The Qatar Islamic Bank announced profits rose in 2008 at the same time it announced a rights issue to shore up its capital.
One of the few banks that provides venture capital funding, VC Bank, announced that it was profitable and was paying a dividend to its shareholders. My monthly 'Expert Opinion' column in Business Islamica for next month focuses on the current lack of Islamic venture capital, particularly in the GCC, although a few institutions such as VC Bank do provide it.
The Star newspaper in Malaysia conducted an interview with Securities Commission chairwoman Zarinah Anwar which focused on the growth of Islamic finance in Malaysia.
StarBizWeek: At this time of global recession, do you have other priorities apart from corporate governance?
Zarinah: Our thrust is two-fold. One is to ensure that the market continues to be resilient, that laws continue to be enforced and that our market participants continue to subscribe to the highest standards of conduct. This is essential to sustain investor confidence in our markets. There is just no short cut to it.
Equally, we need to take measures to remain competitive and position ourselves to benefit from the market recovery.
StarBizWeek: What is a potential area of focus?
Zarinah: An area that we will continue to invest is the Islamic capital markets where we are an acknowledged global leader and have a niche role. There is a lot of competitive pressure in this space but we have a headstart, due to the amount of work we have done and successes scored, and we are in a good position to grow that segment of the market.
The government is also providing a lot of support. We have seen growth, notwithstanding difficult times. We’ve had a lot of interest from players wanting to set up operations here. In the Islamic fund management side, we recently awarded three new licences to three global fund managers.
StarBizWeek: So far, Islamic finance involves mostly the sukuk and not so much the PLCs, except for Axis Reits which has classified itself as an Islamic Reit. Can anything be done?
Zarinah: What may not really be well-known is that 87% of the companies listed on Bursa are actually Shariah-compliant. So there is a wide selection of companies on the exchange which can be subject of investments by funds and investors looking for Shariah-compliant products.
Our Islamic capital market is very comprehensive. Besides sukuk and Shariah compliant companies, we have three Islamic Reits and Islamic exchange traded fund. We have a sizeable Islamic unit trust industry which makes up 12.% of the the total net asset value of the unit trust industry. Last year, the performance of our Islamic unit trust funds showed more resilience than the conventional funds.
StarBizWeek: One reason why Islamic finance is less known on the corporate side could be due to the fact that we are not a financial centre. Can we get the funds and manage it in a different way, say, regionally?
Zarinah: This is what we are encouraging. There has been significant liberalisation in the Islamic capital market especially in fund management.
We allow 100% foreign fund managers to come in and set up their Islamic fund management operations. So far, the eight that have been given licences have expressed their plans to make Malaysia their international or regional hubs for Islamic fund management.
We have a competitive edge here and we are working in tandem with the Malaysia International Financial Centre (MIFC) initiative. We are going on roadshows, forums and conferences. We also meet fund managers and analysts to make sure that their awareness of the Islamic capital market in Malaysia is enhanced, and these are bringing results.
StarBizWeek: There are opinions that the Islamic finance model can be a viable alternative in view of the failure of conventional models. How long will it take for the Islamic model to catch up, and what are the issues involved?
Zarinah: The financial crisis has demonstrated the resilience of the Islamic financial market. Investors may prefer investment products that are simpler and more reliable and this is likely to grow demand for syariah compliant products which avoid excessive speculation and backed by real economic transactions.
These inherent characteristics distinguish Islamic products from some of the more complex structured products that we have in the markets.
Notwithstanding the achievements in this area, there are still challenges which include coming up with a greater diversity of products, human capital developmenst, interpretation of Shariah and the availability of information on Islamic finance.
We are publishing materials to contribute to the body of knowledge that can be used for research and development purposes.
StarBizWeek: Would the meltdown that is affecting the Middle East have an impact on our efforts to tap this source of funds, that was once considered to be vast?
Zarinah: The activities in Islamic finance are slowing down in tandem with the slowdown in the conventional market and risk aversion amongst investors.
Size of sukuk issuance worldwide was also smaller although there was not much difference in the number of issues between 2008 and 2007