6-02-2009: Islamic finance in the limelight
(Extracted from The Edge – author : Racheal Lee Mei Nyee)
Ever since the US housing bubble burst in 2007 leading to the collapse of the global financial system last year, investors have been scurrying to seek alternative investment platforms and Islamic finance is deemed to be one of the viable and attractive options.
Aware of the huge potential in Islamic finance, Malaysia had been preparing the groundwork for a couple of decades and is now poised to become a global Islamic finance hub. Regional fund managers and investors are keeping a keen eye to take advantage of the vast opportunities available here.
It has been reported that Islamic banking assets in the Asia-Pacific account for about US$450 billion (RM1.62 trillion), which is 60% of the global Islamic banking market. The numbers are expected to grow.
According to reports, the Malaysian Islamic finance sector has grown at a compound annual growth rate (CAGR) of 28% in the last 15 years.
As at end-November 2008, the country’s Islamic banking assets rose 18.7% year-on-year (2007: 19.2%) to RM186.6 billion (2007: RM157.2 billion) and accounted for 14.3% (2007: 12%) of total assets in the banking sector.
Bank Negara Malaysia (BNM) wants the Islamic banking industry to constitute 20% of the overall banking and insurance market by 2010.
The Edge Financial Daily spoke to the three latest Islamic asset management licensees, which were granted the approval by the Securities Commission (SC) last month to start their operations in Malaysia.
The three foreign fund management companies are Aberdeen Islamic Asset Management Sdn Bhd, Nomura Islamic Asset Management Sdn Bhd and BNP Paribas Islamic Asset Management Malaysia Sdn Bhd.
The three expressed similar views on the efforts being done by the SC, BNM, Bursa Malaysia as well as the Malaysia International Islamic Financial Centre (MIFC) in promoting the country as a major hub for international Islamic finance.
These three companies, which already have presence in the country’s conventional asset management industry, realise the vast potential in the Islamic finance industry and are keen to play their role in taking the industry to greater heights and give other players a run for their money.
Nevertheless, they address the concern of low liquidity and limited instrument choices in Islamic funds in the market and that is limiting investment opportunities.
They believe there is a lot of unfulfilled demand in Islamic finance and the three companies plan to issue more innovative and attractive products, which under their conventional licence they had been unable to do.
With the incentives given, the foreign players are geared up for stiff competition among themselves as well as with the local boys, and the global arena is their stage. It will be up to each individual house not only to seek investment opportunities for local investors, but also to attract global investments into Malaysia.
It is hoped that with the stiff competition, the players will come up with innovative but transparent solutions for investors in Malaysia.
BNP Paribas Islamic Asset Management Malaysia wants to work with takaful companies here to expand their products so investors have a wider range to choose from. It is also working on an exchange-traded fund (ETF) to be listed in Malaysia.
Nomura Islamic Asset Management is set to launch its first product for institutional investors by the second half of the year for the Malaysian market before venturing into the Gulf and other Asian nations.
Aberdeen Islamic Asset Management is keen on markets such as Indonesia, the Middle East, Brunei, Hong Kong, China and the United Kingdom.
Governed under Capital Market Services Act 2007, foreign Islamic fund management businesses in Malaysia are required to register with the SC.
Currently, there are a total of eight Islamic asset management companies in Malaysia. Besides the three latest licensees, the others are Kuwait Finance House (Malaysia), DBS Asset Management, CIMB-Principal Asset Management, Global Investment House and Reliance Asset Management.
According to MIFC’s website, a foreign Islamic fund management company under a special scheme is subject to two conditions — up to 100% foreign equity ownership and complying with the licensing requirements under the securities laws and the licensing handbook prior to commencing its fund management activities.
It also states that a foreign Islamic fund management company under the special scheme is allowed to participate in managing funds sourced from within or outside Malaysia as well as establishing and distributing unit trust funds. A Syariah adviser must be appointed, approved and registered by SC for these asset management companies.
Below are some of the incentives for Islamic fund management companies:
Institutional
* 10-year tax exemption on all fees received by fund management companies for managing approved Islamic funds for both local and foreign investors up to 2016.
Personal
* Income tax exemption to be given to income received by non-resident experts in Islamic finance.
Operational
* Allowed to conduct foreign currency and ringgit fund management for both retail and institutional investors
Incentives for investment activities
* Islamic fund management companies are allowed to invest all their Syariah funds abroad.
Start-up fund incentive
* Employees Provident Fund has set aside a specific allocation of start-up fund for foreign Islamic fund managers
My Comment :
It seems that the financial crisis has been a blessing in disguise as more and more people/corporations are moving towards Islamic finance.
However, one tends to forget about the ultimate risk management pertaining to Islamic finance, i.e., to incur the risk of not obeying the word of Allah and the teachings of Prophet Muhammad, and that this applies to every aspect of life including business.
What has been stated in the Quran and Hadith is the best method of risk management, and must be complied. Failure to do so will result in the worst risk, which will then lead to total destruction in the world and the hereafter. If all transactions, specifically financial and economic transactions, had been carried out under righteous methods and in accordance with the word of Allah and the teachings of the prophet, Lehman Brothers would not have collapsed in the first place.
(Extracted from The Edge – author : Racheal Lee Mei Nyee)
Ever since the US housing bubble burst in 2007 leading to the collapse of the global financial system last year, investors have been scurrying to seek alternative investment platforms and Islamic finance is deemed to be one of the viable and attractive options.
Aware of the huge potential in Islamic finance, Malaysia had been preparing the groundwork for a couple of decades and is now poised to become a global Islamic finance hub. Regional fund managers and investors are keeping a keen eye to take advantage of the vast opportunities available here.
It has been reported that Islamic banking assets in the Asia-Pacific account for about US$450 billion (RM1.62 trillion), which is 60% of the global Islamic banking market. The numbers are expected to grow.
According to reports, the Malaysian Islamic finance sector has grown at a compound annual growth rate (CAGR) of 28% in the last 15 years.
As at end-November 2008, the country’s Islamic banking assets rose 18.7% year-on-year (2007: 19.2%) to RM186.6 billion (2007: RM157.2 billion) and accounted for 14.3% (2007: 12%) of total assets in the banking sector.
Bank Negara Malaysia (BNM) wants the Islamic banking industry to constitute 20% of the overall banking and insurance market by 2010.
The Edge Financial Daily spoke to the three latest Islamic asset management licensees, which were granted the approval by the Securities Commission (SC) last month to start their operations in Malaysia.
The three foreign fund management companies are Aberdeen Islamic Asset Management Sdn Bhd, Nomura Islamic Asset Management Sdn Bhd and BNP Paribas Islamic Asset Management Malaysia Sdn Bhd.
The three expressed similar views on the efforts being done by the SC, BNM, Bursa Malaysia as well as the Malaysia International Islamic Financial Centre (MIFC) in promoting the country as a major hub for international Islamic finance.
These three companies, which already have presence in the country’s conventional asset management industry, realise the vast potential in the Islamic finance industry and are keen to play their role in taking the industry to greater heights and give other players a run for their money.
Nevertheless, they address the concern of low liquidity and limited instrument choices in Islamic funds in the market and that is limiting investment opportunities.
They believe there is a lot of unfulfilled demand in Islamic finance and the three companies plan to issue more innovative and attractive products, which under their conventional licence they had been unable to do.
With the incentives given, the foreign players are geared up for stiff competition among themselves as well as with the local boys, and the global arena is their stage. It will be up to each individual house not only to seek investment opportunities for local investors, but also to attract global investments into Malaysia.
It is hoped that with the stiff competition, the players will come up with innovative but transparent solutions for investors in Malaysia.
BNP Paribas Islamic Asset Management Malaysia wants to work with takaful companies here to expand their products so investors have a wider range to choose from. It is also working on an exchange-traded fund (ETF) to be listed in Malaysia.
Nomura Islamic Asset Management is set to launch its first product for institutional investors by the second half of the year for the Malaysian market before venturing into the Gulf and other Asian nations.
Aberdeen Islamic Asset Management is keen on markets such as Indonesia, the Middle East, Brunei, Hong Kong, China and the United Kingdom.
Governed under Capital Market Services Act 2007, foreign Islamic fund management businesses in Malaysia are required to register with the SC.
Currently, there are a total of eight Islamic asset management companies in Malaysia. Besides the three latest licensees, the others are Kuwait Finance House (Malaysia), DBS Asset Management, CIMB-Principal Asset Management, Global Investment House and Reliance Asset Management.
According to MIFC’s website, a foreign Islamic fund management company under a special scheme is subject to two conditions — up to 100% foreign equity ownership and complying with the licensing requirements under the securities laws and the licensing handbook prior to commencing its fund management activities.
It also states that a foreign Islamic fund management company under the special scheme is allowed to participate in managing funds sourced from within or outside Malaysia as well as establishing and distributing unit trust funds. A Syariah adviser must be appointed, approved and registered by SC for these asset management companies.
Below are some of the incentives for Islamic fund management companies:
Institutional
* 10-year tax exemption on all fees received by fund management companies for managing approved Islamic funds for both local and foreign investors up to 2016.
Personal
* Income tax exemption to be given to income received by non-resident experts in Islamic finance.
Operational
* Allowed to conduct foreign currency and ringgit fund management for both retail and institutional investors
Incentives for investment activities
* Islamic fund management companies are allowed to invest all their Syariah funds abroad.
Start-up fund incentive
* Employees Provident Fund has set aside a specific allocation of start-up fund for foreign Islamic fund managers
My Comment :
It seems that the financial crisis has been a blessing in disguise as more and more people/corporations are moving towards Islamic finance.
However, one tends to forget about the ultimate risk management pertaining to Islamic finance, i.e., to incur the risk of not obeying the word of Allah and the teachings of Prophet Muhammad, and that this applies to every aspect of life including business.
What has been stated in the Quran and Hadith is the best method of risk management, and must be complied. Failure to do so will result in the worst risk, which will then lead to total destruction in the world and the hereafter. If all transactions, specifically financial and economic transactions, had been carried out under righteous methods and in accordance with the word of Allah and the teachings of the prophet, Lehman Brothers would not have collapsed in the first place.
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