Malaysia shows the way forward

Q: How do you see the growth in Islamic financial services in Asia?

A: The opportunities for growth in Asia are huge and the growth of Islamic finance has been widespread across Indonesia, India, Malaysia, Bangladesh and other countries in the region. Of the 1.6 billion Muslims worldwide, 1 billion are in Asia - these statistics for Asia do not include Pakistan. Also, when you look at emerging markets, these are facing growth of up to 6.5% and Asian markets are growing at a faster rate than others.

In examining other markets in the region, China is in the early stages of realising the opportunities of Islamic finance, the [South] Korean government is looking into it, Japan is interested in the wholesale perspectives, and Singapore and Hong Kong want to establish themselves as international centres.

Q: Malaysia seems to have assumed a global leadership role in Islamic finance. How has this come about and how do you see Malaysia's role in the development of the industry?

A: Led by the governor of Bank Negara Malaysia, Dr Zeti Akhtar Aziz, Malaysia's Islamic banking sector has grown 20% annually since 2001 in terms of assets. As of the end of June this year, the share of Islamic banking assets in the total banking sector has reached 20.9%, compared to 6.9% a decade ago. This figure will continue to grow and may well double over a five- to 10-year timeframe.

The Malaysian government has thought through the issues and developed coherent structures, establishing an institutional framework for the industry. Ms Zeti has played an important role in developing Islamic finance in Malaysia and in Asia, and at a recent speech in Washington she noted that the importance of Islamic finance in strengthening financial linkages is evident in particular with the emergence of sukuk instruments to prominence as an attractive new asset class for investors and a competitive form of financing for businesses.

According to Ms Zeti, the global sukuk market stands at almost $130bn, with an annual average growth rate of about 40%. Now the most vibrant segment in Islamic finance, she says the sukuk market has evolved into a truly international sector, generating significant cross-border flows as funds are being raised from beyond domestic financial markets.

Ms Zeti notes that, not only has sukuk become the preferred financing and capital-raising option for the government and local corporations, but it has also seen a significant amount of participation and rising interest from foreign companies and multilateral institutions. It has also attracted investors from across the globe. She points to the recent issuance of Malaysia's $1.25bn sovereign sukuk in May this year, which was six times oversubscribed with a wide investor base from Asia, the Middle East, Europe and the US, despite the prevailing volatile market conditions.

Q: How does HSBC Amanah view its expansion in Malaysia and how do you see growth in the future?

A: In 2008, HSBC Amanah was given licences to open 26 specific branches in Malaysia. We will have opened 10 of the specialist branches by the end of this year and all 26 branches will be open by year-end 2012. Our experience has been encouraged by customers and also by developments in the market. The Malaysian government has liberalised the financial markets, licensing five new commercial banks from the UAE, France, India and Japan, and licensing four new takaful operators, reflecting the growth in Islamic insurance.

Q: With Islamic finance growing strongly in Malaysia and elsewhere in Asia, how do you see the role of Islamic hubs in the growth of the industry?

A: The industry needs a number of hubs and balanced geographic growth is important for global growth. The Gulf represents an important growth area. But with Malaysia already having more than 20% of its total banking assets in sharia-compliant assets, there are huge opportunities both there and in growing markets such as Indonesia and India, which have large populations and expanding economies. A report by the Reserve Bank of India on Islamic finance is awaited and should prove positive for the industry, reinforcing the need for more Islamic financial hubs around the world.