Prospects of investment account platform in Malaysia

INVESTMENT has been vital for upholding the survival of individuals in our society. The impact of investment in Islam has been prescribed in the Surah Joseph (12: 47-48). This is explained as follows:

(Joseph) said: “For seven years shall ye diligently sow as is your wont: and the harvests that ye reap, ye shall leave them in the ear, - except a little, of which ye shall eat.” (12: 47); “Then will come after that (period) seven dreadful (years), which will devour what ye shall have laid by in advance for them, - (all) except a little which ye shall have (specially) guarded” (12: 48). In other words, seven fat cows being eaten by seven skinny cows, and seven stalks of green wheat by seven stalks of dried wheat.

In the context of an individual’s wealth, income earned can vary from one period to another. One may enjoy plentiful wealth during the first seven years of any period in his life and then he may face another seven years where his wealth is reduced.

Wealth changes over time. As such, one should play an active role to secure and maintain their wealth via savings and investment, denoting the importance of wealth preservation.

The morals of the story are as follows: Firstly, one should capture that in his life, there are periods of prosperity and poverty. This belief extends to everyone including rich folks. Secondly, during the periods of prosperity, he finds plenty of income that make himself content and pleased. It is a test (be it rich or poor).

Thirdly, during the periods of poverty, one faces financial hardship that eats up all of his savings and investments. Again, this is a test. Fourthly, for a better life, one should make a saving of his pay check every month to be used during the periods of poverty.

Fifthly, during the periods of prosperity, one should learn to practice balanced spending and investment. The spending must not be excessive.

One of the growing investment outlets in Malaysia that can be tapped into is the investment account platform (IAP) introduced in 2016, which meets the Shariah perspective of investment. I refer it to this notion “the best investment is sprung from an investment that gives the highest return where Shariah principles are brought into play”.

This week, I intend to expound on the growing interest of the IAP in Malaysia. Three questions are addressed. #1 - What is meant by the term IAP? #2 - What are the differences between a traditional Islamic investment account and IAP? #3 - Can the IAP survive in the long run? My standpoints are provided as follows:

The IAP is best described as a multi-bank platform to expedite channelling of funds from investors to finance a venture intermediated by the participating banks via RIA as governed under the Islamic Financial Services Act (IFSA) and Development Financial Institution Act (DFIA).

Selectively, the IFSA defines an investment account as an account under which money is paid and accepted for the purposes of investment, including for the provision of finance, in accordance with Shariah on terms that there is no express or implied obligation to repay the money in full. The visibility of investment accounts is improvised via the IAP.

The IAP is the first Shariahcompliant Internet-based banking platform. Furthermore, there are some key features. Firstly, investors have the freedom to opt for projects to be invested but which are subject to “suitability assessment” conducted by banks. Secondly, the IAP is operated on a secure internetbased architecture. Indeed, the IAP requires both skills, be it investment skill or internet of me. I believe all Gen-Y are erudite enough to handle the latter. Thirdly, the IAP involves voluntary participation by local and foreign banks. For the time being, only local banks are participating.

Likewise, there are at least four discrepancies that meet the second point. The first is on the platform of transactions. Overtly, traditional Islamic investment accounts are considered over the counter (OTC) at any Islamic bank branches while the IAP is based on an internet-based multi-bank platform. The second is on the deposit insurance protection by the Malaysia Deposit Insurance Corporation (MDIC), in which both are not covered. Both are investment products. Risk is considered for profit in return.

The third is on the participating banks. For the time being, the IAP is only participated by a few banks such as Affin Islamic Bank, Bank Islam Malaysia Berhad, Bank Muamalat Malaysia Berhad, Maybank Islamic Berhad, Bank Rakyat and Bank Simpanan Nasional. The acronym ABBMRN. These banks create a consortium known as the IAP Integrated.

Launched by the former Governor, Tan Sri Dr Zeti Akhtar Aziz, on the February 17, 2016 at Sasana Kijang, Kuala Lumpur, the IAP is viewed as a centralised multi-bank platform that could shift the role of Islamic banks to investment banks. The IAP platform has brought Islamic investment products to another stage of development where a wider range of investment intermediation activities are accessible by investors online.

Practically, I have seen some investors make transactions online for the IAP and found it was convenient to deal with. Evidently, the regulatory framework is found to be resilient.

The IFSA provides the Islamic banking industry with the foundation to shift into its next development. The reclassification of deposits to either deposits or investment accounts by the IFSA has uplifted the significance of the IAP. I bet it will become an effective platform by which both rabbul mal and mudarib can experience and benefit from the “new” risk-reward concepts in the investment account. This is a really timely act.

Moreover, the IAP has a number of growing value propositions (VPs) that await prospective investors. The values are of three but not confined to: It allows the formation of new economic strengths through the preference of entrepreneurship and job foundation. It also permits investors to directly finance an extensive range of economic activities of their choice, consequently diversifying their investment portfolio with exposure to various types of projects.

To cut a long story short, the IAP offers a new source of funding for activities with more competitive financing terms within the range of a financing structure.

Taken as a set, I have to concede that the advent of IAP enhances the “visibility” of Islamic investment accounts owing to the fact that the accessibility of the latter to a broader range of individuals and institutional investors is grander with the IAP.

With a proper measure, the IAP can be a new competitive weapon that could help Islamic banks not only in making more money (al-ghurm bi al-ghunm) but also to improve the welfare of the ummah where the projects financed generate more benefits than costs for an improved share of wealth among the stakeholders involved, at least.

*The author is an Associate Professor/Dean at the Labuan Faculty of International Finance, Universiti Malaysia Sabah, Labuan International Campus. He has a PhD from the International Islamic University Malaysia (IIUM) in Islamic Banking and Finance (PG310163). He can be contacted at hanudin@ums.edu.my