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Monday, 17 November 2008

Islamic Finance A Viable Alternative To Conventional Finance, Says Raja Nazrin

KUALA LUMPUR, Nov 17 (Bernama) -- The current financial turmoil has provided an opportunity for Islamic finance to position itself as a viable alternative to conventional finance by providing investors with other asset classes and markets that provide stability, the Raja Muda of Perak Raja Nazrin Shah said.

He said there was much talk these days about the creation of a new international economic order.

"Some world leaders have called for a Bretton Woods II. There is growing consensus that the unregulated capitalism that has led us to this crisis needs to be reconfigured to provide greater resilience and stability to the financial system.

"The strengths of Islamic finance are derived from syariah principles, which also happen to be sound business principles.

"The syariah injunctions require that financial transactions be accompanied by an underlying productive activity thus giving ride to a close link between financial and productive flows," he said in his address at the launch of "The Malaysian Sukuk Market Handbook -- Your Guide to the Malaysian Islamic Capital Market," here, Monday.

Raja Nazrin said syariah principles prohibited excessive leverage and speculative financial activities thereby insulating the parties involved from too much risk exposure.

"It is worth speculating to what extent the world financial crisis could have been averted, or at least its impact considerably reduced, if the principles of Islamic finance had been more widely practised," he said.

He said there was now a greater awareness and interest among the world financial community of the merits of Islamic finance.

The Perak Regent said there was already a growing demand for Islamic financial products in the global market, far exceeding their supply.

Raja Nazrin said in recent years, "We have witnessed a rapid expansion of the Islamic financial services industry."

"Today, Islamic finance is fast becoming an accepted component of the global financial system.

"Malaysia's direct involvement in the development of Islamic finance has significantly transformed the financial landscape at both the national and international levels, making the country a leader in the international race to become a major Islamic financial centrem" he said.

He said the vibrancy and dynamism of Malaysia's Islamic financial system today was reflected in its continuous product innovation, diversity of Islamic financial institutions, comprehensive regulatory and legal infrastructure, as well as the availability of Islamic finance talent and expertise.

Raja Nazrin said the Islamic capital market in Malaysia today offered a wide range of retail and wholesale products such as syariah-compliant stocks, Islamic unit trust funds, Islamic exchange-traded funds, syariah-compliant real estate investment trusts, structured products and derivatives.

"These world-class financial products are available in both ringgit and non-ringgit currencies," he said.

On sukuk, he said, the country has not only achieved several industry "firsts", but has also successfully developed a deep and liquid market.

"We can lay claim to being the worlds largest and most innovative sukuk market.

"At end-2007, total sukuk originating from Malaysia amounted to RM213 billion (US$62 billion), constituting 68.9 per cent of the global sukuk outstanding," he said.

In the same year, the regent said, the worlds largest sukuk, amounting to RM15 billion (US$5 billion) was raised in the Malaysian sukuk market.

"Following the liberalisation of our foreign exchange administration rules, several foreign development banks, quasi-sovereign agencies and multinational corporations have joined our local corporations in tapping the local sukuk market for funds," he said.

He said the rapid growth of the sukuk market has been nothing short of remarkable.

"As a pioneer, Malaysia has set standards and provided leadership by example on many fronts," he said.

Raja Nazrin said the handbook by RAM Ratings would serve as a guide to institutions and professionals, particularly those from the international community who were keen to make the most of the Malaysian capital market for creating and transacting in sukuk.

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