Malaysia has led the world in Islamic finance for 8 consecutive years.
Malaysia has been forging ahead in the realm of Islamic economy and finance, consistently leading the world for 8 years according to the Global Islamic Economy Indicator (GIEI) rankings. The rapid growth of Islamic finance technology (fintech) and the economic sector in Malaysia have been supported by government assistance and the continuous expansion of digitalisation through the Malaysia Digital Economy Corporation (MDEC). Additionally, an active effort to build ecosystems for economic prosperity has further bolstered this growth.
Since the 1990s, Malaysia has been nurturing the Islamic finance market under government leadership. In the securities sector, Malaysia's Securities Commission established the Shariah Advisory Council in 1997 to uniformly manage the interpretation of Shariah by domestic Islamic financial institutions.
While interest transactions are prohibited in Islam, innovative schemes have made it possible to achieve economic effects equivalent to traditional bonds.
Bonds compliant with Islamic faith, known as Sukuk, serve as crucial schemes for fundraising and investment in Islamic countries. One notable distinction from conventional finance is the prohibition of interest transactions. However, distributing profits generated from assets or businesses is permissible. Consequently, in Islamic finance practice, schemes can be constructed to avoid interest generation and instead distribute profits or fees generated from physical assets or transactions to investors, effectively providing economic functions equivalent to conventional bonds.
By issuing Sukuk, listed companies in Malaysia can raise funds, and their shares become certified as Shariah-compliant stocks by the Malaysian Securities Commission. This certification allows these stocks to be considered Shariah-compliant investment targets by entities such as Sovereign Wealth Funds (SWFs) and the Employees Provident Fund (EPF).
In Malaysia's domestic bond market, approximately 60% is comprised of Islamic bonds, indicating steady achievements.
Looking at Malaysia's domestic bond market, Sukuk issuance stood at RM716 billion as of June 2017, accounting for 57.4% of the total bond issuance outstanding. The Securities Commission reported a 130% increase in Sukuk issuance in 2018. The Islamic capital market reached RM2 trillion, marking an 8% increase, surpassing the overall capital market growth rate of 3%.
In the global Malaysian domestic bond market, approximately 60% is comprised of Islamic bonds, indicating steady achievements.
A report by Thomson Reuters predicts that Shariah-compliant assets worldwide will reach $3.8 trillion by 2022.
Malaysia possesses the necessary conditions and ecosystems to become a hub for global Islamic fintech. It has a mature financial environment, stable political and economic foundations, and a highly transparent business environment. Furthermore, it is endowed with renowned scholars, Shariah experts, and Islamic finance specialists. The country also provides a perfect platform for fintech companies to deploy their products before expanding into other predominantly Muslim countries. To facilitate such expansions, Bank Negara Malaysia (BNM) and the Securities Commission promote fintech innovation.
In the amidst of the COVID-19 pandemic, the global fintech market is experiencing accelerated growth. If Malaysia can establish a leading position in both technology and regulation, it is poised to lead the financial sector in Islamic countries worldwide. Future developments in this regard are eagerly anticipated."
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