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Malaysia: Opportunities in Islamic Finance

Shariffuddin Khalid

December 2008

fast growing with 600 m pop.Opportunities in Malaysia Malaysia International Islamic Financial Centre .Gateway to ASEAN & AFTA. Regulatory and Shariah Framework 2 Human Capital Development East Asia International Takaful International Islamic Banking Sukuk Origination . World Class Islamic Financial Centre Islamic Fund & Wealth Management Malaysia World Class Legal.MIFC Malaysia .

regulatory and Shariah framework 3 . adopt international standards & best practices Intermediate stage Institutional building. develop financial markets and enhance Shariah governance Inception stage Instituting foundations of Islamic finance Building solid foundation of legal. activity generation & market vibrancy Increase number of players.Evolution with strategic direction Robust Islamic financial system build from strength to strength Advanced stage Strategic positioning & international integration Market liberalisation.

Malaysia’s comprehensive Islamic financial landscape • 17 Islamic banks (IBs) 9 local banking group/Islamic Subsidiaries 2 local IBs 6 foreign IBs • 5 approved International Islamic Banks • As at Sept.5) 4 .6% mkt share) Financing: USD40b (18% mkt share) Deposits: USD51.5b (18.2b) • Monetary tool • Managing daily liquidity requirements (Exchange rate @ USD1 = RM3.47b General:USD0. 2008: Assets: USD67b (16.92b Family: USD2.1% mkt share) • 56% of outstanding bonds are Sukuk (end-Sept 2008) • 85% Shariah counters • 149 Islamic unit trust • 5 approved Islamic Fund Management Companies • 8 Takaful Operators • 1 International Takaful Operator • 3 Retakaful Operators • As at Sept 2008: Assets: USD2.45b • Securities turnover (Jan-Sept: USD17.

Sukuk Origination Islamic Fund & Wealth Management International Islamic Banking International Takaful Human Capital Development 5 .

9m) Annual licence fee: RM50.000 (USD14.9m) Annual licence fee: RM5. BAFIA: Banking and Financial Institutions Act .286) Up to 100% foreign equity International Currency Business Unit (ICBU) Set up by existing banks licensed under IBA or BAFIA* Conduct non-RM Islamic commercial & investment banking & other banking business specified by BNM Dedicated division headed by senior management officer of the entity Separate accounts from RM transactions of entity Takaful International Takaful Operators (ITO) Registered under TA* Conduct non-RM composite takaful & retakaful business Subsidiary or branch PUC/net working fund: RM10 mil (USD2.International currency business Islamic Banking International Islamic Banks (IIB) Licensed under IBA* Conduct non-RM Islamic commercial & investment banking & other banking business specified by BNM Subsidiary or branch PUC/net working fund: RM10 mil (USD2.428) Up to 100% foreign equity International Currency Business Unit (ICBU) Set up by existing takaful operators registered under TA Conduct non-RM composite takaful & re-takaful business Dedicated division headed by senior management officer of the entity Separate accounts from RM transactions of entity 6 * IBA: Islamic Banking Act.000 (USD1. TA: Takaful Act.

Sukuk Origination Islamic Fund & Wealth Management International Islamic Banking International Takaful Human Capital Development 7 .

• CIFP Bright Scholarship –full time CIFP programme at INCEIF. • Offer post graduate studies in Islamic Finance • Conduct research in Islamic Finance • International Shariah Research Academy in Islamic Finance (ISRA) – applied research in Shariah and Islamic finance Fund for Shariah Scholars in Islamic Finance • International scholarships for post-grad studies in Shariah (fiqh muamalat) • International scholarship to Shariah graduates to pursue Chartered Islamic Finance Professional (CIFP) • Grant for R&D in Shariah (fiqh muamalat) Islamic Banking & Finance Institute Malaysia • Training & education • World’s 1st Islamic Financial Planning certification programme • Advisory & consultancy • Research & development • The Securities Industry Development Corporation (SIDC) The SIDC e-train. Products and Development. i. • 8 . Market Regulation.e. an e-Learning portal specially developed for the Capital Market by the Securities Industry Development Corporation.Comprehensive human capital development infrastructure International Centre for Education in Islamic Finance • Offer world’s 1st professional certification programme in Islamic Finance. Main focus is on Capital Market.

ICBU 0% tax for Islamic Fund Management Companies (IFMC) Tax deduction – expenses in establishing Islamic stock broking firm Tax incentives for issuers • Tax deduction on issuance cost • Full stamp duty exemption • Tax neutrality • Tax exemption on SPV Tax incentives for investors • No withholding tax on income from Islamic securities • No capital tax gain • 10% tax for REITs investors New licences • IIB • ITO • IFMC • Retakaful companies Flexible structure: • IIB. ITO and Retakaful companies No limit on number of licences to be issued for international currencies business Facilitative approval process Deemed approval for issuance: AAA (local rating) BBB (international rating) International rating allowed International documentation allowed Shariah Mutual recognition of Shariah interpretations Cross boarder initiative Mutual recognition arrangements with other jurisdictions for marketing. ITO and Retakaful can be set up as subsidiary or branch • Flexible requirement on number of expatriate for IIB.Opportunities in MIFC Conducive Environment Licensing Opportunities Liberalised Regulatory Framework Foreign equity Up to 49% foreign ownership in: Islamic banks Takaful operators Up to 100% foreign ownership in IIB. ITO. income Free to hedge positions Free to convert foreign currency into RM/vice versa Investment abroad Allow 100% investment abroad for IFMC Efficient Delivery Tax incentives for players • 0% tax for international currency business – IIB. ITO IFMC Retakaful companies Liberalised forex rules Open and free foreign exchange rules Free to repatriate funds. profits. distribution of Islamic funds Facilitative immigration policy 9 .

Malaysia’s Edge: Why Malaysia as a centre? Malaysia has put in place a strong foundation and the right prerequisites to become an Islamic financial hub Strong economic growth & international trade Dynamic legal. regulatory and Shariah framework Pool of talent and professionals in IF Comprehensive human capital development infrastructure Liberal foreign exchange rules Strong Government support Conducive tax regime Diversified & advanced Islamic financial markets Wide range of innovative Islamic financial products Mutual recognition of Shariah interpretations Liberal investment policies Strong international connectivity .well position interlinking Asia with the world 10 .

2007 “from my perspective.“Malaysia is a champion for the development of capital market-based instruments under Islamic law in the form of sukuk” September 18. University of Houston Interview with BusinessWeek. Dow Jones Islamic Market Indexes Interview with StarBiz.. Malaysia as a zone has good infrastructure and regulations for Islamic finance …”.Malaysia has always been at the forefront of innovation of Islamic finance…Very early on.. March 2007 “Malaysia allows for competitive Islamic investment that attracts even for nonMuslim investors (Ernst & Young’s Islamic Funds and Investments Report 2008) “. October 2003 11 . Rushdi A. Malaysia developed an inter-bank money system for Islamic bonds…” Professor Mahmoud Amin ElGamal. Siddiqui Director.

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