The Islamic finance industry in Malaysia has been thriving unabatedly over the past 30 years. Today, Malaysia has successfully develop a conducive and comprehensive environment for Islamic finance, amid continuous product innovation, a large present of both local and foreign financial institutions, a wide variety of innovative Shariah-compliant instruments, an advanced financial infrastructure and a robust legal and regulatory framework that adopt global standards and international best practices. In addition, Malaysia has emphasised strongly on the human capital development in order to ensure sustainability of talent supply to support further expansion of Islamic finance industry. Invariably, these developments have steered Malaysia’s position as a global leader in the Islamic finance.
Malaysia’s success story in developing and advancing its Islamic financial system is perhaps a manifestation of how the spirit of moderation enshrined in the teaching of Islam have been utilised effectively in order to achieve this great accomplishment. The spirit of moderation have been reflected along the various phases of the development of Islamic finance in this country and has been expressed through values and qualities such as harmonisation, unity, mutual cooperation and collaboration of all the stakeholders comprising the government, Islamic scholars, the regulatory authorities, financial practitioners, as well as the public at large or the consumers. Through these qualities and values, differences of opinions in regards to the determination and application of Shariah rulings in Islamic commercial and financial transactions has been mutually recognised and accepted in product development. This has accorded greater flexibility to the industry players in their efforts to develop and introduce a wide variety of Shariah-compliant instruments given the increasing complexity of the financial landscape. Furthermore, the stakeholders also recognised the need for Islamic finance infrastructure to evolve into a modern and advanced system which is on par with the conventional system, in order to attract wider acceptance from the pluralistic consumer community. Evidence of which can be witnessed in the greater products innovation as well as in the modernisation and technological advancement applied in the Islamic financial system.
Malaysia’s journey in Islamic finance began 33 years ago with the enactment of Islamic Banking Act 1983 (IBA) that paved the way for the establishment of the country’s first single Islamic bank. Since then, the country has moved forward and more Islamic financial institutions have been established. Further liberalisation process in the industry has created a more conducive and facilitative business environment thus attracting many international financial institutions to spread their Islamic finance business in Malaysia. This has expanded the number of players from both the local and international financial institutions in the country, and provided the consumers with flexibility of choices.
As reported in the recently released Bank Negara Malaysia’s Financial Stability and Payment System Report 2015 (FSPSR), the total number of Islamic banks operating in Malaysia now stands at 27, including 11 banks currently operating as Islamic windows. These comprise of several foreign owned entities and conventional institutions who have established Islamic subsidiaries and also entities who are conducting foreign currency business. It was also reported that Malaysia continues to strengthen its reputation as an international Islamic finance marketplace with total foreign currency assets of Islamic banks grew by 10.1% in 2015 to RM30.5 billion reflecting increased cross-border transactions in Islamic finance. On average, Malaysia’s Islamic banking assets have been experiencing an average growth rate of 18-20% annually. Similar commendable development can also be seen in the capital market, whereby Malaysia’s Islamic capital market also grew by 6.7 per cent to RM 1.70 trillion in 2015, compared with RM1.59 trillion in 2014.
The underlying significant of the spirit of moderation in the Islamic teaching is that it calls for the practice of Islam in a balanced and comprehensive manner in all aspects life and to provide greater focused on improving the quality of human life that are associated with developing knowledge, human development, science, economic and financial system, political system, nationhood, defence, unity, equality among races, environmental and other aspects. On the other hand, there also exist extremism attitude that lambasts trivial issues, and does not address differences of opinions in an appropriate manner. In this regard, in is interesting to observe how the Malaysian Islamic financial system has evolved over the past three decades and has been widely accepted by the pluralistic community, not only in Malaysia but also globally. Perhaps, one of the recipes of success that have propelled Malaysia’s position as the global leader in Islamic finance lies in the spirit of moderation, which has enabled the industry with greater flexibility to develop within the complexity of the contemporary financial system.
