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Role of Islamic Capital Market in Economic Growth
Zainal Izlan Zainal AbidinExecutive Director, Islamic Capital Market
Securities Commission Malaysia
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Role of ICM in Economic Growth OIC countries are expected to record higher average GDP growth
compared to the global average over the next five years
Opportunity for Islamic capital market to facilitate mobilisation of wealth and funds to support sustainable economic growth
Sources: KFH Research, Pew Research (2011), World Bank (2013)
Global Sukuk Market
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Total sukuk outstanding globally reached USD286.4 bn as at end 1H2014
Debut sovereign issuances in 2014 by the UK, Hong Kong, South Africa, Luxembourg
Growing diversity in the sukuk market in terms of investors, currencies, sectors, etc.
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Sukuk Issuance by Sector (Global)
Sources: Bloomberg, Zawya, IFIS, KFH Research
Selected issuances in recent years:• PLUS (Malaysia) – Transport• Saudi Electricity – Power• Oooredoo (Qatar) - Telecom
Sukuk: Value Proposition
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Broadens the investor/subscriber base thus providing more competitive pricing for issuers
Enhances inclusiveness thus promoting more equitable wealth distribution/sharing
Contributes to development and growth of Halal as well as SRI businesses and economy
Provides more options for issuers and investors –facilitates diversification and reduces concentration risk
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YearSukuk issued to total
bonds issued (%)Size of sukuk issued
(RM billion)Size of total bonds issued
(RM billion)
2008 27.5 110.1 400.1
2009 32.0 116.4 363.3
2010 32.4 132.8 410.5
2011 35.7 185.0 518.8
2012 51.1 324.6 635.5
2013 54.9 275.8 502.2
Malaysia: Trend in Sukuk Issuance
Yield Comparison Between Sukuk and Bonds in Malaysia
7Source: Bond Pricing Agency Malaysia
3-yr bond yield matrix
MGS
Q2 14
Q1 14
Q4 13
Q3 13
Q3 14
3.553.413.433.43 3.51
4.134.013.963.89 4.09AAA
4.294.164.094.01 4.25AA
5.555.465.375.34 5.50A
3.843.753.683.47 3.83IRS
3-yr sukuk yield matrix
GII
Q2 14
Q1 14
Q4 13
Q3 13
Q3 14
3.593.563.493.37 3.64
4.083.963.913.85 4.04AAA
4.244.114.043.97 4.20AA
5.505.415.325.30 5.45A
3.843.753.68 3.47 3.83IRS
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Shariah-Compliant Equities
Classification of Shariah-compliant equities:
Attracts wider range of investors to own shares in listed companies, directly and indirectly via funds
Provides listed companies incentive to comply with screening criteria and more options for fund raising
Participating in economic growth through investment in Shariah-compliant stocks across various sectors of economy
Dow Jones Islamic Market World Index - Sector Allocation
Total market capitalisation – USD 23.2 tnComponent number - 2,578 stocks(as at end Sept 2014)Source: S&P Dow Jones Indices
Global Islamic Funds
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Total global Islamic AUM reached USD75.1 bn as at June 2014
Total number of Islamic funds increased to 1,069 funds
The growth, albeit gradual, is driven partly by rising wealth and portfolio diversification
Islamic Funds: Value Proposition
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Enables pooling of resources to invest in diverse range of Shariah-compliant securities & instruments
Facilitates effective mobilisation of funds to participate in various sectors & create more wealth in the economy
Provides different fund structures to suit specific needs, requirements and preferences
Creates opportunities for cross border linkages and businesses
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Development of SMEs
Islamic Private Equity and Venture Capital segment can spur development of small and medium scale businesses
SC Malaysia working on regulatory framework for equity crowdfunding
Source: World Bank
Building Blocks for an Effective ICM
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ICM Ecosystem
Legal and Regulatory Framework
Shariah Governance Framework
Tax Framework
Government Support
Diverse Pool of Players
Strong Intermediation
Institutions
Talent Pool
Action Plans for ICM Development
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Implement tax neutrality provisions for sukuk issuance
Adopt screening of equities for Shariah compliance
Intensify stakeholder awareness & education programmes
Enhance capacity building and research &development initiatives
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Thank You