The Shariah-compliant banking sector in Malaysia, already among the largest in the world by assets, is forecast to grow at an average annual rate of 18% over the next years to reach a value of $296.26bn in 2019. This is the prognosis contained in the Malaysia Islamic Finance Report 2015 revealed at a press conference in Kuala Lumpur on June 30. The report, commissioned by Malaysia’s CIMB Islamic and produced in partnership with Jeddah-based Islamic Research and Training Institute (IRTI), the General Council for Islamic Banks and Financial Institutions based in Manama, Bahrain and Thomson Reuters, also projects that takaful contributions in Malaysia will grow at an average 18.2% year-on-year to reach a market share of 17.96% of total insurance premiums by 2019, equal to $5.51bn.
Malaysia also once more received the title of being the world’s biggest sukuk market, constituting 67% of global outstanding sukuk. Last year, total sukuk issued in Malaysia was worth $77bn, a drop of 6.5% from 2013 owing to the decline in the value of the country’s currency, the ringgit. But it’s still a far lot more than other countries in Southeast Asia and also the Middle East are issuing. In ringgit terms, the report said, Malaysian sukuk increased by 1.6%.
“Malaysia’s prominent position as Asia’s Islamic finance hub makes it the key Islamic finance gateway and partner for Middle Eastern, European and Central Asian markets,” said Professor Dr Mohamad Azmi Omar, director general at IRTI, adding that “Malaysia has been building its Islamic finance capacities beyond its domestic market and is playing a key role in providing Islamic finance expertise throughout Asean and Far Eastern countries.”
The results of the study are based on a retail consumer survey and exclusive interviews with leading stakeholders in the business. Consumer survey findings reveal that Islamic windows of conventional banks have gained customer trust, which will inspire existing conventional banks to offer more Islamic financial services. The survey also reveals that Islamic banks have gained momentum in maintaining customer relationships, and that a higher level of satisfaction was expressed by Islamic banking users compared to conventional banking users.
Apart from Islamic finance, Malaysia is also diversifying in the broader segments of an Islamic economy, including halal food, clothing and fashion, halal travel, media, recreation and health, as well as pharmaceuticals and cosmetics. The report indicates that these sectors, and particularly travel and health, provide “substantial growth opportunities” for Malaysia’s Islamic finance sector.
Another sector is green technology and innovation, for which Islamic financing is increasingly sought. New guidelines for sustainable and responsible investment sukuk were introduced in August 2014 in a bid to help fundraising for new sectors and create a more diverse asset base for Islamic investments. Under Malaysia’s Green Technology Financing Scheme which introduced Islamic green finance as early as in 2010, more than $211mn has been allocated as Shariah-compliant funding in a good example for Islamic finance innovations which is in high demand by the sector. The study points out that, in particular, the development of Shariah standards and operational standards for Islamic finance processes gave the sector a lot more operational certainty and have triggered a number of innovations in Islamic finance.
Originally published on www.gulf-times.com