malaysia opportunities in islamic finance

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Malaysia: Opportunities in Islamic Finance

December 2008

Shariffuddin Khalid



2

Opportunities in Malaysia

Malaysia

East Asia

Malaysia - Gateway to ASEAN &AFTA, fast growing with 600 m pop.

Malaysia International IslamicMalaysia International Islamic

Financial CentreFinancial Centre -- MIFCMIFC

World Class Islamic

Financial Centre

I s l a m

i c F u n d & W

e a l t h

I s l a m

i c F u n d & W

e a l t h

M a n a g e m e n

t

M a n a g e m e n

t

H u m a n C a p i t

a l

H u m a n C a p i t a l

D e v e l o p m e n

t

D e v e l o p m e n

t

I n t e

r n a t i o n a l I s l a m i c

I n t e r n a t i o n a l I s l a m i c

B a n k i n g

B a n k i n g

I n t e

r n a t i o n a l T a k a f u l

I n t e

r n a t i o n a l T a

k a f u l

World Class Legal, RegulatoryWorld Class Legal, Regulatory

and Shariah Frameworkand Shariah Framework

S u

k u k

S u

k u k O r i g i n a t i o n

O r i g i n a t i o n



3

Evolution with strategic direction

Market liberalisation, adopt internationalstandards & best practices

Increase number of players, developfinancial markets and enhance Shariah

governance

Building solid foundation of legal,regulatory and Shariah framework

Advanced stageStrategic positioning &international integration

Intermediate stageInstitutional building,activity generation &

market vibrancy

Inception stageInstituting foundations of

Islamic finance

Robust Islamic financial system build from strength to strength



4

Malaysia’s comprehensive Islamic financial landscape

• 17 Islamic banks (IBs)

9 9 local banking group/Islamic Subsidiaries

9 2 local IBs

9 6 foreign IBs• 5 approved International Islamic Banks

• As at Sept. 2008:

9Assets: USD67b (16.6% mkt share)9Financing: USD40b (18% mkt share)

9Deposits: USD51.5b (18.1% mktshare)

• 8 Takaful Operators• 1 International Takaful

Operator• 3 Retakaful Operators• As at Sept 2008:

9Assets: USD2.92b

¾Family: USD2.47b

¾General:USD0.45b

• Securities turnover (Jan-Sept: USD17.2b)• Monetary tool

• Managing daily liquidity requirements

• 56% of outstandingbonds are Sukuk(end-Sept 2008)

• 85% Shariahcounters

• 149 Islamic unittrust

• 5 approved IslamicFund Management

Companies

(Exchange rate @ USD1 = RM3.5)



International Islamic Banking

Islamic Fund & WealthManagement

Sukuk Origination

Human Capital Development

International Takaful



International Islamic Banks (IIB) International Currency Business Unit (ICBU)

Licensed under IBA*

Conduct non-RM Islamic commercial &

investment banking & other banking business

specified by BNM

Subsidiary or branch PUC/net working fund: RM10 mil (USD2.9m)

Annual licence fee: RM50,000 (USD14,286)

Up to 100% foreign equity

Set up by existing banks licensed under IBA or

BAFIA*

Conduct non-RM Islamic commercial & investment

banking & other banking business specified by

BNM Dedicated division headed by senior management

officer of the entity

Separate accounts from RM transactions of entity

Takaful

International Takaful Operators (ITO) International Currency Business Unit (ICBU)

Registered under TA*

Conduct non-RM composite takaful & re-takaful business

Subsidiary or branch

PUC/net working fund: RM10 mil (USD2.9m)

Annual licence fee: RM5,000 (USD1,428)

Up to 100% foreign equity

Set up by existing takaful operators registered

under TA Conduct non-RM composite takaful & re-takaful

business

Dedicated division headed by senior management

officer of the entity

Separate accounts from RM transactions of entity

International currency business

Islamic Banking

* IBA: Islamic Banking Act, TA: Takaful Act, BAFIA: Banking and Financial Institutions Act



Human Capital Development

International Islamic Banking

Islamic Fund & WealthManagement

Sukuk Origination

International Takaful



Tax incentives for players• 0% tax for international

currency business – IIB,

ITO, ICBU 0% tax for Islamic Fund

Management Companies(IFMC)

Tax deduction – expenses inestablishing Islamic stock

broking firm

Tax incentives for issuers• Tax deduction on issuance

cost

• Full stamp duty exemption

• Tax neutrality

• Tax exemption on SPV

Tax incentives for investors• No withholding tax on

income from Islamic

securities

• No capital tax gain

• 10% tax for REITs investors

Foreign equity

Up to 49% foreign

ownership in:

9 Islamic banks9 Takaful operators

Up to 100% foreign

ownership in

9 IIB, ITO

9 IFMC

9 Retakafulcompanies

Liberalised forex rules

Open and free foreign

exchange rules

Free to repatriate funds,profits, income

Free to hedge positions

Free to convert foreign

currency into RM/vice

versa

Investment abroad

Allow 100% investment

abroad for IFMC

New licences• IIB

• ITO

• IFMC

• Retakaful companies

Flexible structure:• IIB, ITO and Retakaful

can be set up assubsidiary or branch

• Flexible requirement onnumber of expatriate forIIB, ITO and Retakafulcompanies

No limit on number oflicences to be issued forinternational currenciesbusiness

Opportunities in MIFC

Licensing

Opportunities

Liberalised

RegulatoryFramework

Efficient

Delivery

Conducive

Environment

Facilitative approval

process

Deemed approval for

issuance:9 AAA (local rating)

9 BBB (international

rating)

International ratingallowed

Internationaldocumentation allowed

Shariah

Mutual recognition of

Shariah interpretations

Cross boarder initiative

Mutual recognition

arrangements with other

jurisdictions for

marketing, distribution of

Islamic funds

Facilitative immigration

policy

M l i ’ Ed Wh M l i t ?



10

Malaysia’s Edge: Why Malaysia as a centre?Malaysia has put in place a strong foundation and the right pre-

requisites to become an Islamic financial hub

Strong economic growth& international trade

Pool of talent andprofessionals in IF

Wide range of innovativeIslamic financial products

Comprehensive humancapital developmentinfrastructure

Strong Government

support

Diversified & advanced

Islamic financial markets

Conducive tax regime

Liberal investmentpolicies

Liberal foreignexchange rules

Dynamic legal,

regulatory and Shariahframework

Strong internationalconnectivity - well positioninterlinking Asia with the world

Mutual recognition ofShariah interpretations



“from my perspective,Malaysia as a zone hasgood infrastructure andregulations for Islamicfinance …”.

Rushdi A. Siddiqui Director, Dow Jones Islamic

Market Indexes Interview with StarBiz, March 2007

“...Malaysia has always beenat the forefront of innovationof Islamic finance…Very early

on, Malaysia developed aninter-bank money system for

Islamic bonds…”

Professor Mahmoud Amin El- Gamal, University of Houston

Interview with BusinessWeek, October 2003

“Malaysia is a champion for thedevelopment of capital market-basedinstruments under Islamic law in the

form of sukuk”

September 18, 2007

“Malaysia allows for competitive Islamicinvestment that attracts even for non-

Muslim investors

(Ernst & Young’s Islamic Funds and Investments Report 2008)

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http://www.imf.org/external/



Thank You

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