Abdul Rasheed Ghaffour: Keynote address - Third Fitch Ratings
Islamic Finance Symposium 2024
Keynote address by Mr Abdul Rasheed Ghaffour, Governor of the Central Bank of
Malaysia (Bank Negara Malaysia), at the Third Fitch Ratings Islamic Finance
Symposium 2024, organised by Fitch Ratings, Kuala Lumpur, 6 March 2024.
* * *
It is my great pleasure to be part of this Symposium, and my thanks to Fitch Ratings for
the invitation. This gathering offers an excellent platform for us to continue important
conversations about the growth prospects for Islamic finance against the current
environment of tight global financial conditions.
Growth prospects for the global Islamic financial system
Global Islamic finance assets are estimated to have reached USD4.5 trillion in 2022
1
and are projected to reach USD6.7 trillion in 2027. The industry has grown more than
twofold compared to a decade ago. Almost 60 countries now have Islamic finance
2
regulations, with several new markets in Asia and Africa exploring to introduce Islamic
financial services.
The prospect for expansion of the global Islamic economy remains promising.
Furthermore, the intrinsic values of Shariah that promote a balanced distribution of
wealth and value of ihsan (the act of doing good and performing one's duty in the best
possible way) are imperatives to achieve inclusive growth. Strong demand for halal
industry and impact-driven finance, offer significant opportunities for the industry to play
a bigger role in intermediating investments across markets. Deepening the
development of Islamic financial markets will be an integral component to this
aspiration. There are three important priorities that will unlock a stronger role of Islamic
finance in supporting global financial intermediation:
a. First, to strengthen the vibrancy and depth of Islamic financial markets. This
includes ensuring regulatory clarity and industry coherence, as well as instrument
diversification are in place;
b. Second, to advocate for system-wide alignment to value-based finance and
universal principles of Shariah for sustainability across all sectors. And this needs
to be supported by clear demonstration of measurable impact; and
c. Third, is to unlock impactful innovation via diverse Shariah contract structures
including deployment of blended finance, supported by an enabling ecosystem
and circle of expertise.
Islamic finance a driving force in shaping Malaysia's sustainable
economic growth
These priorities are also very much aligned with Malaysia's Financial Sector Blueprint.
In strengthening Malaysia's global position as an Islamic finance gateway, efforts are
intensified in strengthening the vibrancy of the Islamic financial markets via instrument
diversification and providing regulatory clarity. These aim to widen the range and
volume of Shariah-compliant investable assets including to international investors. Over
the past half-decade, Malaysia's sukuk market has grown about USD70 billion (RM332.
3 billion) or 35% to an outstanding amount of USD267.5 billion (RM1.27 trillion). Foreign
participation in Malaysia's sukuk market now stands at total investments of USD12.6
3
billion (RM59.6 billion). Building from this progress, the Islamic Financial Market
Subcommittee (IFMC) set-up by the Central Bank has also been tasked to explore
strategies to enhance foreign investors participation in domestic sukuk issuances. We
look forward to welcoming increasing participation from around the globe in the times
ahead. One key progress of the IFMC is in the area of hedging. This has led to a
Shariah Advisory Council ruling on the permissibility of anticipatory hedging, subject to
specified conditions. This is aimed at further developing the Islamic derivatives market,
ensuring that it aligns with both Shariah principles and prudent risk management
practices. We are also establishing a stronger collaboration with the GCC and Asian
countries to advance mutual development in Islamic finance. These efforts will
strengthen Malaysia's position to be the Islamic finance gateway to the GCC and OIC
markets.
Global investors stand to benefit from investing in Malaysia and
participating in sustainable economic prospects
This brings me to Malaysia's broader growth prospects, and the investment
opportunities it presents in the area of sustainability.
The Malaysian economy is projected to grow at 4-5% in 2024, supported by robust
domestic demand and an improvement in the external sector. The improving global
economy together with the tech upcycle are benefitting our exports, especially since
Malaysia is a dominant player in the global semiconductor industry.
In 2023 alone, a total of about USD70 billion (RM329 billion) investment was approved
with foreign direct investment accounting for 57%. Almost 74% of the projects approved
4
between 2021 - 2023 have also been realised. Last year, Malaysia's National Energy
Transition Roadmap (NETR) and the New Industrial Masterplan (NIMP) were
introduced, solidifying further our focus on the sustainability agenda and our
commitment to bolster the nation's manufacturing sector. These will place Malaysia on
a solid ground for its sustainable growth path. The NETR detailed ten flagship catalytic
projects and initiatives to transition the energy sector. Given its scale, the
implementation of these two plans is estimated to require both public and private
financing of about USD210 billion (over RM1 trillion) by 2050. Part of this financing will
be met through Islamic finance product offerings including Shariah-compliant ESG in
the Malaysian sukuk market. More broadly, the ASEAN region has significant financing
needs for the sustainability agenda. New investors to the region can use Malaysia as a
base to meet the financing demands of the region, given our comprehensive Islamic
finance ecosystem.
A key strength of Malaysia is our external sector resilience. This is contributed by a
current account surplus, a manageable level of external debt, a net external asset
position and an adequate level of international reserves. This has enabled Malaysia to
weather the volatile global financial conditions from a position of strength, and has
ensured the domestic financial markets continue to remain orderly.
The Government is committed to ensure fiscal sustainability through several fiscal
reform initiatives. This includes The Public Finance and Fiscal Responsibility Act (FRA)
and the Medium Term Fiscal Framework (MTFF) which will support the paring down of
the fiscal deficit to between -3.0% and -3.5% of GDP by 2025. This will be supported by
both revenue enhancements and expenditure optimisation, including broadening the tax
base.
Notwithstanding this, the Malaysian ringgit has been under pressure since 2022, largely
influenced by the aggressive policy rate adjustments by the US Federal Reserve. This
phenomenon is not specific to Malaysia but reflects broader currency market dynamics.
Given our positive growth prospects, the current ringgit level is undervalued. This is
unwarranted, as the ringgit is also supported by sustained investor confidence,
evidenced by the stable long-term government bond holdings by non-residents at
around 22%, and recent foreign inflows into domestic equities.
We are highly resolved to ensure that the ringgit remains stable. The Government of
Malaysia and Bank Negara Malaysia are undertaking coordinated actions to further
increase flows into the foreign exchange market on a sustained basis. Specifically, we
have elevated our engagements with our Government-Linked Companies (GLCs) and
Government-Linked Investment Companies (GLICs) to encourage more consistent
repatriation and conversion of their foreign investment income. We are also stepping up
our engagements with international investors, such as yourselves, to showcase the
positive prospects of Malaysia and that Malaysia remains highly attractive for
investment and business.
Thus, with the current ringgit undervaluation and ongoing and forthcoming investment
opportunities, global investors stand to reap the benefits from participating in Malaysia's
growth prospects.
Ladies and gentlemen,
Malaysia looks forward to collaborating with other markets and international
stakeholders, as the transition to a sustainable economy requires a global collective act.
I trust this Islamic Finance Symposium will provide us invaluable insights and outlooks
of the market that will undoubtedly contribute to our roles within our respective domain.
In May this year, Malaysia will also be hosting a global forum focusing on applications
of Islamic economics and finance in shaping a more resilient, sustainable and equitable
global economy. Further details will be announced soon and all are welcome to join.
Continued intellectual discourses on pertinent issues and forward-looking ideas, will
InsyaAllah, pave us for continuous improvement. On this note, I wish you all a
productive discourse ahead.
1
Source: ICD-LSEG Islamic Finance Development Report 2023.
2
Refers to the number of countries with at least one type of Islamic finance regulation.
Source: ICD-LSEG Islamic Finance Development Report 2023.
Source: BNM FAST and Securities Commission Malaysia, data as of end December
2023.
4
Source: MIDA, February 2024.