Malaysian Prime Minister Mahathir Mohamad

By Kazi Mahmood, IOL Southeast Asia Correspondent

KUALA LUMPUR , June 3 (IslamOnline.net) - Malaysia is planning to woo international Islamic banks and finance companies to invest in the country and boost its Islamic banking industry by issuing Islamic banking licenses soon to qualified foreign players, news reports said Tuesday, June 3.

The central Bank governor in Kuala Lumpur, Zeti Akhtar Aziz said the move was part of the central bank’s effort to spur the overall development of Islamic financial system in Malaysia, reported the Star newspaper.

She added that such a move will confirm Malaysia ’s role as a regional financial hub for Islamic banking and finance and urged that Islamic banking institutions allocate adequate resources for research and development in the sector.

The Islamic banking sector is eagerly waiting for its liberalization as it is proscribed under the Financial Sector Master Plan, the governor said.

Malaysia has a few Islamic banking institutions offering a large spectrum of services from housing, car and other loans to Islamic based credit cards as well as business services.

Inviting international institutions to invest in the local market would also give impetus to the existing banks to be more competitive but would also increase the awareness of Islamic banking in the country.

On the other hand, the Commerce International Merchant Bankers Bhd (CIMB), through its subsidiary CIMB Islamic, intends to be a prominent player in Islamic financial services in the region via a series of alliances with other Islamic organizations.

CIMB managing director/group chief executive officer Nazir Razak said to the Star newspaper that the group wants to achieve strategic alliances within the next two to three years.

It appears that the CIMB is preparing for the entry of foreign based Islamic financial institutions and will be a major contender to partner with these groups in the future.

It has already signed a memorandum of understanding with the Al Tawfeek, a Jeddah-based Islamic financial institution, in its bid to penetrate the Middle East market.

In Labuan , CIMB Ltd will establish an offshore market for Middle East investment in the South-East Asian region specifically, and the rest of the Far East generally while Al Tawfeek will seek to market Malaysian investment opportunities in the Middle East and North Africa , the Star said.

The head of CIMB Islamic, Badlishah Abdul Ghani, also said the company had identified a number of parties for future collaboration in the region, including Indonesia ’s PT Bank Niaga.

The aim of the CIMB, taking into consideration the infrastructures Malaysia is putting in place to woo international Islamic financiers, is to ensure that key players in the global Islamic financing markets are no more western, global commercial and investment banks only.

CIMB Islamic is said to be a comprehensive Islamic investment bank that will offer Islamic versions of private equity, private banking, and corporate advisory and primary and secondary services in the debt and equity markets.

Launching the CIMB Islamic branch, the Central Bank governor of Malaysia said the pace of the development of Islamic banking and finance in Malaysia has exceeded Malaysia ’s expectations.

She added that liberalization of Islamic financial services in the country will contribute in promoting greater competition and act as a bridge between Malaysia and other global Islamic financial markets.

Zeti disclosed that Bank Negara was also embarking on new initiatives in the development of the Islamic banking industry.

In terms of legal infrastructure, a dedicated High Court has been established to handle cases on Islamic banking and finance, and a law review committee has been formed as an extension of this initiative she added. 

Zeti also said a working group on shariah has been formed to conduct a comprehensive review of Islamic banking issues, as well as to formulate a guide for the innovation of Islamic banking products. 

The successful issuance of the first sovereign global Islamic Sukuk, which is shariah compliant, by the Malaysian government had acted as a catalyst for other countries and corporate players to tap the global Islamic financial market. 

As of April 30, assets mobilized by the Islamic banking sector have increased to RM72bil, accounting for a market share of 9.2% of the domestic banking system.

One U.S. dollar is equal to RM3.80, which is a fixed exchange rate in Malaysia .

Deposits during the same period increased to RM55bil, constituting a market share of 10%, while financing mobilized amounted to RM40bil to garner 9% market share.

Issuance of Islamic bonds has expanded steadily at an average rate of 42.8% since 1995.

Last year, funds raised via the issuance of Islamic bonds amounted to RM13.8bil, constituting 52% of the total issuance of debt securities, surpassing conventional bonds.