While Islamic finance is popular within Malaysia, concerns have been voiced about the country's sluggish growth as an international centre. To combat this, regulators in the country are pinning their hopes on sharia-compliant fund and wealth management. Stefania Palma reports.

Malaysia remains a global hub for Islamic finance in terms of government and regulatory support and market innovation. But some participants argue the market’s development has not been as rapid as hoped beyond the country’s borders. A new Islamic fund and wealth management blueprint launched by Securities Commission Malaysia (SC) in early 2017 could pave the next path for growth of the sector, however.

Malaysia market snapshot

“We are currently giving greater attention to the Islamic fund and wealth management segment. We would like to see greater growth and are working with the industry and other policy-makers to further develop this area,” says SC chairman Ranjit Ajit Singh. The new blueprint aims to attract global Islamic funds to Malaysia, extend wealth management services and leverage Islamic finance’s affinity with socially responsible investment (SRI).

Hoping for more

There are now 20 fully fledged Islamic funds in Malaysia. According to Mr Singh, the decision of the government pension fund, Employees Provident Fund, to gradually allocate 45% of its investments to sharia-compliant products could boost that number.

Several foreign funds have already entered the market. Malaysia is BNP Paribas Investment Partners’ Islamic hub, and the new wealth management blueprint will further complement the fund’s activities in this sector, says Angelia Chin-Sharpe, CEO and country head, Malaysia and Brunei, at BNP Paribas Investment Partners.

Gerald Ambrose, CEO of Aberdeen Islamic Asset Management, sees strong potential in Islamic wealth management. “If they had a choice, I believe many Muslims would prefer to have their finances managed along sharia lines. We are also witnessing growth in sharia-compliant financial planning. It’s a big market, here and overseas,” he says.

Foreign participation

A shared goal among fund managers in Malaysia is to increase foreign investor participation. On the supply side, the sukuk (Islamic bond) market has hosted a number of debut international borrowers including Hong Kong, the UK and South Africa.

“Potential borrowers and issuers realise that if they opt for a sharia-compliant product, they tap into a bigger investor pool. There will be more liquidity going forward,” says Nor Shahrizan Sulaiman, deputy head of group Islamic banking at Maybank.

But on the demand front, traction among global investors is not as strong. Mr Ambrose points to a lack of global convergence in the interpretation of Islamic finance parameters as one cause.

However, Ms Chin-Sharpe disagrees. “As portfolio managers, we can adapt to clients’ different requirements and customise solutions for them,” she says, adding that educating market participants can be crucial.

Furthermore, few markets are as committed to developing Islamic finance as Malaysia. “Malaysia’s government plays a big role in promoting Islamic finance and works hand in hand with the regulators to understand the needs of the market players. Despite having regulations in place, we still lack market participants in order to grow the Islamic capital markets,” says Ms Chin-Sharpe.

In an effort to increase foreign investor participation, Aberdeen Islamic Asset Management has recently acquired a licence in Abu Dhabi to sell sharia-compliant products there. Meanwhile, Ms Chin-Sharpe expects demand to grow in Brunei, which has announced a blueprint to develop its nascent capital markets, and in Indonesia, which is liberalising Islamic investment.

Affinity for SRI

The SC believes Islamic finance can grow further by boosting SRI. “Malaysia has been assessed by the Association for Sustainable & Responsible Investment in Asia to have the biggest SRI funds segment in Asia,” says Mr Singh. “Given the touch points between Islamic finance and SRI we are developing a sharia-compliant SRI investment framework that we will roll out shortly.” Indeed, Islamic finance calls for money to be used for the protection and preservation of society.

Malaysian sovereign wealth fund Khazanah Nasional Berhad printed the debut SRI sukuk in 2015. Now Maybank is developing a waqf (charitable trust), Global Humanitarian Fund, which will address the current refugee crisis. Managed by Maybank, the fund will be disbursed according to articles set by a refugee council that remains undisclosed.

Malaysia’s profile among global markets could grow further now that the International Organisation of Securities Commissions has chosen Kuala Lumpur to host its first regional office. “The intention is to focus on capacity building, technical assistance and deepening capital markets. But this will also be a way to address the region’s financing needs and give Asia a stronger voice in global capital markets discussions,” says Mr Singh. 


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