Islamic finance has gained global recognition that has evolved into an industry for its role as enabler to a driver of economic growth. Malaysia has retained a consistent global Sukuk market share of more than 50% over the last 10 years and continues to be a leading marketplace in Islamic finance industry. This is mainly because Malaysia having a large Islamic finance asset base, a large number of Islamic finance institutions and funds, and most important is to having a strongest regulatory framework and highest awareness about Islamic finance than other countries. Malaysia establishing itself to become the indisputable global hub for Islamic finance. The Islamic financial system in Malaysia has been regarded as one of the most comprehensive system in the world. On 2012, Ministry of Finance stated that Malaysia has the most establish Shariah regulatory and legal infrastructure which offers a comprehensive coverage of Islamic financial services across banking Takaful and capital market, including innovative products.
The development of Malaysia’s Islamic financial services industry has been gradual and structured and largely led by government and regulators, which provide enabling environment for Islamic finance as a dynamic industry. According to Hassan Kamil, Managing Director of Syarikat Takaful Malaysia, Malaysia government support is critical and key to what Islamic financing system has achieved for the last 10 or 15 years in Islamic finance. Malaysia government are setting target by 2020, all government business dealing will be Islamic based and this will encourages more financial institutions to geared strategy towards Islamic finance as opposed to conventional. With that, Islamic finance can be the most important economic indicator of financial institutions of Malaysia in future. Other target that set by the government to promote Islamic finance is increasing the global share of Islamic banking assets from 8% in 2009 to 13% in 2020, increasing Islamic financing’s share of total financing in Malaysia from 29% in 2010 to 40% in 2020 and propelling at least one Islamic financial institution to become one of the global top 10 players by asset size by 2020.
With these target, Malaysia’s Islamic finance industry could outpace conventional banks’ loan growth that driven by the regulatory push to fortify domestic Islamic banking entities to enhance Malaysia’s global competitiveness.In the video, Fara Mohamed, Director of IF, Foot Anstey mentioned that government of Malaysia have come up with acts and regulatory specially for the Islamic finance industry. One of the acts is Islamic Financial Services Act 2013 (IFSA) The implementation of IFSA are transitioning the Islamic banking industry within Malaysia to a new phase of development. The main objective of IFSA is to promote financial act and compliance with the Shariah principle.
This move signifies the commitment of the government of Malaysia to advance Malaysia’s position as an Islamic finance hub and centre of reference of Islamic banking industry. Islamic finance industry are closely linked with the conventional system, the real potential of configurations of Islamic finance cannot be actualized. On the contrary, it actually develop the ability to transmit the vulnerabilities and shocks of the conventional finance to the real economy. According to Lord Mohamed Sheikh, Chairman or Macmillan Sheikh plc, Islamic finance are used in investment which does good deeds to the community. Since Islamic finance doesn’t involve interest and riba, Islamic finance could fulfilling its function not only providing the Islamic financial services but also helping the country in promoting in enhancing its social work.Islamic finance has spread as an effective tool for financing development worldwide including in non-Muslim countries. Lord Mohamed Sheikh said in the video that there are number of non-Muslim that actually subscribe to Islamic finance and Islamic finance product are not confined merely to Muslim but non-Muslim as well.
This show that non-Muslim are starting to take interest in Islamic financing system and would be a good sign to the Islamic finance industry. Since Malaysia also consists of non-Muslim citizen, Malaysia can help reduce the overall gap in access of Islamic banking system between Muslim and non-Muslim.In overall, Islamic finance industry plays an important role in the growth economy of Malaysia.
Islamic finance would help strengthen financial stability of Malaysia. As the 2008 global financial crisis ravaged financial system around the world, Islamic financial system institutions were relatively untouched protected by their fundamental operating principles of risk sharing and the avoidance of leverage and speculative financial product, (The World Bank, 2015). Other than that, Islamic finance is equity-based, ethical environmentally and socially-responsible financing system and connects the financial sector with the real economy and emphasizes financial inclusion and social welfare.