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MALAYSIA: Despite weak oil
prices and depressed external demand, analysts are optimistic of Malaysia’s
economic position and Islamic finance growth story.
After two years of negative outlook for the Islamic finance heavyweight,
Fitch has finally upgraded the outlook on its ‘A-’ long-term issuer default
ratings to stable on the back of improving fiscal finances – supported by
the implementation of the Goods and Services Tax and fuel subsidy reform –
favorable GDP growth rates and deep local capital markets.
This enhanced view, amid Grexit concerns and choppy equity markets, comes
at a time when the Southeast Asian nation’s Shariah banking and Takaful
industries are projected to expand at double-digit growth rates. The IDB’s
Islamic Research and Training Institute (IRTI) has forecasted an average
18% growth momentum until 2019 for Malaysia’s Islamic banking sector,
translating into 28.56% of total banking assets; while the Islamic
insurance segment is anticipated to record an average 18.2% year-on-year
growth to command 17.96% of total insurance premiums.
“Judging by the data to date, there is positive indication that we are on
track to meet the 40% target of total financing by the year 2020,” said
Muhammad Ibrahim, the deputy governor of the Malaysian central bank, at the
launch of IRTI’s Islamic finance report for Malaysia.
Several factors contribute to IRTI’s projections including stronger demand
at the retail level as well as evolving demographic, social and financial
trends but a major underlying driver is the robust infrastructure project
pipeline under the country’s Economic Transformation Program which is
opening up avenues for Islamic banking financing and Takaful coverage.
The appeal of these lucrative opportunities is well understood by industry
participants, with more conventional players joining the fray to tap the
Shariah dollar. Most recent is the addition of government-owned Agrobank to
the Islamic finance community as it officially assumes the status of a
fully-fledged Islamic bank today.
Focusing mainly on the agricultural sector, the conversion of Agrobank is
significant as it represents an opportunity to narrow the gap between
Islamic finance and the wider Halal industry. “I am confident with Agrobank
as [a] fully-fledged Islamic bank will help to complete the chain of
Shariah compliant supply of resources and facilities from all aspects,
whether in providing food sources or providing funds in implementing
projects,” said Ismail Sabri Yaakob, the minister of agriculture and
agro-based industry.
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