THE MALAYSIAN EXPERIENCE Islamic Finance Services Conference - - PowerPoint PPT Presentation

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THE MALAYSIAN EXPERIENCE Islamic Finance Services Conference - - PowerPoint PPT Presentation

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MARKETS, PRODUCTS AND OPPORTUNITIES THE MALAYSIAN EXPERIENCE Islamic Finance Services Conference Singapore, 1 October 2013 Nik Mohamed Din Nik Musa MIFC Promotions Unit Bank Negara Malaysia Malaysias Islamic finance marketplace. Expertise.

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SLIDE 1

Malaysia’s Islamic finance marketplace.

  • Expertise. Innovation. Deal Flow.

MARKETS, PRODUCTS AND OPPORTUNITIES

THE MALAYSIAN EXPERIENCE

Islamic Finance Services Conference

Singapore, 1 October 2013 Nik Mohamed Din Nik Musa MIFC Promotions Unit Bank Negara Malaysia

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SLIDE 2

Malaysia’s Islamic finance marketplace.

  • Expertise. Innovation. Deal Flow.

PART I

MALAYSIA’S APPROACH IN DEVELOPING ISLAMIC FINANCIAL SYSTEM

2

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SLIDE 3

Malaysia’s Islamic finance marketplace.

  • Expertise. Innovation. Deal Flow.
  • Iran
  • Saudi Arabia
  • UK
  • Turkey
  • Malaysia
  • Kuwait
  • Qatar
  • Bahrain
  • UAE
  • Co-exists side-by-side
  • Intentions to build a comprehensive

dedicated infrastructure

  • Requires dedicated laws/regulations &

National Shariah regulatory body

Dual financial system

  • Exists within same system
  • No dedicated laws/regulations
  • Does not require dedicated

infrastructure

  • Offered as a product/service in the

same common sphere

Embedded within the same system ESTABLISHING ISLAMIC FINANCIAL SYSTEM – DUAL OR EMBEDDED WITHIN ONE SYSTEM

3

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SLIDE 4

Malaysia’s Islamic finance marketplace.

  • Expertise. Innovation. Deal Flow.

Creating market vibrancy - increase number of players, develop financial markets & harmonise Shariah interpretation

4

Malaysia’s experience

Holistic approach to build a complete ecosystem Ensuring effective functioning of IF marketplace Building regional & international connectivity 1 2 3

PROGRESSIVE ADVANCEMENT OVER THE YEARS IN DEVELOPING ISLAMIC FINANCE MARKETPLACE

Instituting foundation

  • f Islamic finance -

developing legal, regulatory & Shariah framework International integration - market liberalisation, upgrading infrastructures, strengthen overall Islamic finance landscape Internationalisation of Islamic finance - increase diversity of players & instruments, enhance dynamics of the financial markets, enhance financial linkages with other jurisdictions

4

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SLIDE 5

Malaysia’s Islamic finance marketplace.

  • Expertise. Innovation. Deal Flow.

5

ADOPTING A PRAGMATIC & GRADUAL APPROACH

Regulatory Framework

  • Islamic Banking Act

1983

  • Takaful Act 1984
  • Government

Funding Act 1983

  • Banking and

Financial Institutions Act amended to cater for dual banking system

  • Central Bank of

Malaysia Act 2009

  • Capital Market

Services Act 2007 Tax neutrality policy Islamic Financial Services Act 2013 Institutional Establishment

  • 1st Islamic bank
  • 1st takaful company
  • Islamic windows
  • 2nd Islamic bank
  • 2nd takaful company
  • Islamic money

market

  • Shariah Advisory

Council

  • Foreign Islamic banks
  • Islamic subsidiaries
  • New takaful & retakaful

licences

  • Islamic Fund

Management Companies

  • IBFIM, SIDC, INCEIF &

ISRA

  • Islamic Fund

Management Companies BNP-INCEIF Islamic Wealth Management Centre Initiative Malay aysi sia Internat ernational

  • nal

Islamic amic Financ nancial al Cent ntre Roadmap

  • 10-year Financial

Sector Masterplan

  • 10-year Capital

Market Masterplan

  • Financial Sector

Blueprint - internationalisation of Islamic finance

  • Capital Market

Masterplan 2

1980s 1990s 2000s 2010 2011 beyond

Milestones Instituting foundation of Islamic finance – developing legal, regulatory & Shariah framework Creating market vibrancy - increase number of players, develop financial markets & harmonise Shariah interpretation International integration - market liberalisation, upgrading infrastructures, strengthen overall Islamic finance landscape Internationalisation of Islamic finance - Increase diversity of players & instruments, enhance dynamics of the financial markets, enhance financial linkages with other jurisdictions

HOLISTIC APPROACH TO BUILD A COMPLETE ECO-SYSTEM

5

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SLIDE 6

Malaysia’s Islamic finance marketplace.

  • Expertise. Innovation. Deal Flow.

PART I

“Malaysia’s Islamic finance marketplace is open to the world.”

Tan Sri Dr. Zeti Akhtar Aziz Governor, Bank Negara Malaysia

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SLIDE 7

Malaysia’s Islamic finance marketplace.

  • Expertise. Innovation. Deal Flow.

PART I

PROGRESSIVE GROWTH IN ALL SECTORS

7

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SLIDE 8

Malaysia’s Islamic finance marketplace.

  • Expertise. Innovation. Deal Flow.

Source: BNM Statistics, Malaysian ICM

STRONG PROGRESS IN BANKING, TAKAFUL & CAPITAL MARKET

Islamic Banking Takaful Islamic Capital Market

Assets Deposits Financing Sukuk Equity

Exceed FSMP’s target of 20%

  • Market share: 24.1%

(RM527.2 b/USD166.84b). Expansion in funding sources

  • Market share: 25.4%

(RM400.6b/USD126.77b) Robust financing activities supporting the economy

  • Market share: 26.3%

(RM335.87b/USD106.27b) Consistently register double digit growth

  • Market share: Contribution 15.9%, Asset 10.1%

Sukuk as preferred mode for fund raising

  • 66% of total outstanding

private debt securities Shariah equities make up 63% of total market capitalisation

@ 30 June 2013

8

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SLIDE 9

Malaysia’s Islamic finance marketplace.

  • Expertise. Innovation. Deal Flow.

ENCOURAGING GROWTH OF ISLAMIC BANKING & TAKAFUL

Total Assets - Islamic vs Conventional Banking

Market Penetration Rate (%) Industry 2010 2011 2012 Q2 2013 Takaful 11.1 12.8 13.1 12.6 Insurance 42.9 42.7 40.3 41.1

Note: Market penetration rate = number of policies or certificates in force / total population

Source: Bank Negara Malaysia

500 1,000 1,500 2,000 2,500 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Q1 2013 Q2 2013

RM’ billion

Conventional Islamic

Asset Share (%): Takaful assets/Total Industry assets (Takaful + Insurance)

2008 2009 2010 2011 2012 Q2 2013 8.1 8.3 8.7 9.5 9.8 10.1

CAGR Islamic Banking: 21.14% (2001 – 2012)

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SLIDE 10

Malaysia’s Islamic finance marketplace.

  • Expertise. Innovation. Deal Flow.

Global sukuk issuance 1H2013 (USD61.2 b) Global sukuk outstanding 1H2013 (USD245.3b)

Source: Bloomberg, KFH Research

A KEY MARKETPLACE FOR SUKUK ISSUANCES

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 1H13 Global Outstanding 1,273. 1,456. 3,882. 9,628. 16,213 27,583 51,585 94,720 104,80 123,16 142,31 177,84 229,30 245,28 Malaysia Outstanding 1,243. 1,323. 3,554. 7,654. 11,979 20,187 33,355 57,323 61,970 75,236 89,567 106,97 143,91 148,17 Malaysia Market Share 97.6% 90.9% 91.5% 79.5% 73.9% 73.2% 64.7% 60.5% 59.1% 61.1% 62.9% 60.1% 62.8% 60.4% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 50,000 100,000 150,000 200,000 250,000 300,000 USD million

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 1H13 Global Issuance 2.50 5.75 6.64 11.50 25.52 46.02 20.63 28.02 45.15 85.07 131.18 61.18 Malaysia Issuance 2.28 4.10 4.37 8.21 13.50 25.68 6.47 20.41 32.83 60.92 97.08 41.45 Malaysia Market Share 91.0% 71.4% 65.9% 71.4% 52.9% 55.8% 31.4% 72.8% 72.7% 71.6% 74.0% 67.8%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

  • 20

40 60 80 100 120 140 USD billion

10

10

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SLIDE 11

Malaysia’s Islamic finance marketplace.

  • Expertise. Innovation. Deal Flow.

11

MALAYSIA ADVANCES AS A MULTICURRENCY SUKUK ISSUANCE MARKETPLACE

Nomura USD100m (2010) Petronas USD1.5b (2009) Gov M’sia USD1.25b, US2b (’10, ‘11) Khaz SG1.5b, CNY0.5b, US358m (’10-‘12) Islamic Development Bank (IDB) USD500m, 800m, 1 b (2010, ‘12 ,‘13) Axiata RMB1.0b (2012) Sime Darby USD800m (2013)

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SLIDE 12

Malaysia’s Islamic finance marketplace.

  • Expertise. Innovation. Deal Flow.

DEEP LIQUID MARKET CREATES OPPORTUNITY IN SUKUK MARKET

  • Wider investor base for sukuk vs bond, creating higher demand, thus better pricing for issuers
  • Transparent and well established price discovery mechanism, creating a deep and vibrant

secondary market trading

  • Malaysia’s Sukuk Market has world-class infrastructure for data and valuation which meets

global standards for Financial Reporting and Risk Management 3-yr bond yield matrix

MGS Q1 13 Q4 12 Q3 12 Q2 12 Q2 13 3.01 3.02 3.16 3.06 3.27 3.70 3.73 3.72 3.69 3.76 AAA 3.85 3.88 3.88 3.88 3.86 AA 5.81 5.88 5.96 6.09 5.41 A 3.31 3.27 3.19 3.11 3.36 IRS

3-yr sukuk yield matrix

GII Q1 13 Q4 12 Q3 12 Q2 12 Q2 13 3.20 3.23 3.23 3.18 3.37 3.66 3.69 3.68 3.65 3.72 AAA 3.81 3.84 3.84 3.84 3.82 AA 5.77 5.84 5.92 6.05 5.37 A 3.31 3.27 3.19 3.11 3.36 IRS

Comparison between similar Sukuk and Conventional Bonds shows savings for issuers:

12

12

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SLIDE 13

 Issuance size ranges

from RM100 mil to RM30 bil

 Maturity profile ranges

from 3 months to 27 years

 Sukuk issuances in

different currencies of denominations (MYR, USD, RMB, SGD)

Breadth & depth of Islamic finance transactions in Malaysia e.g. Sukuk

 Various Shariah contracts

e.g. Ijarah, Istisna, Murabahah & Musharakah

 Expanded to form

innovative & hybrid structures including exchangeable sukuk

 MTN programme or one-

time issuance

 Efficient price

discovery

 Average monthly

volume in secondary market: USD42.21 billion

 Public or private sectors  Local & foreign issuers i.e. GLCs, MNCs, MDBs  Players’ expertise in arranging sukuk

EFFECTIVE FUNCTIONING OF ISLAMIC FINANCE MARKETPLACE

13

Listing

 Listing option

  • n Bursa

Malaysia for profiling

Clearing House

 Settlement via

MyClear in MYR, USD, RMB, SGD

 International

documentation & rating allowed

Documentations & rating Regulation and tax neutrality & incentives

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SLIDE 14

Malaysia’s Islamic finance marketplace.

  • Expertise. Innovation. Deal Flow.

Source: Securities Commission

FTSE Bursa Malaysia Shariah Indices are based on internationally compliant criteria

WIDE RANGE OF SHARIAH-COMPLIANT INVESTMENT INSTRUMENTS OFFERS VAST INVESTMENT OPPORTUNITIES

14

Shariah-Compliant Securities on Bursa Malaysia @ June 2013 Number of Shariah-compliant securities 800 Total listed securities 910 Shariah-compliant securities market cap. RM1,007.72 b Total market cap. RM1,598.81 b % of total market cap. 63.03% Islamic Unit Trust Funds (UTF) @ June 2013 Number of Islamic UTF 173 Total industry 999 Islamic UTF NAV RM37.48 b Total industry NAV RM326.40 b % of total industry 11.48% Islamic Wholesale Funds (WF) @ June 2013 Number of Islamic WF 48 Total industry 185 Islamic WF NAV RM15.73 b Total industry NAV RM57.62 b % of total industry 27.30% Islamic ETF @ June 2013 Number of Islamic ETF 1 Total industry 5 Islamic ETF market cap RM0.30 b Total industry market cap RM1.04 b % of total industry 28.40% Islamic REITs @ June 2013 Number of Islamic REITs 4 Total industry 17 Islamic REITs market cap RM16.05 b Total industry market cap RM37.89 b % of total industry 42.40% 14

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SLIDE 15

Liberalisation of market Strategic collaboration Conducive legislative & regulatory environment

  • Allow entry of foreign Islamic financial institutions

(e.g. 3 foreign Islamic banks & 5 international Islamic banks)

  • Increase foreign equity limit in Islamic financial

institutions

  • Encourage domestic financial institutions to venture

abroad

  • Joint collaborations & MoUs with other jurisdictions on

various IF initiatives (e.g. capacity building & training programmes)

  • Reverse linkages & technical assistance programmes

under Malaysia-IDB Member Countries Partnership Strategies

  • Regional & international Shariah dialogues
  • Legislative & regulatory amendments to allow

international currency businesses

  • Flexible policy on investment abroad

BUILDING REGIONAL & INTERNATIONAL CONNECTIVITY

Sukuk issuances beyond RM-denominated

0% 50% 100% 2009 2010 2011 2012 2013

USD SGD RMB

Foreign currency business trending upwards (50% CAGR) Foreign investment of Islamic fund management companies grew by 90%

FX Asset FX Deposit FX Financing

10 20 2011 2012 Jan-May 2013 Local investment Foreign investment

Source: BNM & SC

10 20 Dec 07 Dec 08 Dec 09 Dec 10 Dec 11 Dec 12 Mac 13

AUM (RM’ bil) RM’ bil Non-RM sukuk

15

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SLIDE 16

STRATEGIC COLLABORATIONS FOR GLOBAL DEVELOPMENT IN ISLAMIC FINANCE

Bahrain (2001) Japan (2007)

  • S. Arabia (2004)

Australia (2010) France (2010) HK (2009) Qatar (2007) U.K.(2009) Mauritius (2010) Turkey (2012) Dubai (2007) 16

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SLIDE 17

Malaysia’s Islamic finance marketplace.

  • Expertise. Innovation. Deal Flow.

1994 2001 2003 2006 2008

Training & information resource provider for capital market industry Securities Industry Development Corporation Industry-

  • wned IF

training & consultancy provider, on Islamic banking, takaful & Islamic capital market Islamic Banking & Finance Institute Malaysia

2007

International Centre for Leadership in Finance Leadership development program for financial institutions & business corporations International Centre for Education in Islamic Finance Global university in Islamic finance

  • ffering

certification & post graduate studies in Islamic finance

DEVELOPING A COMPREHENSIVE HUMAN CAPITAL INFRASTRUCTURE TO SUPPORT ISLAMIC FINANCE

Centre for foundation training in investment, conventional & Islamic banking, insurance & takaful Financial Sector Talent Enrichment Program Centre in Shariah & fiqh muamalat research, platform for discourse among scholars, academicians, regulators & practitioners International Shariah Research Academy for Islamic Finance 17

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SLIDE 18

Malaysia’s Islamic finance marketplace.

  • Expertise. Innovation. Deal Flow.

THANK YOU

Email: nikdin@bnm.gov.my