MALAYSIA will issue Islamic banking licences to qualified foreign players with a presence in the global Islamic banking industry, said Bank Negara governor Tan Sri Dr Zeti Akhtar Aziz.
The move was part of the central bank's effort to spur the overall development of the Islamic financial system in the country, and of Malaysia as a regional financial hub for Islamic banking and finance, she said at the launch of CIMB's Islamic financial services business in Kuala Lumpur yesterday.
For Malaysia to realise its potential as a regional hub, Zeti urged that Islamic banking institutions allocate adequate resources for research and development.
She said Bank Negara would also bring forward the financial liberalisation of the Islamic banking sector envisaged in the Financial Sector Masterplan.
This will generate spill-over effects that will enhance the diversity, and spur the overall development, of the Islamic financial system in Malaysia, she said.
The pace of development of Islamic banking and finance in Malaysia has exceeded our earlier expectations. (Bringing forward the liberalisation) will promote greater competition and act as a bridge between Malaysia and other global Islamic financial markets, she added.
Zeti disclosed that Bank Negara was also embarking on new initiatives in the development of the Islamic banking industry, in particular, to strengthen its structure.
In addition, she said, the rate of return framework was being reviewed, while the disclosure standards for Islamic banks had been finalised.
In terms of legal infrastructure, a dedicated High Court has been established to handle cases on Islamic banking and finance, and a law review committee has been formed as an extension of this initiative.
She said the syariah framework would also be further strengthened. A working group on syariah has been formed to conduct a comprehensive review of Islamic banking issues, as well as to formulate a guide for the innovation of Islamic banking products.
The successful issuance of the first sovereign global Islamic Sukuk by the Malaysian government had demonstrated the strong interest in syariah-compliant financial instruments, Zeti noted.
She said the issue had acted as a catalyst for other countries and corporate players to tap the global Islamic financial market.
Leading global investment banks are now according greater focus and resources to tap this potential, and have become important players in the market.
The skills and expertise to tap this market still reside with the global investment banks.
Our domestic Islamic banking institutions must, therefore, embrace the challenge to enhance their capacity and capability to emerge as world-class bankers that are able to lead-arrange these issues, rather than assume a participatory role, Zeti said.
The local institutions face the impending challenge of not only having to engineer innovative financial structures that are able to meet sophisticated requirements of the diverse clientele base, but also to ensure these structures are syariah-compliant, she added.
As of April 30, assets mobilised by the Islamic banking sector have increased to RM72bil, accounting for a market share of 9.2% of the domestic banking system.
Deposits during the same period increased to RM55bil, constituting a market share of 10%, while financing mobilised amounted to RM40bil to garner 9% market share.
The Islamic capital market, in particular the Islamic debt market, has experienced rapid growth since its emergence in the 1990s.
Issuance of Islamic bonds has expanded steadily at an average rate of 42.8% since 1995.
Last year, funds raised via the issuance of Islamic bonds amounted to RM13.8bil, constituting 52% of the total issuance of debt securities, surpassing conventional bonds.