KEYNOTE ADDRESS BY
Dr. Firas Raad, World Bank Country Manager Malaysia |
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| 1. | Assalamualaikum warahmatullahi wabarakatuh and a very good morning. I bid you a warm welcome to the Securities Commission (SC) Malaysia – World Bank – IOSCO Asia Pacific Hub Conference 2019. This is the third joint annual conference for the SC and the World Bank, and the second together with the IOSCO Asia Pacific Hub, on Islamic finance. |
| 2. | To the World Bank, we greatly appreciate your continued collaboration with the SC in making this conference a success, as well as our mutual cooperation towards Islamic finance development. |
| 3. | The SC is also pleased to collaborate with the IOSCO Asia Pacific Hub in building regional capacity in Islamic finance. As many of you know, the IOSCO Hub in Kuala Lumpur is the only regional office outside its Madrid headquarters. |
| 4. | To our esteemed speakers and all the participants, I would like to thank you for gracing this event with your presence. And to our foreign guests, including regulators from across the world, I would like to wish you “selamat datang” to Malaysia. I must say, I am delighted to see such a large audience before me here this morning, as it reaffirms a growing and sustained interest in Islamic finance. |
| 5. | As a global thought leadership platform, I am well aware of the impact and successes that this event has achieved in highlighting practical solutions using Islamic finance. It is SC’s fervent hope that this conference will continue to serve as a leading platform to raise awareness on the universal value propositions of Islamic finance and broaden its reach globally. |
| 6. | This year’s theme, ‘Islamic Finance: A Catalyst for Financial Inclusion’, aptly highlights the immense challenge that we face globally and the promise that Islamic financial products and services hold for a shared and better future. |
| Greater financial inclusion for shared prosperity |
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| Ladies and gentlemen, | |
| 7. | Providing access to financial services is a universally shared vision for all nations, including Islamic countries. This is a basic requirement that defines our modern day society. However, in reality, access to financial services is neither uniform nor consistent. |
| 8. | The inability to access, in some cases, the most basic of financial products and services prevents some segments of a country’s population from fully participating in its growth and prosperity. It translates into costs for the nation as inequalities in terms of opportunities and wealth can hinder economic growth; instead of reaching its optimal potential. |
| 9. | This is why financial inclusion is quintessential. It remains a priority in the global reform agenda given its significance in stimulating growth and employment, and poverty reduction. It also enables shared prosperity for all segments of society, leading to better social well-being. |
| 10. | As most of you may be aware, the United Nations (UN) prominently features financial inclusion as a target in 8 out of the 17 Sustainable Development Goals (SDGs) in its 2030 Agenda. The Middle Eastern countries have also collectively demonstrated their commitment through a dedicated Arab Financial Inclusion Day, held coincidently in this month of April. |
| 11. | Indeed, collaborative efforts have led to a global rise in financial inclusion. However, the fact remains, gaps still exist. More than 46 million individuals from Islamic countries1 have chosen to exclude themselves from formal financial services due to religious reasons. With the world’s Muslim population projected to increase to a quarter of global population figures by 2030, we must address this financial ‘exclusion’ and not let the number of disadvantaged ummah grow. |
| 12. | Islamic finance will therefore have a prominent role to play in helping to address the needs of the world’s Muslim population for Shariah-compliant formal financial services. Additionally, it possesses the ability to move beyond its core base, and attract a larger constituent due to the common universal values it embodies. |
| Islamic capital market: Enhancing societal returns |
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| Ladies and gentlemen, | |
| 13. | The Islamic capital market has long championed innovative approaches to enhance societal returns. Shariah-based financial contracts, including project-based financing instruments and Islamic social solidarity instruments, can be utilised for financial inclusion. |
| 14. | The sustainable and responsible investment (SRI) sukuk can serve social objectives through projects funded from their proceeds, such as improving the quality of education in schools, as in the case of Khazanah’s Sukuk Ihsan. |
| 15. | On the other hand, social solidarity instruments in an Islamic economic system are intended specifically to safeguard the rights of the less able through the income and wealth of the more able. Zakat (tithe), sadaqah (charitable acts) and waqf (endowment) are channels for the promotion of social protection and poverty alleviation. |
| 16. | The principles underlying Waqf, for instance, allow for the financing of socially-beneficial endeavours. In addition, capital or funding could be raised through issuance of waqf shares, sukuk or fund to undertake, not only welfare, but also commercially-driven activities within the economy. |
| Widening access to funding for entrepreneurs and corporates |
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| Ladies and gentlemen, | |
| 17. | Entrepreneurs, as well as Micro, Small and Medium-sized Enterprises (MSMEs), are critical enablers for greater financial inclusion. They help in job creation and contribute to the country’s economic revenue and activities. They also generate wealth in the form of salaries and returns to shareholders. |
| 18. | Yet, globally, they face the biggest challenge in obtaining financing. In this regard, the capital market provides both conventional and Shariah-compliant avenues for them to access alternative sources of financing. Equity crowdfunding, peer-to-peer financing platforms, as well as venture capital and private equity, are available to meet their needs at different stages of their businesses. These alternatives sources of financing are aimed at connecting under-served issuers with untapped pools of investors. |
| 19. | Moving forward, with technological advancements and increased digitisation of these alternative delivery channels, it will no doubt reduce costs, and enhance their speed, convenience and appeal. Nevertheless, even as individuals gain access to financial services offered digitally, they may be encumbered due to low levels of digital literacy and awareness. Therefore, in adopting transformative technology, measures to increase investor education and awareness are equally important towards building trust and confidence. |
| 20. | From an Islamic capital market perspective, more innovative alternative sources of market-based financing must be further encouraged. Given the projected growth of the global halal market to US$ 7.7 trillion in size by 20302 , further expansion of these Shariah-compliant alternatives will provide the necessary support for global halal businesses to expand their frontiers. |
| The role of policymakers in achieving greater socioeconomic benefits |
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| Ladies and gentlemen, | |
| 21. | A private sector-driven approach to the development of market-based products and its supportive ecosystem has its merits and resultant benefits. However, it also has its limitations, particularly when there is a need to prioritise socioeconomic outcomes over investment returns. |
| 22. | It is essential that policymakers take a more active role in the introduction and development of Islamic products for financial inclusion to ensure better levels of adoption and take up. There must also be buy-in from all stakeholders. My own private sector experience has taught me that to achieve the intended outcomes, effective coordination and mobilisation of resources is pivotal. |
| 23. | Malaysia itself exemplifies the value of policymakers engaging in early-stage development of the Islamic capital market. This approach has served the country well with Malaysia having a long and distinguished track record of innovation in Islamic finance. With government support, a comprehensive framework covering regulatory, legal, tax and Shariah governance that promotes Islamic product innovation has been firmly established. |
| 24. | As a result of all these concerted efforts undertaken, Malaysia has been acknowledged as a leading Islamic economy ecosystem for the fifth year running in the State of the Global Islamic Economy Report3. |
| In conclusion, ladies and gentlemen, | |
| 25. | The potential of Islamic finance in enabling greater financial inclusion is vast. Islamic market solutions applied in the right manner will benefit countless lives and communities. Collectively, we must chart a clear direction. This is crucial to ensure that our efforts have the desired impact and will remain sustainable in the long run. |
| 26. | Over the course of these next two days, we certainly look forward to the thoughts and insights of our invited panellists and speakers on catalysing greater financial inclusion through Islamic finance. |
| 27. | Before I end, I would like to say thank you to our co-organisers, panellists, moderators and, last but not least, to all of you for being here this morning. |
| Thank you. | |
