Malaysia has been named as the world number one in Islamic finance by the Thomson Reuters Islamic Finance Development Indicator.
What does this mean to the rakyat?
How will this benefit the people?
Let us take a look.
What is Islamic finance?
Islamic finance is a banking or finance system which complies with Allah’s guidelines or shariah law.
The main difference between Islamic finance and conventional finance is interests payments.
In Islamic finance, the rakyat does not have to pay interests.
Islamic finance also does not have elements of gambling and speculative trading.
Islamic finance is also open to all, to Muslims and non-Muslims.
Because of this, Islamic finance continues to attract attention even from non-Muslims from all around the world.
Malaysia is already world number one in Islamic finance
Even before winning this award, Malaysia is already the world number one in Islamic finance.
RAM Ratings said on June 17 that Malaysia is at the top beating Indonesia, Qatar, Saudi Arabia, Kuwait, United Arab Emirates and Bahrain.
Malaysia is the first in the world to issue Islamic bonds and it has stayed at number one for the past 30 years.
Malaysia is top in the world in Islamic finance due to its friendly policies, attractive rates, efficient service and a supportive government.
Global sukuk issuance reached US$22.2 billion (RM96.13 billion) as at end-March 2017, of which Malaysia maintains its leadership with 38.5 per cent of the total issuance.
Companies from around the world come to Malaysia to do Islamic finance
Companies from all around the world are always looking for loans to do business.
One of the places that companies can apply for loans are in Malaysia.
This is because Malaysia offers Islamic finance.
One of the financial instruments that is used to give loans is Islamic bonds or sukuk.
Malaysia which is the issuer continues to be the world’s top Islamic bonds issuer.
A bond issuer is when investors come to Malaysia to invest money.
Malaysia will then issue bonds to the investors.
The money will then be used by the companies to be invested in business.
Any profits made by the companies will then go back to the bond holder or investor.
The profit made is usually high and that is why investors like to invest in Malaysia.
As a result, Malaysia has become the world’s number one destination in Islamic finance and banking.
Non-Muslims also like Islamic finance
One of the reasons why Malaysia is number one in Islamic finance is because non-Muslims also like to borrow money using Islamic loans.
This is because the businessmen can compare between Islamic finance and conventional banking.
At the end of the day, the businessman will find that he is paying more interests for the conventional loan compared to Islamic loans which does not have any interests.
A businessman would always want to save cost and thus he will choose Islamic finance.
This is why Malaysia’s Islamic finance is number one.
When economy is weak, Islamic banking is strong
During the economic slowdown of 1997 and 2007 and now 2017, conventional banking became very weak and soft.
Banks in Malaysia for example are registering slowdown and many are closing some branches.
Islamic banks on the other hand are growing stronger and stronger.
So in a way, Islamic banking is able to save the country’s economy during an economic slowdown.
In a New Straits Times report on May 31, Universiti Tun Abdul Razak’s Bank Rakyat School of Business and Entrepreneurship Assistant Professor Dr Omaima Eltahir Babikir Mohamed said Islamic banks had been less affected than conventional banks during the 2007/2008 financial crisis.
Omaima said the unique features of Islamic banking had shield it from losses incurred through investments in non-compliant syariah assets.
Islamic finance offers a lot of jobs in the future
Islamic finance industry continues to grow into the future and there is an urgent need for highly-skilled and talented human capital to drive forward the future of the industry.
According to the 2014 Finance Accreditation Agency Survey, 80 per cent of respondents believed that the number of people working in Islamic financial institutions was not enough to meet the growing needs of the industry.
According to industry estimates globally, the Islamic financial industry required about one million professionals by 2020, while Malaysia alone needed 22,400 workers in the Islamic financial sector.
So this will offer a lot of jobs for young Malaysians and they will be able to contribute to the economy.
Malaysia on track to become a global hub for Islamic finance.
Currently, there are more than 10 local universities offering degrees in Islamic finance.
Professional bodies, like the International Centre for Education in Islamic Finance (Inceif) and Islamic Banking & Finance Institute Malaysia also support Islamic finance.
So Malaysia will be a learning hub for Islamic finance attracting the best students from all over the world.
When foreign students come to Malaysia, it will be good for our economy as they will spend their money here and this will generate our economy.
Islamic banks in Malaysia – how does it benefit the rakyat
In Malaysia, the biggest Islamic bank is Bank Islam Malaysia as well as Saudi Arabia’s Al Rajhi bank.
Bank Islam’s parent company BIMB Holdings Berhad is public listed firm on Bursa Malaysia.
When ever the bank makes a profit, it will share with the rakyat by paying dividends.
Bank Islam and Al Rajhi bank will both help the rakyat by offering loans to companies.
When there are loans, the companies will be able to do business.
The business will provide jobs for Malaysians as well as help the local economy.