ISLAMIC FINANCE GROWTH AND DEVELOPMENT IN MALAYSIA

Amidst the global financial turmoil and harsh critiques that conventional banking is facing, Islamic banking system has emerged as a vibrant alternative in Malaysia. In this nation of 25 million people, few financial sectors have grown as quickly as the Islamic banking industry, whose religious precepts have struck a nerve not only with the older generations but with younger investors as well. An interesting point to note is that, Islamic finance in Malaysia is generally well accepted among all Malaysians—non-Muslims lead in subscribing to Islamic finance products and services.

It is widely known that Islamic financial services are among the fastest growing fields in the banking and finance industry. In its annual intelligence report, McKinsey & Co stated that Islamic banking assets and assets under management reached US$750 billion in 2006 and are expected to reach US$1 trillion by 2010. The financial authorities in the central bank, Bank Negara, as well as the Malaysian government and Kuala Lumpur’s banking community, understood the potential of this trend and sought to create the right conditions in which the nascent industry could thrive. Capitalising on the existing infrastructure and comprehensive local Islamic financial system, which has been developed for almost 30 years, the Malaysia International Islamic Financial Centre (MIFC), a strategic body that spearheads the development of Malaysia as an international Islamic financial hub, was set up in 2006 to promote Malaysia’s expertise in Islamic banking. Also in 2006, Malaysia, again led by its central bank, founded the International Centre for Education in Islamic Finance (INCEIF) as a global university for Islamic finance.

With all systems in place and the right knowledge and human capital, Malaysia spearheaded the world’s first global sovereign sukuk, when others were still hesitant, if not resistant. It became host to the Islamic financial services board, a standard-setting body that seeks to harmonise prudential, supervisory and disclosure practices in the global Islamic finance industry.