From left: Securities Commission Malaysia Chairman Datuk Ranjit Ajit Singh, Prime Minister Dato' Sri Najib Tun Razak, and SC Deputy Chief Executive Dato' Dr Nik Ramlah Mahmood at the launch of SC's book ‘Capital Market Development in Malaysia: Growth, Competitiveness and Resilience' JEDDAH – The Islamic capital market has developed to become a viable alternative to its conventional counterpart as an avenue for fundraising and investment, said Dato' Dr Nik Ramlah Mahmood, Deputy Chief Executive, Securities Commission Malaysia in his speech at the International Islamic Capital Market Forum on Sept. 3 (Wednesday) in conjunction with Global Islamic Finance Forum 2014 held at Sasana Kijang Center, Kuala Lumpur.
Apart from its ability to attract broader participation by virtue of its compliance with Shariah requirements, the Islamic capital market operates based on principles that not only are universally accepted but, of late, are being increasingly prioritized, he said.
“While this development augurs well for the future of the Islamic capital market, it also demands that product and service innovation initiatives, moving forward, be focused on promoting and achieving a delicate balance between commercial viability on the one hand, and sustainability and social equity on the other,” he further said, noting that the Securities Commission aims to nurture a facilitative ecosystem that will enable the Islamic capital market to serve this objective in moving towards the new frontier.
Dr Nik Ramlah highlighted three areas that have the potential to be new catalysts for growth of the Islamic capital market, they are Responsible Innovation, Halal Industry, and Waqf.
In responsible innovation, which includes, among others, sustainable and responsible investing, is an approach that takes into account various environmental, social and economic concerns throughout the innovation process with a view to creating value for the society while respecting the environments, he noted.
“With the increasing concern over environmental and social impact of business and the greater demand for stronger governance and ethics on corporations, the Islamic capital market is well positioned to benefit from the pursuit of responsible innovation to address these issues, as its underlying principles clearly resonate with the objectives of responsible innovation,” Dr Nik Ramlah explained.
The sukuk market remains vibrant as it continues to generate greater interest from both the investors and the issuers, he noted. In order to further broaden the participation in this market, the SC last week released the framework for the issuance of Sustainable and Responsible Investment sukuk, or SRI sukuk. The framework represents part of the SC's agenda to develop the SRI sector which has grown to become very significant globally, especially in the more developed countries.
For example, the size of investment funds being managed according to SRI criteria globally stood at $11.2 trillion with 97 percent of these assets being domiciled in Europe, the US and Canada. The principles underlying SRI have been observed to be not dissimilar with those underlying Islamic finance, hence the SC believes the SRI sukuk initiative is timely in bringing together the growing SRI sector and Malaysia's well-developed Islamic finance industry, Dato' Dr Nik Ramlah further said.
Moving to halal industry, he said it has now emerged as one of the fastest growing business sectors in the world. The global halal market is estimated to be worth more than $2.3 trillion and the value of the halal food sector is reaching $700 billion annually. The non-food sector is much bigger, and includes chemicals, healthcare, cosmetics, personal care and pharmaceuticals.
Under this scenario, he said the Islamic capital market can play a greater role in connecting and supporting the value chain within both the food and the non-food halal sectors through efficient and effective intermediation of fundraising and investment activities.
“To some extent, linkage between the Islamic capital market and the halal industry in Malaysia has been established through the Shariah screening process for listed companies as the screening criteria include financial ratio benchmarks that may influence companies that are involved in the halal industry to undertake Shariah-compliant financing and investing,” he emphasized.
About Waqf, Dr Nik Ramlah stated that contemporary solutions that leverage on Islamic finance can facilitate and accelerate the development of waqf assets on a larger scale and to achieve various social and economic outcomes, which currently is limited largely for religious purposes. — SG
