Malaysia's in-depth experience and solid fundamentals in Islamic finance developed over more than 30 years, offer strong value propositions to foreign financial institutions to establish takaful operations in Malaysia to conduct foreign currency business.
Malaysia has placed an equal emphasis on the four core sectors in Islamic finance – Islamic banking, takaful, Islamic capital market as well as Islamic money market. Malaysia is one of the leading takaful market and has been experiencing rapid growth. As at 2008, total assets of Malaysia's takaful industry amounted to USD3 billion, with market penetration of 7.5%. Takaful assets and net contributions experienced strong growth with an average annual growth rate of 21% and 29% respectively from 2004 to 20081.
The rapid liberalisation of Malaysia's Islamic finance industry has encouraged foreign institutions' participation in Malaysia, thus creating a diverse and growing community of domestic and international takaful operators that have acknowledged experience in the takaful industry. Currently, there are eight takaful operators and four retakaful operators, with five foreign participations from the UK, Bahrain, Germany and Japan. These takaful operators conduct both domestic and foreign currency business.
Adopt Global Legal and Regulatory Best Practices
Malaysia's legal framework caters for Islamic finance matters. There is a dedicated judge at the High Court level for Islamic finance matters. The Kuala Lumpur Regional Centre for Arbitration has specific capabilities to deal with Islamic contract matters. This legal framework enables the enforceability of Islamic finance contracts while providing strong governance and legal redress for Islamic financial institutions.
The Malaysian takaful industry is governed by the Takaful Act 1984, which provides the legislative framework for the licensing and regulation of takaful businesses to ensure the businesses are in accordance with the Shariah principles.
The development of various regulatory guidelines has been instrumental in providing consistency and clarity for the operations of Islamic finance in Malaysia. In addition, Malaysia's Islamic regulatory guidelines have also set the benchmarks for other countries in developing their own Islamic industry.
Well-Developed Shariah Governance Framework
The Central Bank of Malaysia (Bank Negara Malaysia) has established a centralised Shariah Advisory Council (SAC) to advise on issues related to Shariah compliance matters pertaining to the Islamic banking and takaful industry. The approach was taken, by recognising the importance of Shariah compliance in the Islamic financial system which possesses distinctive characteristics when compared to the conventional system.
The SAC is responsible for analysing issues on Islamic banking and takaful matter, to ensure the aspects of the operations of Islamic financial institutions are in accordance with Shariah principles.
Comprehensive Human Capital Development
Malaysia has placed a strong emphasis on human capital development alongside with the development of Islamic finance industry to ensure the availability of Islamic finance talent. As a result, Malaysia has a large and diverse pool of Islamic finance talent comprises product innovators, regulators, intermediaries and risk managers who have both financial and Shariah knowledge and expertise.
Malaysia adopts a structured and comprehensive approach to human capital development in Islamic finance to meet the growing needs of Islamic finance talent by domestic and foreign financial institutions. Several learning institutions offer wide range of Islamic finance training programmes to develop Islamic finance professionals and cultivate Islamic finance thought leadership.
Liberal Foreign Exchange Administration (FEA) Rules
Malaysia's liberalised foreign exchange administration rules enhance Malaysia's competitiveness and business efficiency, while promoting financial and economic stability.
The relaxation in rulings was made in tandem with the readiness of the Malaysian economy to support the country's growth and competitiveness, whilst creating conducive business environment for foreign financial institutions. (MIFC)
Alfalah Consulting - KL: www.alfalahconsulting.com
Islamic finance consultant: www.ahmad-sanusi-husain.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com