MALAYSIAN ISLAMIC FINANCE Issuers and Investors Forum 2006

Global Acceptance of Malaysian Islamic Products

Moderator Yusli Mohamed Yusoff introduced this session by noting that Malaysia had the largest Sukuk market in the world, totaling US$29.94 billion (RM110 billion) and representing 44% of the domestic bond market. Most Malaysian Sukuk are based on the concept of Musharakah, whereas the concept of Ijarah is commonly accepted by the Middle Eastern market.

Having identified the two different concepts used in issuing Sukuk, Yusli raised his concerns over the issue of convergence, questioning the need for such an exercise and the factors to be considered in facilitating it.

In responding to this question, Badlisyah Abdul Ghani reiterated that the issue of convergence was irrelevant and discussion over the issue was merely a waste of time. He said players should sell what was demanded and if they decided to sell in the Middle East, then they should structure according to what was acceptable there.

“Even if you sell Sukuk based on Ijarah, which is commonly accepted in the Middle East, in Malaysian ringgit, those Middle Eastern investors will not subscribe to it as they do not invest in ringgit,” he explained, adding that if Malaysian issuers were to issue in US dollar, then the pricing would be too tight.

Supporting the notion that the issue of convergence was irrelevant in selling products, Agil Natt revealed that practice and research indicated that 80% of concepts were all acceptable and only 20% were still in dispute amongst the scholars. He then urged the players to move forward, rather than harping on about this unresolved 20%.

Agreeing with Badlisyah and Agil, Rafe Haneef said that product selling was basically a matter of supply and demand and if the demand was there, players would without fail source the credit.

However, Ijlal Alvi held a different view over the issue of convergence. He said that as the Islamic finance industry was still in its infancy and the size remained small, there must be well-defined Shariah convergence, which was still absent at the moment. With some uniformity in Shariah practice, the growth of the industry would be much smoother, he added.

Rafe noted that the two grey areas that created problems were the concepts of Bai Dayn (sales of debt) and Bai Inah (double sale) that were widely accepted in Malaysia.

Badlisyah urged that those issues of Bai Dayn and Bai Inah should be resolved for the purpose of understanding and to create healthy debate. He said that a lot of misperception over certain concepts came down to the lack of publications for educating the general public, the players and the scholars in different parts of the world.

One has to remember that the decisions made by GCC
Shariah scholars were not global Shariah decisions, he reminded the session, saying that Sukuk Ijarah, which was widely used in the Middle East, was never accepted by Shariah scholars in Sudan.

In fact, he highlighted that even the commodity Murabahah practised by the Middle Eastern players had some elements of fund misappropriation, whereby the proceeds were used for conventional activities, causing leakage in the liquidity of the Islamic finance industry.

“There should be a rule or policy over and above Shariah compliance whereby proceeds must be used for Islamic transactions only,” he said.

Stressing the need to develop quality human capital, Agil explained that the establishment of INCEIF basically had a global agenda in order to raise the industry to a higher plain. He said that although INCEIF was based in Kuala Lumpur, the previous intake had attracted almost 390 applicants from 14 different countries, including Pakistan and Russia.

Agil also said that INCEIF hoped to garner more support from international organizations and several collaborative agreements had been signed with the Islamic Development Bank, the Central Bank of Indonesia and the State Bank of Pakistan.

Elaborating further, he said INCEIF’s certifications were structured on a three-part module whereby Part I was for building knowledge; Part II built on skills, with 60% on applied knowledge as in case studies, role plays and the simulation of real life situations; and Part III involved internship. On completion candidates would be admitted as associates to the Certified Islamic Finance Practitioner (CIFP).