MALAYSIAN ISLAMIC FINANCE Issuers and Investors Forum 2006

Malaysia: the International Islamic Financial
Center (Issuers’ Perspective)

Moderator Abdulkader Thomas stressed the importance of Malaysia in the Sukuk market, highlighting the country’s 8% contribution to the total Asian market for Sukuk. He said Malaysia had achieved far more than its neighboring countries, some of whom had greater reputations for their financial powers. Having said that, Abdulkader started this session by asking Nazir Razak why foreigners would want to come to Malaysia as issuers.

In order to understand the strengths that Malaysia has in encouraging issuers, Nazir said, it was best to observe both the country’s development before the Malaysian Islamic Finance Center (MIFC) was established, as well as the excitement involved in such establishment.

Over the years, Nazir noted, Malaysia has established itself as a leader in Islamic finance, and its financial intermediaries had done very well domestically and were also making in-roads in overseas markets. He urged that ringgit denomination issuers should tap the ringgit Islamic market, as the economics speak for themselves, noting that for a five-year paper, issuers could save between 10 and 15 basis points due to the effectiveness of the Islamic bond market.

Nazir said that the MIFC would give a valid reason for foreign issuers to flock into the country. The MIFC plan had been arrived at after extensive deliberations by Bank Negara Malaysia and other regulators, was fully endorsed by the Malaysian Prime Minister and would be driven by the Central Bank’s secretariat.

Adding to these thoughts, Zarir J. Cama cited the issue of convergence as a factor contributing to the keenness of foreign issuers to come to Malaysia. He said that three to four years ago, different regulatory bodies were looking for the most cohesive kind of regulatory framework and, as time went by, convergence had taken place.

Global acceptability will be the key if the market is to move ahead, Zarir said, pointing out that unless regulations
come together internationally, global acceptability would not take place.

More importantly, he added, players must be able to listen and provide what the customers wanted.

Abdul Hamidy Hafiz acknowledged that the industry had evolved from the previous, skeptically viewed industry for a selected audience, to a much bigger, mainstream market, co-existing with its conventional counterpart.

He said Islamic finance was a good alternative and, to some extent, it was superior to its conventional counterparts, something that was proven by the fact that there were many products, irrespective of the size, market or type of consumers, developed to cater for a wider market.

“The phenomenal growth of the industry, whether in Malaysia or in the international market, is a testimony that it has gained recognition,” he pointed out, saying that moving forward industry players should intensify their operations, especially in research and development.

Disclosing Affin Bank’s expansion strategy, Abdul Hamidy said the group decided to offer Islamic finance where Muslims were not dominant as the industry catered for everybody; Islamic finance was just another method of financing.

Harry Naysmith gave a thumbs up to the MIFC initiatives, saying that a scenario where regulators came together with such a concerted effort to bring the Islamic finance industry to the forefront, was not to be seen in other countries. ABN Amro has a strong presence in the Middle East and Pakistan, yet Harry was very impressed with the Malaysian authorities.

He also acknowledged the fact that the Central Bank had put things in the right perspective, using the example of the establishment of the International Center for Education in Islamic Finance (INCEIF) as good groundwork prior to introducing MIFC.

“There is no point in moving forward if you do not have the pool of talent that you can draw upon,” he said, noting that Malaysia would be exporting Islamic finance experts abroad as soon as INCEIF started to bear its “fruits.”

In answering a question from H. K. Yong of the Indonesian Coordinating Ministry for Economic Affairs as to how the MIFC initiatives could assist with the proposed Indonesian US$22 billion (RM80.86 billion) infrastructure funding requirements, Nazir said either a ringgit denominated sovereign Sukuk could be structured using the MIFC platform, or, if the funding was in terms of private company, it could be structured via venture capital, infrastructure funds such as real estate investment trusts (REITs), or a Malaysian bank could also arrange to raise a US dollar denominated Sukuk.