Islamic finance Indonesia: MALAYSIA - FINANCE - 2010 Stronger global Islamic finance hub status

THE year 2010 saw the expansion of Islamic finance in Malaysia as the Islamic banking, takaful and Islamic capital market grew, in line with the economic recovery.

During the year, the country strengthened its position as a global hub for Islamic finance, supported by the Malaysia International Islamic Financial Centre (MIFC) initiative.

The highlight of the achievements in the local Islamic finance sector last year (2010) has to be the recognition given to Bank Negara Governor Tan Sri Dr Zeti Akhtar Aziz locally and abroad.

Zeti was the first woman recipient, in 24 years, of the national-level Ma'al Hijrah award. She was recognised for helping pull the country out of the 1998 financial crisis, making Malaysia a financial hub and implementing Islamic banking.

Zeti, 63, was also the force behind the country's internationalisation of Islamic finance, through MIFC initiative.

Just 10 days before the year-end, Zeti, who has been Bank Negara governor for 10 years, was honoured with the Lifetime Achievement Award at the Annual Islamic Business and Finance Awards held in Dubai.

Earlier in July, she was accorded "The Asset Industry Leadership Award in Islamic Finance" at the annual Triple A Awards for Islamic Finance 2010. At the same ceremony, Malaysia was awarded the Islamic Finance Hub of the Year, while the Market Innovation Award went to Bursa Malaysia for Bursa Al-Sila.

Another major event in the past 12 months was the issuance of Sukuk 1Malaysia 2010 amounting to RM3 billion by the Finance Ministry on June 21.

Khazanah, meanwhile, issued the single largest sukuk of US$1.5 billion (RM4.64 billion). The deal attracted a diverse group of 78 local and international investors.

During the year, Saudi Arabia's Al Rajhi, the world's largest Islamic banking group, unveiled its first Islamic bond called Sukuk al-Amanah Li al-Istithmar (ALIm).

The launch of the RM5 billion Cagamas Sukuk ALIm marked Al Rajhi's foray into the Islamic debt capital market.

ALIm is a type of mixed asset sukuk said to be the first in the world to preclude completely the elements of Inah (sale and buyback), Bai' Dayn (trading of debt) and Wa'ad (undertaking), concepts which are not acceptable to some syariah scholars, particularly from the Middle East.

The establishment of International Islamic Liquidity Management Corporation (IILM) to facilitate more efficient liquidity management for institutions offering Islamic financial services (IIFS), is another key development.

IILM is an international entity set up to issue short-term syariah-compliant financial instruments and support the increasing cross-border transactions between IIFS.

Meanwhile, Bursa Malaysia's syariah-compliant electronic commodity trading platform, Bursa Suq Al-Sila', has attracted many players after it was established in August 2009.

Bursa Al-Sila', the world's first Internet-based platform with crude palm oil as its underlying base commodity, is able to facilitate commodity-based Islamic financing and investment transactions under the syariah principles of Murabahah, Tawarruq and Musawwamah.

CIMB Islamic chief executive officer (CEO) Badlisyah Abdul Ghani said there were many significant events in the country's Islamic finance sector this year.

"But the most significant would have been the requirement for all matters pertaining to a conflict on syariah under an Islamic financial transaction in a court of laws to be referred to the syariah advisory council of the relevant Malaysian financial regulators," he said.

This development, according to him, managed to establish greater and absolute certainty in the market on the sanctity and validity of financial contracts done in Malaysia's Islamic finance industry.

"No other country has a similar syariah framework," he told Business Times.