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Malaysia is emerging as a pioneering name in global finance at large and Islamic finance in particular.
Published: 2011

20-Finance-OverviewMalaysia reaffirmed its global position as a finance hub after having survived the economic depression through aids from various financial institutions such as the Bank Negara Malaysia, Khazanah Nasional, Bursa Malaysia and the Ministry of Finance. During the 1990s, Malaysia was recorded as one of the fastest growing economies with a GDP annual average growth rate of 8–9% and during the past 5 years it has been growing at a steady GDP annual rate of 5–6%.

Beyond finance
The financial services sector has redefined its role as a facilitator of growth by emerging as a growth sector in itself. It not only helps generate employment but also plays a pivotal role in mobilising investments. Over the years, the financial sector’s contribution to GDP has increased from 9.2% in 2000 to 11% in 2008. In the past 3 years, the finance and insurance sector has expanded by 8.8% per annum. The insurance industry has undergone double-digit growth in the recent years. Some of the licensed insurance companies include Life and General Business, Life Business Only and General Reinsurance Business.

The licensed banking institutions within the country include commercial banks, Islamic banks, international Islamic banks, investment banks and other financial institutions. Currently, there are 23 commercial banks operating in Malaysia including reputed international banks such as Bank of America Malaysia Berhad, Deutsche Bank, The Royal Bank of Scotland Berhad, JP Morgan Chase Bank Berhad and Bank of China (Malaysia) Berhad. Some notable banks from the Middle East in Malaysia include the Saudi Arabia-based Al Rajhi Bank, Kuwait Finance House (KFH) and Al Rajhi Banking & Investment Corporation.

Malaysia, as a finance hub, has attracted some major players across the globe to promote cooperation.

Building islamic markets
A vital aspect of the Malaysian finance arena is the predominance of Islamic finance, which has emerged as one of the fastest growing financial markets in the international scenario. Islamic finance is no longer the sole prerogative of Islamic economies, but is taking its due place in the mainstream international financial system. There are over 300 Islamic financial institutions across 75 countries worldwide. Currently, the global Islamic financial assets stand at USD750 billion and are expected to grow to USD1.6 trillion by 2012. Given this growth rate, it is but obvious that the Islamic financial system will soon manage nearly 4% of the world economy. The Top 500 Islamic Financial Institutions (TIFI) reported that the global total of Shariah-compliant assets has grown by 2.7% to reach USD639.1 billion. Malaysia’s Islamic finance system is estimated to be worth USD1 trillion in assets and also has the unique distinction of being the world’s first country to have a full-fledged Islamic financial system operating parallel to the conventional banking system.

The Malaysia International Islamic Financial Centre (MIFC) is the result of an initiative undertaken to position Malaysia as the Islamic finance hub through the core areas of sukuk origination, Islamic fund and wealth management, international Islamic banking and international takaful (Islamic insurance).

Globally, the sukuk market has been witness to major growth, averaging an annual rate of 40%. In 2008, the sukuk issues globally amounted to USD14.9 billion, and Malaysia leads the global sukuk market with an average growth of 20% from 2002 to 2008. Malaysia has also achieved milestones in the Islamic fund management industry, which include the launch of the world’s first Islamic real estate investment trust (REIT), and, equally significantly, Asia’s first Islamic Exchange Traded Fund (ETF). The takaful industry, too has been growing rapidly and is expected to expand at 15-20% annually, with contributions expected to reach USD7.4 billion by 2015. Takaful assets and net contributions experienced strong average growth rates of 21% and 29%, respectively, from 2004 to 2008.

Malaysia as a finance hub, has attracted some major players worldwide to promote cooperation in financial services. This has resulted in the further advancement of the finance sector as a whole and Islamic finance in particular.

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