some of the issues identified. The Forum will enable you to explore the landscape for Islamic structured products and how creative applications of certain Islamic contracts could provide hedging mechanisms for the Shariah compliant portfolios. Appropriate building blocks for Shariah compliant structured products will be discussed, along with an assessment of these products, and the regulatory framework for it.


I would like to thank our speakers for taking time off their busy schedules to share their vast knowledge and expertise with us and I wish all participants an insightful program.

Thank you

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