Ladies and Gentlemen,
I wish to start by extending my appreciation to the Securities Commission Malaysia and the Oxford Centre for Islamic Studies for inviting me this evening. I have personally observed the strengthening of the relationship between these two organisations over the past five years and I would like to congratulate them for having played an important role in furthering the development of Islamic finance through their joint thought leadership initiatives. On my part, it is indeed a pleasure to address a very distinguished audience this evening. Nevertheless, as we are already being served food for the stomach, I will endeavour to keep food for thought fairly light!
- Islamic finance has sustained its growth momentum despite continued uncertainty and volatility in the global economic and financial landscape over recent years. While it might be argued that Islamic finance was able to register such performance because it had come from a very low base globally, it would be less contentious to state that the level of interest towards Islamic finance has increased significantly compared to the pre-global financial crisis period.
- The growing recognition and acceptance of the value proposition offered by Islamic finance especially amidst the turmoil afflicting the conventional financial system has provided the impetus for Islamic finance to expand its foothold into new jurisdictions while at the same time becoming more entrenched in its so-called traditional markets.
- For instance, in 2013, the UK government announced the formation of the Islamic Finance Task Force to help, among others, strengthen the development of the UK’s Islamic finance industry as the western hub and attract inward Shariah-compliant investments. Later in the year, the Prime Minister announced that the UK would issue its first sovereign Sukuk and that the London Stock Exchange would launch an Islamic market index.
- In the same year, Malaysia witnessed the issuance and listing of its first retail Sukuk. This development is highly significant, even for a domicile that accounts for 69% of Sukuk issuance globally, as it further strengthens the reach and inclusiveness of Islamic finance by enabling retail investors to invest directly in Sukuk where direct participation – as was the case for conventional bonds – had previously been confined almost exclusively to institutional investors and high net worth individuals.
- The role of Islamic finance in helping to promote greater financial inclusion within a community or population is increasingly being recognised and is a key value proposition that has been instrumental in supporting the development of Islamic finance in certain jurisdictions.
Ladies and gentlemen,
- It should be acknowledged that each country is at a different stage in terms of the development of its Islamic finance industry and therefore has its own priorities and strategies in growing the industry domestically. Nevertheless to spur its regional and global development, the Islamic finance industry should strive to achieve a certain degree of standardization, or at least harmonisation, not only in the area of Shariah but also on legal, tax and regulatory treatments, in order to facilitate cross-border linkages that would lead to vibrant fundraising and investment activities as well as viable partnerships and collaborations.
- In this regard, the role of multilateral organisations is important, as is that of the regulators, in providing an enabling environment. Similarly, market participants, Shariah advisers and other service providers all have specific and critical roles to play in generating more cross-border opportunities. Furthermore, the greater mobility and transportability of talent across borders should be leveraged upon to support the sustainable development and growth of the Islamic finance industry.
Ladies and gentlemen
- In addition to creating more cross-border transactions and activities, the long term viability of Islamic finance must also be supported by the development of significant new growth segments. One such area is Islamic wealth management. Based on the profile of the conventional wealth management ecosystem, the orderly development of a comprehensive Islamic wealth management segment will catalyze further growth of various Islamic financial products and services, and promote more innovation. In particular, Islamic fund management, being a key component of the Islamic wealth management ecosystem, will benefit from enhanced capabilities of fund managers who would be required to provide a more extensive range of funds and products to serve the varying needs of the customers.
- In developing the Islamic wealth management segment, the entire value chain must be addressed, from wealth creation and accumulation to wealth preservation and distribution. The existing broad range and diversity of products and services in the Islamic finance industry provide a sound foundation upon which the Islamic wealth management value chain can be built and enhanced. For instance, investment instruments from different asset classes enable wealth to be created and accumulated, while Shariah-compliant risk management tools including takaful products help to preserve wealth. At the same time, structures such as trusts and foundations allow for the efficient distribution of wealth.
- In the context of Islam, wealth distribution also includes fair distribution to the community at large. On this note, I am pleased to observe a revived interest in the Islamic tradition of philanthropy, particularly waqf.
- Waqf is a philanthropic initiative that is managed in accordance with the Shariah and had played a prominent role in the Islamic economic system. The principle of perpetuity embedded in the waqf structure sets it apart from Western and Oriental-style foundations and charities.
- During the Seljukid and Ottoman periods, the imperial waqf had a distinctive place in the administration of the state where they became the largest economic and social institutions holding vast agricultural lands and diverse income-yielding real estates, managing extensive budgets and providing social, educational and religious services. However, after the advent of the colonial era and nationalisation where the administration of waqf was taken over by the state, which also involved the repossession of waqf land, the status of waqf has since lost its prominence.
- Islamic societies have a long and rich tradition of philanthropy which has shaped development throughout the Muslim world and given rise to social, educational, cultural and religious institutions. Nevertheless, current initiatives on Islamic philanthropy especially waqf are aimed primarily at reviving its economic role by introducing, among others, professional management of the waqf assets. To this effect, the following five measures can be undertaken as an agenda for action to bring waqf into the mainstream of development:
- Put priority on waqf as a core institution for social justice
- Include waqf reform in the government agenda
- Include the rebuilding of waqf institutions in the economic agenda
- Emphasize the role of giving in the social agenda
- Address governance issues
- On this note, given the significant size and value of waqf assets not only in Malaysia but also in many other jurisdictions across the world, it is therefore very timely that the fifth annual Roundtable to be held tomorrow and on Sunday will be deliberating on various aspects of waqf development. The discourse and deliberations at the Roundtable should seek practical solutions and action plans to unlock the potential value of these assets and in turn help stimulate economic activities and position waqf once again as an important economic and social institution serving the needs of society.
Ladies and gentlemen,
- It is my fervent hope that all of us, as stakeholders of the Islamic finance industry, continue to engage and collaborate to take the industry to the next phase of growth and development. There are abundant opportunities for economic and commercial benefits to be derived from undertaking concerted and coordinated efforts.