Saudi-Malaysia bourses in deal to develop Islamic financial services

23/03/2014 07:21 AST

Malaysia and Saudi Arabia, the world’s two largest Islamic financial services markets, formed ties to help the industry grow at a greater clip in both the countries.

A report released by the Oxford Business Group (OBG), a global publishing and consultancy company producing annual investment and economic reports on more than 30 countries, said: “A cooperation agreement between the bourses of Malaysia and Saudi Arabia stands to help the industry grow at a greater clip in both countries.”

The report said that the deal, signed recently, will see the exchanges in Kuala Lumpur and Riyadh share expertise and develop human resources jointly.

It covers topics such as equities, mutual funds and sukuk (Islamic bonds) and comes after an agreement between Malaysia’s central bank and the UAE in October on bolstering economic ties, including in the arena of Islamic finance services.

According to official statistics, the Saudi Arabia and Malaysia jointly hold $682 billion in Islamic banking assets.

Tadawul, the Saudi stock exchange, lists the world’s biggest Islamic banks, while Bursa Malaysia hosts the largest and most liquid market for sukuk.

Moreover, the Malaysian market is set to expand this year due to greater international interest.

A recent report by international ratings agency Standard and Poor’s (S&P) said: “Malaysia already benefits from a broad sukuk investor base and liquid debt market. So the increased interest from issuers, notably in the Middle East and Asia, in tapping the Malaysian ringgit and dollar market should in our view continue over the next few years as Malaysia cements its leading position in the industry.”

Moreover, major international investors, too, are extending Malaysia’s clout in Islamic finance as the country has the right landscape and regulatory framework to further spur the development of talent in Islamic finance, which contributes largely to GDP at around nine percent so far.

According to AIG, the US-based insurance company, it is planning to start a Shariah-compliant reinsurance business, by June this year, in Malaysia — a country that accounted for 11 percent of the $20 billion global Takaful (Islamic insurance) market in 2013 According to experts the tie-up would ensure Islamizing businesses by making procedures Shariah-compliant. They feel it will boost Islamic finance sector and help adopt Shariah-compliant laws as many countries have setup regulatory frameworks to facilitate the development of Islamic finance products such as sukuk, but none has drafted Shariah-compliant laws that could be used to settle the disputes that arise from their use.

This could provide an edge for the sector, which is already viewed as a model Islamic system. Islamic financial assets are currently valued at $1.3 trillion and S&P expects the industry to grow at 20 percent annually from 2011 to 2015.

Linking up with the Gulf Cooperation Council (GCC) countries will help spread and develop Malaysian expertise on Islamic finance in general and the sector at large.

Arab News