Malaysia seeks sustainable lead to drive Islamic finance growth

Islamic finance pioneer Malaysia is looking for new drivers to reignite growth for its US$286 million (RM1.208 billion) industry.

Sustainable finance and digitisation of services will lead the way, with lenders expected to adopt technologies such as artificial intelligence and big data to break into under-served markets, said Bank Negara Malaysia assistant governor Adnan Zaylani Mohamad Zahid.

The Shariah finance industry is at the crossroads after global interest tapered following a burst of sukuk offerings from non-Islamic countries such as the UK and Hong Kong more than five years ago. Players are now seeking to carve a niche in socially responsible finance, with the likes of Malaysia offering dollar sukuk linked to sustainable activities over the past year.

On sustainable finance:

“Significant mobilisation of funds is required to support Malaysia’s efforts to build climate and social resilience. We see Islamic financial institutions to be at the forefront of advancing the sustainability agenda by scaling up offerings of value-based solutions, and leveraging value-based intermediation works. Bank Negara Malaysia will work with Islamic financial institutions to ensure the regulatory environment is conducive for industry innovation.”

On the halal economy:

“By leveraging Malaysia’s competitive advantage in the halal economy, we see potential for Islamic finance players to further expand their footprint across Asia and OIC countries through halal trade and investment facilitation, including market expansion and offering of ancillary services. Bank Negara Malaysia will continue to facilitate new and strengthen existing global partnerships that support the nation’s halal agenda.”

On digitalisation of financial services:

“Islamic financial institutions should step up the adoption of emerging technologies such as artificial intelligence and big data to tap into new opportunities in under-served markets. Bank Negara Malaysia will strengthen key infrastructures to ensure the ecosystem remains vibrant for digitalisation, including enhancements to regulatory sandbox to accelerate time to market for digital innovation.”

On sustainable development goals:

“We see Islamic finance with the potential to play a significant part in supporting the sustainable development goal (SDG) commitments. A large financing gap needs to be filled to realise the SDGs in developing nations, which is estimated to be between US$2.5 trillion to US$3 trillion annually. OIC countries alone need about US$1 trillion annually to implement the SDGs.

“In Malaysia, green and SRI sukuk issuances have served as a bridge between Islamic finance and sustainable investment. As of February 2021, a total of US$2 billion green and SRI sukuk has been issued since its launch in 2014.”

Below are the growth rates for Malaysia’s Islamic finance industry, as provided by the central bank: