Malaysia still a market leader in Islamic finance
MALAYSIA has retained a consistent global sukuk market share of more than 50 per cent over the last 10 years, sustaining its position as the overall market leader in the Islamic finance sector.
According to Thomson Reuters, the sector continues to be dominated by Malaysia, the United Arab Emirates (UAE) and Bahrain, who have set up leading ecosystems to ensure that the industry thrives.
“Malaysia once again leads the indicator ranking, establishing itself as the global hub for Islamic Finance. This is mainly due to the country having a large Islamic Finance asset base, a large number of Islamic Finance institutions and funds, in addition to having the strongest regulatory framework and highest awareness score of all countries,” it said in its ‘State of the Global Islamic Economy’ 2016/2017 report.
Although Malaysia ranks third by Islamic banking assets, AllianceDBS Research noted that Malaysia’s runaway success in the sukuk market boosted its global position by finance assets to the top of the table.
“The roadmap to success was not without a great deal of effort. Malaysia’s competitive advantage in the sector was driven by strong government support, which brought about among others, regulatory changes, tax incentives and expanded educational resources to promote growth in the industry.
“To take advantage of this strong footing gained, the government has set the targets for the industry to achieve by 2020.
This includes increasing the global share of Islamic banking assets from eight per cent in 2009 to 13 per cent in 2020, increasing the global share of takaful (insurance based on Islamic principles) contribution from 11 per cent in 2009 to 20 per cent in 2020, increasing Islamic financing’s share of total financing in Malaysia from 29 per cent in 2010 to 40 per cent in 2020, and propelling at least one Islamic financial institution to become one of the global top 10 players by asset size by 2020,” it said.
The research team believed that Malaysia’s Islamic Finance industry will continue to outpace conventional banks’ loan growth, driven by the regulatory push to fortify domestic Islamic banking entities to enhance the country’s global competitiveness.
“To that end, we envisage Islamic financing growth to reach a four-year compounded annual growth rate (CAGR) of 12 per cent from the financial year 2016 (FY16) to FY20 forecast, as opposed to two per cent for conventional banking loan growth.
“This is underpinned by the assumption that system loan growth stands at a four-year CAGR of five per cent and the proportion of Islamic financing to the total system grows from 29 per cent currently to 37 per cent in 2020F (note that BNM’s target is 40 per cent),” it opined.
Nevertheless, while the research team remained optimistic on Islamic Finance outpacing conventional banks, it pointed out that the sector has limited room to grow without substantially increasing financial inclusion.
“Given that seven out of the eight major banks in Malaysia have yet to reach BNM’s targeted Islamic financing to total loan proportion of 40 per cent, we believe there is still room for Islamic financing growth to continue outpacing conventional loan growth.
“However, we feel that an increase in financial inclusion would have to materialise for further boost in growth,” it said.