Islamic finance is set to build on its position as the
fastest growing sector in international finance by expanding
into new markets such as China, according to Zeti Akhtar Aziz,
the governor of Malaysias central bank.
It is taking place not only in Asia but the Middle
East as well as other parts of the world and it is growing
because this is a form of financing linked to the creation of
economic activity, generating income and wealth, she
Islamic finance had attracted a lot of interest because of
the interdependent linkages that require all financial
transactions to be linked to an underlying economic transaction
in order to be compliant with Islamic finance regulations,
often referred to as Shariah compliant standards, a form of
religious law relating to finance.
This is what is supporting the growth so it is not a
sudden surge but it has been growing with the growth of
emerging economies, she told Emerging
Several institutions and multinationals including Toyota,
Tesco and Nomura have recently tapped Islamic finance markets.
Malaysia has also encouraged multi-currency issuance including
Singapore dollar- and renminbi-denominated products.
If they want to raise finance for investments in China
there is potential to raise renminbi out of our market because
we also have the infrastructure such as the settlement system
that can facilitate it.
Malaysia has become a global hub for Islamic finance that
may be worth as much as $1 trillion worldwide, by putting in
place a regulatory system that exists alongside the
countrys traditional capital markets structure.
We have the credentials and have put in place the
regulatory and supervisory framework as well as accounting
standards and a financial stability forum that looks at the
risks and vulnerabilities to ensure sustainability.
Malaysia is confident the Islamic finance market will
continue to prosper, Zeti said, pointing to the interest in
global Sukuk market, a form of Islamic bond, from both Islamic
and non-Islamic countries.
This shows that the structures meet financing
requirements and more importantly that it is competitive with
an intrinsic value proposition.
Many analysts are also excited about additional market
opportunities in fast growing economies such as Indonesia but
say the overall market lacks critical mass or a universal
Whether that leads to a much anticpated big bang
in Islamic finance and greater mutualization of Islamic capital
markets remains to be seen but Zeti said broader cooperation
was undoubtedly beneficial.
First of all we want to strengthen our economic
linkages with other emerging economies and this represents a
channel by which this linkage is enhanced and it is not only in
Asia but in Africa, the Middle East and traditional markets
such as Europe and UK.