PM Mohd Najib Launches Malaysia's New Strategic Financial Sector Blueprint 2011-2020 (by MIFC)

Malaysian Prime Minister & Finance Minister Mohd Najib Abdul Razak launched Bank Negara Malaysia's Financial Sector Blueprint (FSBP) 2011-2020 at a ceremony in Sasana Kijang on 21 December 2011, in the presence of Minister of Finance II, Ahmad Husni Hanadzlah, and Bank Negara Malaysia's Governor Dr. Zeti Akhtar Aziz.

But in reality, the impact on the Islamic finance industry of the global financial crisis has been more indirect - more due to the economic impact in the markets in which they operate.

The Blueprint, themed "Strengthening Our Future" is a strategic plan that charts the future direction of the financial system as Malaysia transitions towards becoming a high value-added, high-income economy. It also positions the country to reap the benefits of increasing regional economic and financial integration, its leadership in Islamic finance to develop Malaysia as an international Islamic financial centre and the growing internationalisation of the Islamic finance industry.

In his speech, the Prime Minister described the Blueprint "a far-sighted vision of the systems and strategies we will need to put in place to ensure a more competitive, diversified and dynamic financial sector for the future. Built on the back of many years of strong performance, it is a blueprint designed to take Malaysia's financial sector to the next level as we continue together on the path towards developed nation status. To get there, we will need to forge deeper links between Malaysia and regional economies in other parts of the world. We will also need to break new ground in positioning Malaysia at the forefront of the international market in Islamic finance. I am confident this Blueprint will achieve both those things."

The Blueprint, stressed the Prime Minister, also complements the government's New Economic Model and Economic Transformation Programme, which provides for greater liberalisation of the services sector. Indeed the Blueprint itself outlines a strategic approach to the further liberalisation of the financial sector, which is not only necessary but is also an important means of enhancing the country's future growth and the strength, diversity and competitiveness of the financial sector.

"I want to see our financial sector playing a key role in the cross-border intermediation of Asia's financial funds, with Malaysia's financial institutions continuing to venture abroad and to replicate their domestic success in these new markets. As Islamic finance becomes an ever more important component of the global financial system, Malaysia should continue to develop and to capitalise on our world-beating expertise," he added.

The Blueprint is a comprehensive document focusing on new areas aimed at strengthening the competitiveness and efficiency of the financial sector and its potential role in facilitating Malaysia's ongoing economic transformation and greater regional economic and financial integration. It also comprises 69 recommendations aimed at helping the financial sector to meet the economic and financial realities of the coming decade and to achieve the vision for the financial sector in 2020.

Meanwhile, Dr. Zeti in her speech projected that emerging economies will assume a more significant role within the global economic landscape. By 2030, emerging economies are deemed to account for 60 per cent of total world output, from the current 40 per cent.

Together with other changes including in the domestic economy, the Malaysian financial system, she maintained, enters this new environment from a position of strength. Bank Negara's first Financial Sector Masterplan (FSMP) 2001-2010 indeed achieved all its objectives. During this decade Malaysia enacted wide ranging legislation and financial infrastructure that has given greater certainty and predictability in the financial system. This includes the Central Bank of Malaysia Act 2009 and the Financial Services Act which is expected to be tabled in Parliament in 2012.

This has led to Malaysia having today a deep and vibrant bond and sukuk market which is the largest in South East Asia and a comprehensive Islamic financial system that is recognised as among the most advanced in the world.

It is envisaged that by 2020, the financial system is expected to expand from the current 4.3 times to six times of GDP. Correspondingly, the financial sector contribution to nominal GDP is projected to rise from 8.6 per cent to between 10 to 12 per cent in 2020. More than half of total financing in 2020 will be raised through financial markets, while Islamic finance will continue to increase in prominence, growing at a faster pace to account for 40 per cent of total financing.

The Blueprint, explained Dr. Zeti, has adopted an integrated approach that reflects a financial sector that has increasing linkages between the various sub-sectors in the financial system. The recommendations, in the Blueprint are thus centred on achieving nine major areas:
• effective intermediation for a high value-added, high-income economy;
• the development of deep and dynamic financial markets;
• greater shared prosperity through financial inclusion;
• strengthening regional and international financial integration;
• internationalisation of Islamic finance;
• safeguarding the stability of the financial system;
• achieving greater economic efficiency through electronic payments;
• empowered consumers;
• and talent development for the financial sector.

While Malaysia has made significant inroads in becoming an international Islamic financial centre, efforts will continue to spearhead the internationalization of Islamic finance to facilitate greater cross-border Islamic financial activities. In strengthening the legal and Shariah frameworks and further advancing Malaysia's thought leadership in Islamic finance, a single legislated body to be the apex authority on Shariah matters in Islamic finance will be established.

Dr. Zeti stressed that in the Blueprint, financial liberalisation will be pursued in the best interests of Malaysia. According to her "The goals for financial liberalization are twofold: firstly, to improve allocative efficiency to productive economic activities, to increase the operational efficiency and lower further the intermediation costs, thus encouraging greater financial innovation. Secondly, to strengthen further Malaysia's economic and financial linkages with the region and other parts of the emerging world. Key recommendations in the Blueprint include more flexible limits on foreign participation in financial institutions, the issuance of new licences to financial institutions with specialised expertise that are able to contribute to Malaysia's economic aspirations and financial sector development."