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 599

Chapter 25
THE DEVELOPMENT OF ISLAMIC FINANCE
IN MALAYSIA
by Mohd Zakhiri Md Nor, Ani Munirah Mohamad & Hakimah Yaacob

25.1 Islamic Finance Industry

25.2 Growth of Islamic Banking and Finance
25.3 Takaful – The Preferred Choice
25.4 Islamic Securities – The Way Forward
25.5 Conclusion
 The Development of
600 Islamic Finance in Malaysia
 601

Chapter 25
THE DEVELOPMENT OF ISLAMIC FINANCE IN
MALAYSIA
by Mohd Zakhiri Md Nor*, Ani Munirah Mohamad** & Hakimah Yaacob***

The Islamic finance industry has gained popularity and captured the attention of
people all over the world. Today, Malaysia appears to be one of the leading Islamic
finance players in the world, since the passing of the first legislation of Islamic
finance in 1983 i.e. the Islamic Banking Act 1983.1 The industry continues to progress
until today, further promising robust development in the coming future. This chapter
will discuss the development of the Islamic finance industry in Malaysia based on
the three main sectors which are increasingly gaining popularity and visibility: banking
and finance, takaful and securities.

25.1
Islamic Finance Industry
The growth rate of Islamic finance in Malaysia is impressive by any standards. Hence,
Malaysia has the capacity to retain its leadership in global Islamic finance, despite the
emergence of competition from centers such as Bahrain and Dubai.2 There are a
large number of diverse players and institutions in the Islamic financial system in
Malaysia, from retail to commercial Islamic banking and finance, to general and life
takaful insurance and to sectors of the Islamic capital market. There has also been
growing of products and services being offered, becoming competitive both in
terms of product structure and pricing.3 All these have increased the attractiveness
of the Islamic financial instruments as an asset class for investments, attracting both
local and foreign investors.

* Senior Lecturer, Universiti Utara Malaysia.

** Lecturer, Universiti Utara Malaysia.
*** Associate Fellow at the International Institute of Advanced Islamic Studies (IAIS) Malaysia.
1 The Islamic Banking Act 1983 has been repealed by the Islamic Financial Services Act 2013 (IFSA),
which is currently being in force.
2 Yong, Y. N., ‘Malaysia: Way ahead in Islamic Finance’, (2007), The Edge Daily.
3 Abd Razak, D. and Abdul Karim, M. A., ‘Development of Islamic Finance in Malaysia: A Conceptual
Paper’, paper presented at the 8th Global Conference on Business & Economics, 18-19 October 2008,
Florence, Italy.
 The Development of
602 Islamic Finance in Malaysia

Tracking the development of the Islamic finance industry in Malaysia, it is notable to

mention that Malaysia adopts the holistic approach to the implementation of Islamic
finance, owing contribution from every industry player, including Bank Negara
Malaysia, independent advisory governmental bodies, financial institutions, accountants,
auditors and legal practitioners and last but not least, the consumers.
This holistic approach can be divided into several phases, the first being set for
instituting the foundation from the year 1983 to 1992. During this phase, several
dedicated legislations have been formulated and passed to govern the operations
of Islamic banking, takaful and Shari’ah-compliant government funding. In addition,
the first full-fledged Islamic bank was established in 1983, known as Bank Islam
Malaysia Berhad, followed by the first full-fledged takaful company, Syarikat Takaful
Malaysia Berhad, established in 1984.
The second phase ranged from the year 1993 to 2000 which allowed for the
institutional building, activity generation and market vibrancy. This phase witnessed
legislative amendments being made to allow for the operations of Islamic banking
windows at commercial banks, whereby the then Finance Minister allowed Bank
Bumiputra Malaysia Berhad (BBMB), United Malayan Banking Corporation (UMBC)
and Maybank to open Islamic banking windows in March 1993. Apart from that,
this phase also witnessed the establishment of the Association of Islamic Banking
Institutions Malaysia (AIBIM) in 1995, the National Shari’ah Advisory Council in
1997 to expedite the expansion of products and services of Islamic banking and
finance, as well as the Islamic Interbank Money Market. In 1999, Bank Muamalat, as
the second Islamic bank in Malaysia was formed due to a merger between BBMB
and Bank of Commerce to form Bumiputra-Commerce Bank.
The third phase ranged from the year 2001 to 2010, which synchronised the strategic
positioning and international integration of the whole Islamic financial framework
in Malaysia to international standards. This phase witnessed the setting up of the
overall objective, including the creation of an efficient, progressive and comprehensive
Islamic financial system. In addition, the government has identified a four-pronged
strategic approach for the further development of Islamic finance in Malaysia,
consisting of plans for the development of the regulatory framework, legal and
Shari’ah frameworks, the development of products and markets and the enhancement
of knowledge and expertise.
The year 2002 marked another milestone in the development when Bank Negara
Malaysia launched the Financial Sector Master Plan, which later became the main
agenda for the achievement of the players in the industry. Apart from that, the
 Islamic Finance Industry 603

domestic Islamic financial sector became liberalised to allow for the entry of foreign
players and Islamic subsidiaries. Further, the industry players all continue to work
hand in hand to integrate with the international Islamic financial sector.4
In June 2004, Bank Negara Malaysia announced that they have issued three Islamic
full-fledged banking licenses to Kuwait Finance House (KFH), Saudi Arabia’s
Al Rajhi Investment Bank, and Qatar Investment Group. This major development
marked the penetration of foreign Islamic banks into the arena of the Malaysian
Islamic financial sector.
In terms of formulating standards to govern the Islamic financial industry in Malaysia,
in 2002, we saw the establishment of the Islamic Financial Services Board (IFSB) as
the international prudential standard setting body for the Islamic finance industry.
The work of the IFSB has been crucial to support the orderly global expansion of
Islamic finance thus ensuring a cohesive cross-border regulatory framework and
international best practices for the Islamic financial system.5 A more recent initiative
to support the role of the IFSB in promoting the financial stability of Islamic finance
is the landmark establishment of the Islamic Financial Stability Forum (IFSF). Formed
with the mandate to serve as a platform for information exchange and engagement
between the authorities responsible for financial stability in the Islamic financial system,
the forum has a major role in promoting effective cross-border cooperation.6 In
addition, another important milestone is being achieved with the establishment of
the International Islamic Liquidity Management Corporation (IILM), a liquidity
management infrastructure to enhance the capacity of Islamic finance in facilitating
efficient cross-border flows. This represents another major breakthrough for the
Islamic financial services industry, as IILM will enable more effective liquidity
management not only for the Islamic financial institutions but also for the management
of Islamic financial portfolios.7
The fourth stage, which is the present stage, beginning from 2011 until now, witnesses
further exponential growth of the Islamic finance industry in the country. Malaysia
emerged tops on various checkpoints for Islamic finance in a newly released global

4 Abdul Kadir, M. R., ‘Islamic Finance in Malaysia – Evolution and Current Development’, speech by
Deputy Governor of Bank Negara Malaysia at the University of Bahrain, Bahrain, 15 October 2009.
5 Zeti Akhtar Aziz, Governor’s Welcoming Address at the Global Islamic Finance Forum 2010, Kuala
Lumpur, 2 October 2010.
6 Ibid.
7 Ibid.
 The Development of
604 Islamic Finance in Malaysia

measurement of the industry, scoring high points for areas like sukuk growth and
performance, Islamic mutual funds market, and the level of education and research,
outperforming Bahrain, Jordan, Kuwait, United Arab Emirates, and Oman. Malaysia
scored 93 out of 100 in the Islamic Finance Development Indicator (IFDI), which
badges itself as the world’s ‘first and only indicator’ that measures development of
the Islamic finance industry holistically beyond earnings, profits and asset sizes.
In this respect, one of the most significant developments in the Islamic banking and
finance industry during this phase is the introduction of the Islamic Financial Services
Act 2013 (IFSA) which repealed the Islamic Banking Act 1983 and the Takaful Act
1984. The IFSA provides Bank Negara Malaysia (BNM) with the necessary regulatory
and supervisory oversight powers to fulfil its broad mandate within a more complex
and interconnected environment, given the regional and international nature of financial
developments. The law is also expected to place Malaysia’s financial sector, on a
platform for advancing forward as a sound, responsible and progressive financial
system. The IFSA has provided the BNM with statutory duty to foster fair,
responsible and professional business conduct amongst financial service providers.
The IFSA is expected to promote robust financial consumer protection regime
particularly in the aspect of unfair and deceptive business conduct and disclosure
obligations and to provide clear demarcation between conventional and Islamic
banking.
On another note, it is important to highlight the legal consequence of IFSA on
corporate governance framework for Islamic financial institutions (IFIs). Generally,
the IFSA provides a clearer and more comprehensive set of provisions for corporate
governance for IFIs. The IFSA vests the BNM with wide ranging powers to issue
standards, which are binding upon every director, officer or Shari’ah committee
member of the institution. More importantly, s. 28(6) of IFSA provides that a failure
to comply with the standards issued is an offence under the Act and carries with a
maximum penalty of eight years imprisonment or a fine of RM25 million or both.
In other words, this provision potentially exposes board or directors, management,
officers and even Shari’ah committee members with heavy penalties including
imprisonment. Therefore, IFIs are required to be more vigilant and diligent in carrying
their business which failure may lead to potential jail terms and heavy fine to their
personnel.
 Islamic Finance Industry 605

Shari’ah governance is another developed areas of Islamic finance in Malaysia.

Numerous efforts either top down initiatives by the BNM or bottom up endeavour
by the practitioners shape the practice of Shari’ah governance. The International
Shari’ah Research Academy for Islamic Finance (ISRA), International Centre for
Education in Islamic Finance (INCEIF) and various higher learning institutions have
been at the forefront in improving the Shari’ah governance related matters including
research and development. The establishment of the Association of Shari’ah Advisors
initiated by members of Shari’ah scholars further stimulates the degree of
professionalism and talent development of Shari’ah advisors and committee members
in Islamic finance.
Evidently, Malaysia has a strong foundation and systematic plans for the further
development of the Islamic financial sector in Malaysia. Indeed, a robust and effective
regulation and supervision of Islamic financial institutions is the key to preserving
financial stability.8 With this financial infrastructure in place, Malaysia has recently
intensified its pace of liberalisation. In April 2009, the government announced further
liberalisation measures that included new licenses to be offered in Islamic banking
and takaful. To be more specific, three new mega Islamic banking licenses has been
issued to foreign players with a minimum paid up capital of USD1 billion to enhance
global interlinkages and leverage on global developments in Islamic finance. Existing
domestic Islamic banks that wish to scale up their operations and expand into global
markets are also given greater flexibility to enter into strategic partnerships with
foreign players to raise their capitalisation to USD1 billion with a higher foreign
equity limit of up to 70%.9
Bearing in mind the importance of strengthening the infrastructure to support the
further development of the Islamic financial industry in addressing the institutional
capacity both at the national and international levels, Bank Negara Malaysia has
identified eight building blocks which address the core foundation for the
development of Islamic finance:10
(1) ensuring the effective implementation of the prudential standards;

8 Zeti Akhtar Aziz, Governor’s Address at the Malaysia-UK Islamic Finance Forum, Kuala Lumpur,
8 July 2009.
9 Ibid.
10 Zeti Akhtar Aziz, ‘The Transformation of the International Financial System and the Role of the Islamic
Financial System’, Governor’s Keynote Address at the 6th World Islamic Economic Forum, Kuala Lumpur,
20 May 2010.
 The Development of
606 Islamic Finance in Malaysia

(2) the development of systemic liquidity management infrastructure;

(3) the establishment of strong financial safety nets;
(4) putting in place an effective crisis management and resolution framework;
(5) strengthen further the accounting, auditing and disclosure standards;
(6) having an effective macro prudential surveillance in place;
(7) having credible credit rating institutions and processes; and
(8) enhancing close international cooperation and coordination among countries
including in capacity building and talent development to support efforts at
the national level to ensure financial stability.
In terms of sound legal and regulatory framework for the Islamic banking and
finance industry in Malaysia, it appears that the legal aspects in Islamic finance represent
an important ‘bridge’ between the governing Shari’ah principles and the practice of
Islamic finance. The application of Shari’ah principles in the light of the governing
laws and regulations in each Islamic financial transaction are interpreted through
legal advice, in legal documentation of the financial transactions, and dealing with
disputes. 11 Henceforth, it is inevitable that the solicitors drafting the legal
documentations in respect of Islamic banking and financial products to truly reflect
the intention of the parties in any particular Islamic transaction.
The next sections will deliberate on the development of each of the three major
industries in the Islamic banking and finance fraternity, being: (i) Islamic banking and
finance; (ii) takaful; and (iii) Islamic securities.

11 Zeti Akhtar Aziz, ‘Legal Issues in the Islamic Financial Services Industry’, Governor’s speech at the
4th IFSB Seminar on Legal Issues in the Islamic Financial Services Industry, Kuala Lumpur, 28 September
2009.
 Growth of Islamic Banking and Finance 607

25.2
Growth of Islamic Banking and Finance
Prior to the year 2000, there were only two full-fledged Islamic banks in Malaysia,
Bank Islam Malaysia Berhad which was established in 1983 and Bank Muamalat
Malaysia Berhad in 1999. After 20 years, the number has increased to more than
eight times thereof. Currently in the year 2016, there are 16 full-fledged Islamic
banks operating in Malaysia, which are produced as follows:
(1) Affin Islamic Bank Berhad;
(2) Al Rajhi Banking & Investment Corporation (Malaysia) Berhad;
(3) Alliance Islamic Bank Berhad;
(4) AmIslamic Bank Berhad;
(5) Asian Finance Bank Berhad;
(6) Bank Islam Malaysia Berhad;
(7) Bank Muamalat Malaysia Berhad;
(8) CIMB Islamic Bank Berhad;
(9) Hong Leong Islamic Bank Berhad;
(10) HSBC Amanah Malaysia Berhad;
(11) Kuwait Finance House (Malaysia) Berhad;
(12) Maybank Islamic Berhad;
(13) RHB Islamic Bank Berhad;
(14) Standard Chartered Saadiq Berhad;
(15) Public Islamic Bank Berhad; and
(16) OCBC Al-Amin Bank Berhad.
These Islamic banks offer a wide range of Islamic banking and financial products,
both retail and commercial, to a full spectrum of customers regardless of their
locality, race, religion, skin colour, political mindset or gender. The products prove
to have successfully attracted customers of all walks of life, both local and foreign.
They include both deposit and financing products based on the Islamic concepts
including mudarabah, musharakah, Bay’ Bithaman Ajil and istisna.
 The Development of
608 Islamic Finance in Malaysia

Malaysia’s Islamic banking assets reached RM487.158 billion as at December 2014,

as compared to RM131.908 billion in December 2006.12

As at end Total Islamic banking

of December assets (RM/billion)
2006 131.908
2007 156.810
2008 192.682
2009 233.656
2010 267.631
2011 328.649
2012 375.954
2013 433.563
2014 487.158
Table 25.1: How the size of assets in the Malaysian banking has
significantly doubled over a period of four years from 2006 to 2014
Source: Bank Negara Malaysia, available at www.bnm.gov.my
Based on Table 25.1, we can conclude that there is a significant increase of total Islamic
banking assets right from the end of December 2006 up to the end of December 2014.

500 487.158

450
 433.563
400
350
 375.954
 328.649
300
250  267.631
 233.656
200  192.682
150  156.81
 131.908
100
50
0
2006 2007 2008 2009 2010 2011 2012 2013 2014
Year

Figure 25.1: Total Islamic banking assets.

12 See Monthly Statistical Bulletin (Bank Negara Malaysia), December 2014.

 Growth of Islamic Banking and Finance 609

In terms of Islamic financial assets, presently, the total of Malaysia’s Islamic financial
assets stands at RM331.863 billion as at December 2014.13 These figures shows how
the funding size of Islamic finance in Malaysia has significantly increased more than
four times over a period of less than ten years from 2006 to 2014.

As at end Total Islamic finance

of December funds (RM/billion)
2006 73.368
2007 85.388
2008 104.630
2009 133.486
2010 159.239
2011 200.299
2012 236.623
2013 283.988
2014 331.863

Table 25.2: The total size of Islamic finance funds in Malaysia

as at December 2006 to December 2014
Source: Bank Negara Malaysia, available at www.bnm.gov.my

13 Ibid.
 The Development of
610 Islamic Finance in Malaysia

Based on Table 25.2, we can conclude that there is a significant increase of total
Islamic finance funds right from the end of December 2006 up to the end of
December 2014, as can be seen in figure 25.2 below.

400

350

331.863

300  283.988
250  236.623

200  200.299
150
 159.239
 133.486
100  104.63

 73.368 85.388

50
0
2006 2007 2008 2009 2010 2011 2012 2013 2014
Year

Figure 25.2: Total Islamic finance funds.

25.3
Takaful – The Preferred Choice
Adopting the concept of risk-sharing, as opposed to risk-transfer as practiced by
conventional insurance, takaful has over the years emerged as the preferred choice
for protection, by both retail and corporate customers. At present, there are currently
11 takaful companies operating in Malaysia, and four retakaful companies.
Takaful companies:
(1) AIA Public Takaful Bhd;
(2) AmMetLife Takaful Berhad;
(3) Etiqa Takaful Berhad;
(4) Great Eastern Takaful Berhad;
(5) HSBC Amanah Takaful (Malaysia) Berhad;
(6) Hong Leong MSIG Takaful Berhad;
(7) MAA Takaful Berhad;
(8) Prudential BSN Takaful Berhad;
(9) Sun Life Malaysia Takaful Berhad;
(10) Syarikat Takaful Malaysia Berhad; and
(11) Takaful Ikhlas Berhad.
 Takaful – The Preferred Choice 611

Retakaful companies:
(a) MNRB Retakaful Berhad;
(b) Munchener Ruckversicherungs – Gesellschaft (Munich Re Retakaful);
(c) ACR Retakaful Berhad; and
(d) Swiss Reinsurance Company Ltd (Swiss Re Retakaful).
As of June 2014, the total assets of Malaysia’s general takaful industry amounted to
RM3.032 billion as compared to RM1.098 billion in 2006. Meanwhile, the total
assets of the family takaful amounted to RM18.922 billion in June 2014 as compared
to RM5.800 billion in 2006.14

As at General takaful assets Family takaful assets Total

end of (RM/billion) (RM/billion) (RM/billion)
2006 1.098 5.800 6.898
2007 1.373 7.445 8.818
2008 1.669 8.900 10.569
2009 1.909 10.536 12.445
2010 2.259 12.461 14.720
2011 2.571 14.377 16.948
2012 2.755 16.289 19.044
2013 2.982 17.952 20.934
June 3.032 18.922 21.954
2014

Table 25.3: The total size of takaful assets in Malaysia from 2006 to 2014
Source: Bank Negara Malaysia, available at www.bnm.gov.my

14 See ‘Annual Takaful Statistics 2009’, (Bank Negara Malaysia). See also Financial Stability and Payment
Systems Report 2013.
 The Development of
612 Islamic Finance in Malaysia

Similar as to the situation in the total Islamic banking assets, based on Table 25.3, we
can conclude that there is a significant increase of total Islamic takaful assets within a
time period of ten years right from the end of 2006 up to the end of 2014.

25
21.954

20
 20.934
 19.044
 16.948
15  14.72
 12.445
10  10.569
 8.818
 6.898
5

0
2006 2007 2008 2009 2010 2011 2012 2013 2014
Year

Figure 25.3: Total takaful assets.

It is admitted that the takaful industry exhibits high potential, as demonstrated by its
robust expansion with an annual growth rate of total assets and contributions
averaging between 20% and 26% over the period of 2004 to 2009.15 Globally,
Malaysia also signifies its presence in the takaful market, being the second largest
takaful market in the world with its total assets of USD3.2 billion dominated 26%
of total global takaful assets in 2009.16 The industry is expected to continue growing
by 15-20% annually, with contributions expected to reach USD7.4 billion by 2015.17
To advance relations in the area of Islamic finance and takaful, a memorandum of
understanding between the Central Bank of Malaysia and Japan Bank for International
Corporation (JBIC) was signed in 2007. There is also a strategic alliance between
one of the world’s largest Japanese insurance groups with a domestic insurance
company in Malaysia which resulted in the establishment of a takaful company.18

15 Mohd Razif Abd. Kadir, Keynote Address by Deputy Governor at the Official Launch of AIA AFG
Takaful Bhd, Kuala Lumpur, 28 January 2011.
16 Ibid.
17 See Bank Negara Malaysia, available at www.bnm.gov.my.
18 Zeti Akhtar Aziz, ‘Islamic Finance: Constant Evolution and Emerging Opportunities’, Governor’s Speech
at the Nikkei Islamic Finance Symposium 2008, Tokyo, 23 February 2008.
 Islamic Securities – The Way Forward 613

Apart from that, the composition of financial institutions will also show much greater
diversity. With banks, insurers and takaful operators offering higher value-added
services to serve the more sophisticated customers, along more developed venture
capital industry and angel funds providing risk capital for innovative firms, plus the
development of financial institutions stepping up to widen the base of financial
services to all Malaysians.19
On the regulatory front, regulations for the takaful industry will continue to focus on
ensuring effective risk management in the product development process and
operations of takaful operators. The takaful industry has been progressively on its
track to fully embark on the principle and risk-based supervisory approach that has
been implemented for the insurance sector. Indeed, a robust Shari’ah governance
framework is another important element to assist the takaful industry in achieving
full Shari’ah compliance in the development and application of their products and
services.20

25.4
Islamic Securities – The Way Forward
In its recent statistics released by the Securities Commission, the Malaysian Islamic
capital market is worth RM1.77 trillion as at June 2014. Following the revised screening
methodology, a total of 73.5% of companies listed on Bursa Malaysia (666 out of
906), collectively having a market capitalisation of RM1.08 trillion are deemed as
Shari’ah-compliant.
In relation to this, the Governor of Bank Negara Malaysia, Zeti Akhtar Aziz stated
that liberalisation of the financial markets in Malaysia is expected to attract more
foreign currency sukuk issuance by sovereign entities, multilateral institutions and
multinational corporations.21 This reveals part of the strategies put in place by the
government towards boosting the development of Islamic capital markets in Malaysia
and also on an international level.

19 Zeti Akhtar Aziz, Governor’s Keynote Address at the Financial Industry Conference 2010, Kuala Lumpur,
3 November 2010.
20 Ibid.
21 Zeti Akhtar Aziz, Keynote Address by the Governor of Bank Negara Malaysia at the launch of
Bloomberg’s Enhanced Islamic Finance Platform, Kuala Lumpur, 21 February 2011.
 The Development of
614 Islamic Finance in Malaysia

The following figure, explains the different Islamic contracts underlying sukuk issuance
in Malaysia in the first half of 2014 (January-June) with 82% of the entire sukuk is
based on murabahah, followed by 9%, 7% and 2% is based on musharakah, wakalah bi
al istithmar and ijarah respectively.22

Ijarah Wakalah bi al-Istithmar

2% 7%

Musharakah
9%

Murabahah
82%

Figure 25.4: Different Islamic contracts underlying sukuk issuance in

Malaysia from January-June 2014.

Whereas in relation to unit trust funds, as of December 2014, a total of 190 funds
have been approved by the Securities Commission of Malaysia, with 94.642 billion
units in circulation valued at RM46.660 billion, as opposed to a total of 97 approved
Islamic funds as at December 2006, with 18.474 billion units in circulation valued at
RM9.101 billion.23

22 See Source, Data and Statistics, Securities Commission Malaysia, available at www.sc.com.my.
23 Ibid.
 Islamic Securities – The Way Forward 615

As at end Total Islamic Units in Total Islamic

of December unit trust circulation funds size
funds (billion) (RM/billion)
2006 97 18.474 9.101
2007 128 36.272 16.785
2008 141 48.857 16.118
2009 150 56.848 22.080
2010 155 56.200 24.040
2011 167 61.212 27.860
2012 173 69.865 35.361
2013 184 80.312 42.822
2014 190 94.642 46.660

Table 25.4: The total size of Islamic unit trust funds in Malaysia as
at end of December 2006 to 2014
Source: Securities Commission of Malaysia, available at www.sc.com.my

Based on Table 25.4, the following figure could be derived as to show the significant
increase in the Islamic unit trust funds size as at the end of December 2006 up to the
end of December 2010.

50
46.66
45 
 42.822
40
35  35.361
30
 27.86
25
 22.08
24.04
20
15  16.785 16.118
10  9.101
5
0
2006 2007 2008 2009 2010 2011 2012 2013 2014
Year

Figure 25.5: Total Islamic unit trust funds size.

 The Development of
616 Islamic Finance in Malaysia

In the current environment of great uncertainty, both investors and issuers are in
search of financial products and services that require greater transparency and explicit
risk management. Shari’ah principles, in this respect, prohibit excessive leverage and
speculative financial activities and discourage excessive risks exposures, thus providing
the best solution for both local and international investors.24 The Shari’ah-compliant
products within the Malaysian financial markets include private equity, project finance,
the origination and issuance of sukuk, as well as fund, asset and wealth management
products. The sukuk market in particular, has become an important avenue for
international fund-raising and investment activities.25
Apart from that, to further boost the growth of Islamic securities market, Bank
Negara Malaysia and the government have paved the way for liberalisation of rules
with the view to allow for internationalisation of the market into global standards. It
is to enable foreign entities to raise the ringgit and foreign currency denominated
funds from our market. International issuers may thus issue multi-currency sukuk or
alternatively have the flexibility to swap domestic currency funding into other
currencies.

25.5
Conclusion
As stated by the then Deputy Minister of Finance, the implementation of an Islamic
financial system is not the end goal. It is, in fact, a means and tool of competitive
advantage for the ummah’s success, including economic-wise.26 Moving forward, the
Malaysian government will continue to invest in human capital development. It is
important for the Islamic financial services industry to constantly promote human
capital development and expertise to create a larger pool of experts and high calibre

24 Zeti Akhtar Aziz, ‘Islamic Finance: An Agenda for Balanced Growth and Development’, Governor’s
Luncheon Address at the IMF-World Bank Annual Meetings, Washington DC, 10 October 2010.
25 Zeti Akhtar Aziz, ‘Islamic Finance: A Global Growth Opportunity amidst a Challenging Environment’,
Governor’s Keynote Address at State Street Islamic Finance Congress 2008, Boston, 6 October 2008.
26 Nor Mohamed Yakcop, ‘Islamic Financial Market Development – the Malaysian Strategy’, Keynote
Address at the International Islamic Capital Market Conference, 26 March 2002, Kuala Lumpur.
 Conclusion 617

professionals. This involves enlarging not only the existing talent pool, but also building
a robust pipeline of skilled human resources for the future.27 In addition, to further
ensure sustainability of the resilience of Islamic finance, it is important to have
comprehensive enabling infrastructure that allows for the management of the risks
that are peculiar to Islamic finance. There is a need for Islamic financial system to
have the capital requirements, effective risk management and strong governance
that are fully equipped to manage the risks that are specific to Islamic financial
transactions.28 In this respect, Bank Negara Malaysia is committed towards promoting
human capital development.

27 Zeti Akhtar Aziz, ‘Islamic Finance: A Central Bank’s Perspective’, Governor’s Keynote Address at the
Banca D’Italia: Seminar on Islamic Finance, Rome, 11 November 2009.
28 Zeti Akhtar Aziz, ‘Enhancing the Resilience and Stability of the Islamic Financial System’, Governor’s
Keynote Address at the Islamic Financial Services Board and Institute of International Finance
Conference, Kuala Lumpur, 20 November 2008.
 The Development of
618 Islamic Finance in Malaysia

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