MALAYSIAN ISLAMIC FINANCE Issuers and Investors Forum 2006

Malaysia: The International Islamic Financial
Center (Investors’ Perspectives)

Malaysia has begun to promote the Islamic finance industry to be a more conducive environment. It was in the 1980s that the first Islamic instrument was issued and the Malaysian government has been working hand in hand with industry players since then, making its Islamic capital market (ICM) the most developed in the world.

Surachet Chaipatamanont acknowledged that the Malaysian ICM had developed both in depth and breadth. He said there were various benchmarks to promote liquidity with a portfolio of different products from plain vanilla to a full Islamic equity market. In terms of breadth, he said the Malaysian ICM had quality, variety as well as diversity.
“These are the factors that will contribute to the success of the MIFC initiatives,” he pointed out.

On the subject of making Malaysia an investors’ hub, Piyush Gupta asked what constitutes a hub and what makes it a global one? He listed the basic principles as including that the players must be located in Malaysia to entice investors to come to the country, and also Malaysia had to make it easier for investors to do what they need to do – raising money and investing.

Creating acceptability was equally important, and Piyush said acceptability must be in terms of global Shariah, as well as from the conventional perspective, as most of the players were rooted in common law. Having said that, he noted that Malaysia was moving in the right direction, and was addressing some of the issues confronting the industry.

Vaseehar Abdul Razack expressed his frustration, as someone promoting Middle Eastern investment in Malaysia, that priority was very much given to the domestic market. While claiming to be international, he pointed out that most Malaysian statutes were focused on domestic market, thus making it difficult to bring the petrodollar here.

However, he understood that such a situation was a good step towards strengthening the foundations before going global, noting that no other government or regulator had built an Islamic financial infrastructure as much as the Malaysian government has.

In terms of a great place to raise capital, Surachet said that it is recognized that London and New York were the world financial centers. However, he added that one must also remember that those financial cities did not have the strong infrastructure to trade Islamic instruments as existed in Kuala Lumpur.
Sharing his experience from Aseambankers, Surachet said that Middle Eastern investors had shown great interest in Kuala Lumpur as the most comfortable place to stop before venturing beyond; so Malaysia should tap this opportunity and further expand its market.

In making Malaysia a hub, Surachet stressed that it was important to track the talent pool as well as to develop this pool. He credited INCEIF, saying that this establishment was established in a timely fashion to address the shortage of the right human capital.

When asked whether the skills available in Malaysia were ready to cross borders, Piyush admitted that most of Citigroup’s Islamic products were initiated and spearheaded in Malaysia, confirming that the skills and the ability were already in place in Malaysia.

Echoing the credit given by Surachet to INCEIF, Piyush said the establishment was a fantastic step as the institution would, quite apart from formal education, play an important role in research, which would definitely help in the growth of the Islamic financial industry.

Vaseehar also highlighted the fact that with such skills, Malaysia should venture into the Gulf, especially into a country like Saudi Arabia, which had just only started to be what Malaysia used to be in the 1970s. Surprisingly, while the Saudi market has started to bloom, not many Malaysian companies were considering Saudi Arabia as their next destination, despite Saudi Arabia being the biggest economy in the region. In fact, Vaseehar disclosed that RHB Islamic Bank had been swamped by Saudi Arabian groups inviting the former to enter this untapped market.

In terms of branding, Piyush said that the regulators, while facilitating the growth of the industry, should also build the confidence to extend the direct brand abroad. On this point Surachet said Aseambankers, leveraging on its top ranking in debt markets, had had its presence felt in Bahrain, Indonesia, Brunei and Singapore.

Indeed, the ICM could be extended to other parts of the world, and domestic players were all ready to export their skills, not necessarily to have a fully fledged office or subsidiary, but they could form strategic alliances with local partners.