“Strengthening Linkages in the Islamic Financial World”
Bismillahi Rahmani Rahim.
Assalamualaikum Warahmatullahi Wabarakatuh and a very good morning.
I am thankful to the Almighty S.W.T. to be here in the beautiful city of Doha to address this eminent gathering at the Malaysia-Qatar Business Forum. Today’s gathering is being held amidst a rapidly-changing global Islamic financial environment. Over the past three decades, financial activities conducted under the banner of ‘Islamic finance’ have grown significantly in volume and scope, attracting significant attention worldwide. It has also gained credibility and respect in international financial circles, and is now one of the fastest-growing industries, recording double-digit annual growth rates for almost thirty years. Its financial assets have reached hundreds of billions of dollars.
- Although Islamic finance has thus far remained on the sidelines in the wake of the global financial crisis, it is relevant to reflect on its potential role in helping promote global financial stability. The true strengths of Islamic finance are derived from the principles of Islamic law or syariah which prohibits excessive risk-taking. Syariah injunctions require that financial transactions be accompanied by an underlying productive activity, since financial institutions are not allowed to make profit out of lending money. These principles have made Islamic financial institutions less vulnerable to instability, and to have the capacity to manage the risks associated with a more deregulated and liberalised environment.
- This business forum provides an opportunity for us to exchange ides on how our two countries can improve trade and investment ties. And also to explore in what ways we can cooperate in developing Islamic finance within and beyond our borders.
Strengthening the financial and economic inter-linkages between our countries
- Currently, trade and investment flows between Malaysia and Qatar, although on an upward trend, remain moderate. This indicates tremendous opportunity for both our countries to facilitate greater cross border trade and investment activities.
- Malaysia recognises the value of Qatar as a trading partner, being one of the world’s most rapidly growing economies, with a wealth of natural resources and a diversifying array of products and services. And Malaysia in turn would make a worthy partner to Qatar. While Malaysia has not been spared the effects of the global financial crisis, the impact has been on the real sector due to the contraction in demand for our exports. Malaysia’s financial sector remains strong. Financial intermediation has not been interrupted. Credit flows have continued to support the domestic economy.
- Since the Asian financial crisis of 2007, Malaysia has taken steps to reform its financial system. The regulatory and supervisory oversight has been significantly improved with greater corporate governance and improved risk management practices. The presence of a strong Islamic finance sector alongside conventional finance has also contributed to Malaysia’s capacity to weather shocks to the financial system.
- While Malaysia is not generally perceived as a low-cost production centre, it has established a name for itself as a destination of choice for foreign direct investment in higher value-added activities, particularly in the services sector. Malaysia’s strong economic and financial fundamentals, long term development plans, trade openness, pro-business policies, and conducive commercial environment have all contributed to our high FDI flows. Malaysia also possesses a highly educated workforce, an efficient and diversified financial system, strong corporate governance and well-developed infrastructure.
- In the global business market, Malaysia remains competitive. We are ranked 24th in the Global Competitiveness Report 2009-2010 by the World Economic Forum. We were also placed favourably in several other global business rankings. Malaysia has been ranked as the third most attractive investment destination for shared services and outsourcing activities for the second consecutive year in A.T. Kearney’s Offshore Location Attractiveness Index. According to a report commissioned by UK Trade & Investment entitled Survive and Prosper: Emerging Markets in the Global Recession, Malaysia is placed fifth in the list of emerging countries deemed the next wave of priority markets.
- The government continues to support the economy through measures and initiatives to enhance the business and investment climate. A special taskforce has been established to review and improve the public sector service delivery system to improve efficiency and reduce the cost of doing business. As of 10 March 2009, Malaysia has liberalised 27 services sub-sectors including health, tourism, transport, business services, IT services and legal services with no restrictions imposed on foreign equity ownership. The liberalisation of the legal services subsector allows for up to five international law firms with expertise in international Islamic finance to establish offices in Malaysia. In addition, there are generous tax incentives for foreign players in the five economic corridors established throughout the country.
Malaysia International Islamic Financial Centre (MIFC) initiative
- As part of the effort to integrate Islamic finance into the international financial world, Malaysia established the Malaysia International Islamic Financial Centre (MIFC) initiative in 2006. Malaysia has already established itself as a premier centre for the origination of Islamic bonds or sukuk. It is also fast-becoming a hub for Islamic fund management services, international Islamic banking services and international takaful and retakaful, apart from being a centre for Islamic finance education, training, research and consultancy.
- The MIFC community would be a good intermediary to enhance the financial and economic linkages between Malaysia and the GCC countries. Malaysia is strategically located in the ASEAN region which itself is a huge market with its 570 million-strong population and its combined GDP of more than 1 trillion US Dollars.
- As part of the liberalisation of the services sector, there are new opportunities for foreign entry into the Malaysian Islamic financial sector. Malaysia is offering two new mega Islamic banking licences and two new family takaful licences to international Islamic financial institutions and investors. In addition, the foreign equity holding allowed in an Islamic banking institution has been raised from 49 percent to 70 percent on the condition that the capital raised is no less than 1 billion US Dollars. All of this is in line with the MIFC motto: Shaping Islamic Finance Together.
Forging better collaboration with Qatar
- Over the last five years, there has been increasing interest among Middle Eastern investors in the Asian region. In this regard, I am pleased to note that the Qatar Islamic Bank Group has already established a presence in Malaysia. It is our hope that this marks the beginning of further efforts to enhance financial and economic linkages between our countries.
- The relationship between Qatar and Malaysia has been further strengthened with the signing of a Memorandum of Understanding between the Qatar Financial Centre Regulatory Authority and the Central Bank of Malaysia in 2007 to jointly develop Islamic finance internationally. One of the objectives of the Malaysia-Qatar Business Forum is to advance this collaboration, particularly in the areas of innovation and liquidity management. In addition, mutual recognition of our respective Islamic financial products can be further explored so that we can collaboratively expand the reach of our Islamic financial products on the global market.
- As innovation is key to the continued development of the sector, there is also the need to work together in developing new Islamic financial products and services that meet the contemporary demands of businesses and consumers in the global marketplace – a marketplace that, in the wake of the financial crisis, is now seeking greater stability and reliability.
- With the evolution of Islamic finance and its integration into the international financial system, it cannot escape the effects of impeded growth and diminished liquidity that comes with a recession. Therefore, a sound liquidity management infrastructure is also required to effectively manage our risks, and this is another area of potential collaboration among the Islamic financial community.
- To facilitate liquidity management at the global level, Malaysia recently launched a commodity-trading platform called Bursa Suq Al Sila’. Designed as a multi-currency and multi-commodity exchange, Bursa Suq Al Sila’ has the potential to increase murabahah and tawarruq transactions with its internet based platform – the first of its kind in the world. It is an ideal platform for expanding the international market for Islamic financial products.
- The availability of a significant pool of human resource with sufficient knowledge of Islamic finance is crucial to the continued growth of and innovation in the industry, and we can make great strides if we join forces. In this regard, I am pleased to announce that Malaysia will offer two scholarships to eligible Qataris to pursue the Chartered Islamic Finance Professional programme at the International Centre for Education in Islamic Finance (INCEIF) in Kuala Lumpur next year. In addition, two research grants will be awarded to Qatari researchers by the International Shariah Research Academy for Islamic Finance (ISRA).
- Among the Malaysian delegation here today are senior officials from the Central Bank of Malaysia, the Securities Commission, the Malaysian Industrial Development Authority (MIDA), the Labuan Offshore Financial Services Authority (LOFSA), the Malaysian Bourse, Khazanah Malaysia (the Government’s investment arm) as well as representatives from international and domestic financial institutions, fund managers and support professionals who can act as your contact point.
- It is my sincere hope that this forum will pave the way for greater collaboration between our business and financial communities. I wish you all a stimulating forum and a productive exchange of ideas.