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 on 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.