Mohd Razif bin Abd Kadir: Islamic financial services industry -
developments in Malaysia
Speech by Mr Mohd Razif bin Abd Kadir, Deputy Governor of the Central Bank of Malaysia,
at the Signing Ceremony of Memorandum of Participation for Commodity Murabahah House,
Kuala Lumpur, 28 July 2009.
* * *
It is my great pleasure to be here today at the Signing Ceremony of Memorandum of
Participation for Commodity Murabahah House (CMH). This event, jointly hosted by Bank
Negara Malaysia and Bursa Malaysia, marks another milestone in the development of the
Islamic financial services industry. This pioneering effort, mooted about two years ago, is a
collaborative initiative of Bank Negara Malaysia, Securities Commission of Malaysia (SC),
Bursa Malaysia and the market players under the MIFC initiative. CMH, which is scheduled
to be launched in mid-August, is a purposefully designed exchanged-traded platform to
facilitate commodity murabahah transactions. It is the first internet based platform in the
world with crude palm oil (CPO) as its underlying base commodity. I am also pleased to note
here that CMH has received the endorsement of the Ministry of Plantation Industries and
Commodities and is supported by the Malaysian Palm Oil Board (MPOB), Malaysian Palm
Oil Association (MPOA) and Malaysian Palm Oil Council (MPOC) as well as the CPO
industry players.
CMH will provide another dimension to the already robust liquidity management
infrastructure of the Islamic banking industry in Malaysia; thus providing market players with
greater tools to manage their assets and liabilities. CMH is expected to unlock a vast
potential of opportunities for the Islamic financial industry. It can provide a wider range of
new instruments not only for liquidity management and risk management purposes but
players can derive additional linkages by utilising CMH to facilitate issuance of sukuk and in
the creation of financing and deposit products.
Besides having the potential of providing wider product selections, CMH could create a more
transparent and streamlined commodity transaction practices based on the concept of
murabahah or tawarruq. Leveraging on the experience of Bursa Malaysia in the area of
exchange traded products, CMH is able to eliminate uncertainty in the transactions and could
mitigate risks such as legal risk, market risk and counter-party risk.
We are most grateful to the CPO suppliers for participating in this initiative. For CMH to be
successful, it requires the cooperation of the players in the CPO market. With greater
involvement of players in the commodity industries, CMH would be able to unlock the
potential of your business operation by enabling the stocks to be exploited for this exchanged
traded mechanism. The success of the CMH depends on the continuous support of the CPO
suppliers. The CMH could also explore the possibility of sourcing CPO supplies from
abroad.
This innovative effort which has been endorsed by the Shariah Advisory Council of Bank
Negara Malaysia and the Securities Commission has the potential to appeal to a wider
market audience in and outside of Malaysia. The CMH, which will showcase the
sophistication of Malaysia's Islamic financial industry, has tremendous global potentials. As
the CMH is designed to be a multi-currency platform, it could enhance liquidity and risk
management capacity of the international Islamic banking community. Furthermore, it could
be harnessed into a cost effective global platform to develop universally acceptable Islamic
financial products for the financial and capital market. Overtime, in making CMH into a truly
global exchange, the scope of the exchange-traded product offerings could be expanded to
include other commodities and the level of participation should be expanded to include
players from outside the financial services industry as well.
The MIFC initiative which was launched in 2006 has the objective to internationalise
Malaysia's Islamic financial industry and integrate it with the global Islamic financial system.
Thus, for the MIFC, CMH provides an important link to elevate further the capacity of
Malaysia to serve as a global hub for Islamic finance. It will support the development of a
strong network with other financial centres and increase the inter-linkages. The CMH could
play a significant role under this initiative by facilitating the capital and liquidity flows from one
financial centre to the other. It is envisaged that CMH could be a component to alleviate the
problems arising from a lack of cross-border inter-bank transactions currently faced in the
global Islamic financial landscape. Eventually, by enabling the flows of funds amongst the
global Islamic financial institutions, this would increase the inter-dependency and networking
amongst themselves.
Now I wish to update on the progress of the MIFC. Malaysia is still the largest sukuk market
commanding over 60% of the global sukuk market. For the year ended 2008, new sukuk
issuance in Malaysia was the highest globally at over 36 percent. Currently there are 9
Islamic fund management companies that have been approved by SC to set up business.
Within the MIFC community, there are also 14 Islamic banks with international currency
business units (ICBU) and three international Islamic banks (IIB). To further entrench the
Islamic financial market, the government has recently announced a number of liberalisation
policies to enhance global linkages and accelerate the realisation of the MIFC agenda. The
announcement includes the offering of two mega Islamic banks licences, where they will
predominantly be wholesale Islamic banks undertaking to a large extent international Islamic
financial business. Furthermore, two family Takaful licences are being offered. For the
existing Islamic banks, the government is giving flexibility to increase the foreign equity
participation to 70% of shareholding. Furthermore, 5 foreign legal firms will also be allowed to
set-up operation in Malaysia.
Today, with signing of the memorandum of participation marks the beginning of a new
chapter in Islamic finance. I would encourage each stakeholder, particularly Bursa, to exploit
the vast potentials of this new entity and take this opportunity to enhance research and
product development capacities. Going forward the long term viability of BCH will depend on
its ability to create a wide range of innovative product offerings that are endorsed by globally
renowned Shariah scholars and on the continuous strong support from the key stakeholders.
On that note, allow me to congratulate the parties involved in today's signing of
Memorandum of Participation - the Commodity Murabahah House, participating Islamic
banks and the CPO suppliers - for showing and giving your commitment to making the CMH
a reality. Also I wish to take this opportunity to extend my deepest appreciation to the team at
Bursa Malaysia, Bank Negara and SC who had conceptualised the idea and all other
stakeholders who have worked hard to make this noble initiative come true, insyaAllah.