Malaysia is renowned globally for many reasons: as a multicultural and tolerant society, one of Asia’s prime tourist destinations, and as one of the few successful Muslim economies. The country now has another claim to fame that most experts would not have predicted two decades ago Malaysia is a thought leader, research centre and business hub of Islamic financial services.
A 2013 report by the Economist revealed that over a fifth of Malaysia’s banking system assets are sharia-compliant. The average for Muslim countries was 12% but most have a share in single digits only. Indonesia – home to the largest Muslim population in the world and a GDP three times that of Malaysia – has only about 4% sharia-compliance in its financial sector.
It was the mid-90s when I stumbled into Malaysia’s Islamic finance sector by accident after spending several years in the conventional banking industry. I distinctly remember only one Islamic bank operated in the country at that time. It was set up in 1983 and had proved to be a successful case; regulators were considering the license for a second bank while also encouraging conventional banks to open what were called Islamic windows. My interest soon turned into a learning opportunity that offered a fresh perspective on finance and religion.
Malaysia: The Islamic Finance Capital of the World – Role and Journey
By 2016, Malaysia accounted for more than 54% of total outstanding global sukuk (sharia-compliant bonds) and more Islamic funds than any country. Almost 74% of the 900+ securities listed on the Bursa Malaysia (BM) were classified as sharia-compliant, and Islamic securities made up more than 64% of the BM’s total capitalisation, up 7.3% from the end of 2014. In the decade ending 2015, Malaysia’s capital market grew at a compounded rate of 11.7%, crossing the 1 trillion RM mark to hit RM1.69trn (USD418.3bn). We were also the second-largest Islamic fund management industry by overall Assets under Management (AUM).
These successes were not achieved overnight. In fact, they were the culmination of years of governmental planning coupled with private sector initiatives. Malaysia’s journey to becoming a hub of Islamic finance began in 1990 with the first corporate sukuk (sharia-compliant bonds) issued by Shell MDS. Several firsts were recorded over the next ten years, including the first sharia-compliant equity unit-trust fund in 1993, and the first full-fledged Islamic stockbroking company in 1994. By 1996, the Securities Commission Malaysia (SCM) approved the listing of Islamic securities on Bursa Malaysia. It was the Asian financial collapse in 1999 that prompted the government to focus on developing sustainable financial institutions backed by real assets instead of just numbers on a spreadsheet – Islamic finance.
In 2001, the SCM launched the Capital Market MasterPlan (CMP) 1, a decade-long development initiative that prioritized the growth of Islamic products and services. Consequently, as a result of public sector-led development efforts and increasing private-sector interest in the segment, from 2000 through to 2010 Malaysia’s Islamic capital market more than tripled, posting average annual growth of 13.6% for the decade.
Malaysia’s role as a leading Islamic capital market was further strengthened in 2003 by the setting up of the Islamic Financial Services Board (IFSB), an international regulatory organisation that issues standards for Islamic banking, finance, insurance and capital markets.
It was during the early 2000s that major entities like Kuwait Finance House, Asian Finance Bank, and Al Rajhi Bank were attracted to the Malaysian market. The arrival of international institutions put pressure on the supply of human capital trained in the sector, and the banks with deep pockets tended to get the best resources. The market was expanding—there were huge growth rates and people were starting to see that this was a real trend. But to tap the market’s true potential, we needed to train more financial experts to pave the way for Malaysia becoming a global Islamic finance hub.
INCEIF – Malaysia-based Global Leader in Islamic Finance Education
INCEIF, the Global University of Islamic Finance, was founded in 2005 to address the medium to long term development of industry-ready human resources that would quickly assume senior positions. The university was set up with help from the industry – not just financially, but also intellectually – with experts helping to formulate the curriculum. Former Central Bank Governor Dr. Zeti Akhtar Aziz was instrumental in setting up the institution at a time when the demand for quality human capital was peaking.
While the initial vision for INCEIF was to improve the pool of talent for Islamic finance within Malaysia, the university swiftly morphed into a reputable international institute. Today, INCEIF has more foreign students than Malaysian students and we have graduates from 67 countries including Korea, Japan, China, Pakistan, and from Gulf countries too.
The World Bank also partners with us for its researches on the Islamic finance industry – a testament to our level of internationalization less than a decade after launch. Our crowning achievement will be the AACSB accreditation; the process was launched in 2013 and we are well on track to be included amongst the world’s premier higher education institutions.
I’m currently serving my second three-year term as President of INCEIF. My role includes making key note presentations or being on panel discussions to help create awareness about Islamic finance and to educate people about its benefits. Sadly, there are many misperceptions about Islamic finance and Islam and our duty is to correct those misperceptions through thought leadership, sensible argument, logic and demonstrations.
INCEIF’s 10-year Blueprint for Global Success
We’ve created a 10-year blueprint to shape INCEIF into a top-of-the-mind reference point globally for all things related to Islamic finance. Firstly, we want to produce graduates with industry relevant skills and leadership capabilities. 80% of INCEIF graduates already have jobs before they graduate. We’d like to improve that number even further.
Second, we see a demand for professional development courses from senior executives who cannot join on a full-time basis. We’re developing executive programs to serve that market and move INCEIF beyond only post-graduate programs.
Third, faculty development is crucial for a university’s long term success and in attracting quality students. We have some of the best subject matter experts teaching for us including Abbas Mirakhor, the former executive director of the IMF.
The fourth aspect is high-quality research that builds industry knowledge. All the research we do here is funded by industry and we’ve managed it by the quality of the products and our faculty. Just recently, Thomson Reuters reported that 11% of the world’s research on Islamic finance comes from INCEIF. We want to continue researching on the most pressing issues in sharia-compliant finance.
2016 and Beyond
Today, Malaysia is rightly considered the world’s leading Islamic finance market and INCEIF is proud to play a crucial role in this achievement. We will continue to build deeper linkages between academia and industry to produce research and human capital that strengthen Malaysia’s position as the global hub for Islamic finance.