Mohd Razif bin Abd Kadir: Brief overview of Islamic banking and finance
Speech by Mr Mohd Razif bin Abd Kadir, Deputy Governor of the Central Bank of Malaysia, at the
Official Launch of Kuala Lumpur International Islamic Finance Expo 2006, Kuala Lumpur,
24 November 2006.
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It is indeed an honour to be here this morning at the launching of the Kuala Lumpur International
Islamic Finance Expo 2006, organized by the Association of Islamic Banking Institutions Malaysia
(AIBIM). It was exactly five years ago that all of us witnessed the launching of the first Islamic Banking
and Takaful Week by the then Deputy Prime Minister, Dato' Seri Abdullah Ahmad Badawi. And now,
after those years, Alhamdulillah, we are pleased with the positive impact of the comprehensive
awareness campaign in the year 2001 as it has paved the way to subsequent nationwide annual
campaigns on financial awareness in Islamic banking and finance. In this regard, I wish to congratulate
all financial institutions involved for providing their unwavering support in this virtuous endeavour.
Before I proceed, allow me to take this opportunity to welcome our exhibitors, both local and foreign,
who will be participating in the Kuala Lumpur International Islamic Finance Expo 2006. We believe that
your participation will benefit the patrons to this expo. I hope you will exploit this platform to
disseminate as much information on Islamic banking and finance as possible so as to provide an
opportunity for the public to learn more on the products, services and benefits of Islamic banking and
finance.
This year's Islamic financial expo presents a different appeal altogether with various differentiated
activities and events organised for the diversified target groups and consumers. I note that various
activities have been arranged for the next five days including Islamic banking and finance exposition,
the annual Islamic Finance Forum, colloquium on Islamic finance, convention on takaful and Islamic
unit trust advisors and Muzakarah for Shariah advisors. This is indeed an excellent opportunity for
exchanging ideas as well as providing relevant information to the public on Islamic finance. It is also
timely and augurs well with the recent announcement of the initiatives to position Malaysia as the
international Islamic financial centre.
The Islamic financial industry in Malaysia has experienced rapid transformations particularly in the
past ten years. The Malaysian Islamic banking system registered strong performance with higher
profitability and positive trends in all key indicators. Profitability surpassed the RM1 billion mark for the
first time in 2005, and this year the industry will again register good profit as for the first half of 2006,
the amount of profit generated was already RM800 million. The total assets of Islamic banking
currently stands at RM122 billion. The performance of the Malaysian Islamic financial market in
particular the capital market has been encouraging. The Islamic corporate bonds stands at RM121
billion, which constituted 55 percent of the total corporate bond market in Malaysia. More recently, a
total of 26 new corporate sukuk issues with an aggregate value of about RM23 billion were announced
in the first half of 2006, representing 71 percent of the Malaysian domestic market's rated corporate
bond issues for that period.
The operating environment of Islamic finance in Malaysia has also evolved dramatically. The product
range has now expanded into broad array of innovative instruments using contracts beyond
murabahah or Bai Bithaman Ajil (BBA). In past few years, several new Islamic financial products were
introduced which included residential mortgage backed securities, commodity based financing, as well
as investment and equity linked product based on musyarakah, mudarabah and ijarah. Recent
issuance of Khazanah's exchangeable sukuk is based on musyarakah contract. Malaysia has strong
potential to be the centre for sukuk origination as over 60 per cent (USD32 billion) of the outstanding
sukuk issuance globally was originated from Malaysia. We have also seen that multi-lateral agencies
have begun to tap the Malaysian market and our recent move to liberalise foreign currency
denominated financial instruments to be issued out of Malaysia provides a strong catalyst in facilitating
the international sukuk market. I would like to urge the industry players to take this opportunity and
establish strategic alliance and form syndicates to market these products particularly in view of the
growing infrastructure and construction projects being undertaken in the Middle East.
Government facilitative policies are also an important enabler to accelerate the growth and support the
development of the industry. Apart from establishing strong legal and Shariah framework, the
Government has also laid down conducive tax legislative that accords tax neutrality treatment for
Islamic finance transaction. The recent initiative to position Malaysia as an International Islamic
Financial Centre, will further spur the business environment thus contribute to create more conducive
landscape. This initiative will bring in more players, enhance competition and encourage new
diversified products and services, especially in international currencies.
This rapid growth and positive performance achieved thus far signifies one of our major
accomplishments over the last two decades in Islamic banking and finance. The robust growth of
Islamic finance industry today augments the collaborative efforts within the industry to move in tandem
to strengthen the position of Islamic finance in Malaysia. As Islamic banking and finance in Malaysia
journeys towards global integration and international acceptance, there are key areas in the banking
industry that needs to be enhanced to progressively support future development moving forward. Of
importance, is the need to effectively engage other stakeholders through various means and
approaches including promotional activities and strategies. It is imperative that the approaches
adopted to be dynamic and innovative so as to ensure consistency and relevancy with the rapid
development of the industry.
The KLIIFEX 2006 is well-positioned to be the platform to effectively engage with key stakeholders; i.e.
consumers, relevant agencies, scholars and intermediaries. Communication and direct interface with
these key stakeholders will advance towards effective dissemination of information to promote greater
awareness and appreciation on Islamic finance to create a more literate society on the virtues and
benefits of Islamic banking and finance.
The organising of KLIIFEX 2006 has some embedded key values and essence that need to be
strengthened moving forward. The most significant is the strong alliance among the players within the
industry as well as with the relevant institutions including educational, training and research
institutions, knowledge centres and other professional bodies in promoting the development of the
industry. Islamic finance will achieve greater heights with the collaborative efforts of all relevant
parties, especially those outside the industry. The existence of these networks and linkages is a
catalyst towards strengthening the landscape for future innovations and advancements in Islamic
banking and finance at the domestic and international fronts.
The second essence of KLIIFEX 2006 is the involvement of international players, particularly with the
participation of foreign exhibitors in this year's event. As the cross border trades and international
Islamic finance activities intensify, strong interlinkages among the domestic and international players
are crucial. Leveraging on the significant inroads and growing global recognition enjoyed by Malaysian
players, this event will accord opportunities for the players to understand each other's strength and
capabilities that would lead to more strategic alliance in the area of Islamic finance. This is certainly
relevant in our effort to enhance the position of Malaysia as an international Islamic financial centre
(MIFC). The players should seize the opportunity to increase interactions towards finding the right
partners and exploring strategies and that are able to capitalise on tax incentives and other
operational flexibilities accorded under MIFC to position Malaysia as an international centre of
origination and issuance of Islamic financial instruments, fund and wealth management, Islamic
financial activities in international currencies and takaful and retakaful businesses.
Thirdly, KLIIFEX 2006 also provides opportunities to present relevant, pertinent and timely information
on Islamic finance to different levels of key stakeholders. In the era where customers are becoming
more discerning and demanding greater product differentiation and value added services, it is
imperative for the Islamic financial institutions to provide information that is beyond the features of the
specific product. The information must be timely, easily comprehensible and at an appropriate depth
so as to comply with the disclosure requirements required under the corporate governance practices
for Islamic financial transactions as well as to facilitate comparability of products by the consumers. It
is our collective responsibility to enhance the public's understanding and appreciation on the features
of Islamic banking and takaful products and the Shariah wisdom associated with them. All players
need to capitalize on these initiatives for the financial industry to achieve sustainable success and
unleash the potential gains of the Islamic finance in Malaysia and abroad.
I wish that the KLIIFEX 2006 and subsequent years will be the platform to fully realise the essence
and aspirations and propagations that I have mentioned earlier.
I also wish that our commitment to achieve future success of the industry as reflected in this event by
the joint efforts and collaboration of the regulators, the industry, the market participants and the
relevant parties will be further enhanced moving forward. In this regard, I would again congratulate
AIBIM on its continuous effort undertake the initiatives in promoting Islamic finance, particularly by
organizing this event.
On this note, I wish you a successful and eventful week.
Dengan lafaz Bismillahirrahmanirrahim, saya dengan sukacitanya merasmikan pelancaran "Kuala
Lumpur International Islamic Financial Expo 2006".
Thank you.