Malaysia eyes Middle East funds with entry of Islamic foreign banks

Malaysia eyes Middle East funds with entry of Islamic foreign banks

Eileen Ng
Agence France-Presse
Kuala Lumpur

The central bank said Wednesday that issuing new Islamic
banking licenses to foreign players this year would enable
Malaysia to tap funds in the Middle East and become a key Islamic
financial hub.

Malaysia has fast-tracked the liberalization of the Islamic
financial sector -- originally planned for 2007 -- to take
advantage of an estimated trillion dollars of Muslim funds said
to be seeking new investment homes after the 2001 terror attacks
in the United States and uncertainties in the Middle East.

The central Bank Negara in this mainly Muslim Southeast Asian
nation has said it would issue three new licenses to foreign
banks this year, with the first one awarded to Kuwait Finance
House in May.

Opening a two-day Islamic banking and capital market
conference here, central bank governor Zeti Akhtar Aziz said the
presence of foreign Islamic banking players would "act as a
bridge between Malaysia and other global Islamic financial
markets and increase the potential to tap new markets and growth
opportunities.

"It will also contribute to spur financial innovation as well
as facilitate international trade and investment flows between
Malaysia and the rest of the world," she said.

The government also plans to gradually award Islamic banking
licenses to all banks as part of efforts to push them to expand
offshore.

Hussain Najadi, chairman of financial group AIAK Malaysia,
proposed the creation of an Islamic Financial Guarantee Corp.
(IFGC) with a paid-up capital of around US$500 million to allow
local corporations to tap Middle Eastern capital markets.

It should be owned primarily by state investment arm Khazanah
Nasional, Bank Negara, and other Islamic financial institutions,
he said in a paper presented at the conference.

Malaysian corporations could lodge their assets with the IFGC,
issue Islamic financial instruments guaranteed or endorsed by
IFGC, and market them in the Middle East, he said.

The IFGC could also pave the way for Malaysian contractors
bidding for large engineering and infrastructure projects in the
Middle East, Africa and Asia, he said.

"Many European countries such as France, Italy and Germany
resorted to this mechanism after the Second World War," Hussain
said.

"The multiplying effect on our national economy will be
tenfold, not to mention the amount of goodwill and branding
values IFGC can create for Malaysia," he said, adding that
membership could be expanded to other Islamic countries.

Earlier, Zeti said assets in Malaysia's Islamic banking sector
stood at 89.1 billion ringgit ($23.45 billion) in June,
representing nearly 10 percent of the overall banking system.
The government aims to double market penetration to 20 percent by
2010.

Top bank Maybank, which is a leader in Islamic retail banking,
said it was exploring plans to expand its Islamic operations in
the region to remain competitive with the entry of new players.

"We are looking for opportunities in the region. The entry of
new players will make us more resourceful and competitive,"
Maybank head of Islamic banking, Mohamad Ali Mohamad Sarif, told
AFP on the sidelines of the conference.