MALAYSIAN ISLAMIC FINANCE Issuers and Investors Forum 2006

Looking Ahead: Issuers and Investors Roundtable

William Pesek kicked off the final session of the day by raising a question about the demand for Islamic bonds, how much the market had matured and how much the market had grown.

In responding to this element of doubt expressed by William, John Sandwick first shared his experiences managing the funds of wealthy customers in Saudi Arabia and Russia. He said more often than not customers would come to him with the expectation that their money would be prudently and professionally managed and their money would be kept in a safe place. Those expectations were not a problem at all.

The problem came when customers expected the management of the funds to be Shariah compliant as, according to John, Islamic asset management could not be done when there was not enough supply of such products.

However, it was different here in Malaysia, he said, urging the rest of the Muslim world to emulate Malaysia’s success in terms of homogenizing and standardizing the rules of issuance, monitoring, supervision and regulatory matters.

Nasseruddin Khan raised his concern regarding the problem of education, both for the masses and for professionals, noting that there were not enough platforms where investors and issuers could learn about Islamic finance.

On this subject, he commended Bank Negara Malaysia’s efforts in establishing INCEIF and he expressed his confidence over this in terms of recognition of INCEIF and its master’s and doctoral programs.

Nasseruddin Khan also highlighted the success factor in Malaysia’s Islamic finance industry. He said Islamic finance started in the Middle Eastern countries, but it did not progress as much as it has in Malaysia. The reason being, he added, was that the governments and regulators of those countries did not show any interest, whereas in Malaysia the regulators took interest, did their research, invited scholars, organized forums and continually discussed the relevant issues to the industry.

According to Nasseruddin, even in Saudi Arabia the establishment of the Capital Market Authority was the result of public demand for Islamic financial instruments, rather than coming from the government’s own initiative.

For the benefit of the foreign participants present, Md Noor Abdul Rahman introduced Tabung Haji, the first organization in Malaysia to operate solely based on Shariah principles. Tabung Haji began just by handling haj operations, whereby depositors placed their money in a savings plan to perform the haj. While safekeeping these deposits, Tabung Haji at the same time invested the money to provide returns to the depositors, who were mostly risk averse – expecting a high return yet only willing to take a low risk.

A lot of dollar bonds were available in the global market, but a very limited amount of bonds in other currencies, he said, pushing for bond issuance in gold dinar instead of dollar or the currency of that particular country.

Speaking of gold dinar, William posed a question as to whether an Islamic single currency would help the development of the Islamic finance market. Naseeruddin suggested that the pros and cons of having a single Islamic currency should be looked at in detail prior to full implementation.

Nasseruddin also talked about globalizing the resources into the market and he commended the joint efforts made by the four Malaysian regulators in hosting the MIF Forum whereby regulators, issuers and investors all sat down to participate and compile suggestions for future reference.

Speaking of mobilizing resources, John revealed that out of the US$200 billion of Muslim money available, not even 0.0001% was managed in a Shariah compliant manner. He said the information was just not available, quoting the Tabreed Sukuk as an example when the roadshow did not stop in Geneva at all.

Much has been said about the industry accumulating Muslim investors and William raised the question as to whether the market was doing enough to attract non-Muslims. John commented that Islamic investment should stand up on its own, where anybody could participate, regardless of their beliefs, as exemplified by his efforts in selling Islamic bonds to Russian Orthordox Christians.

“Nobody should put their money at risk just because of
the religious flavor,” he said, concluding that the market needed an avalanche of good new products which met investment standards.

If the standards and the process of harmonization of the issuance of Islamic products had been smoothed out, John said, the financial world would be at the fingertips of the Islamic finance industry players.