KLIFF ISLAMIC FINANCE AWARDS DINNER 2009

ADDRESS
BY

YB TAN SRI NOR MOHAMED YAKCOP
MINISTER IN THE PRIME MINISTER’S DEPARTMENT MALAYSIA

NIKKO HOTEL
KUALA LUMPUR

3 NOVEMBER 2009

(salutations?)

Distinguished guests.

Asalamualaikum Warahmatullahi Wabarahkatuh and good evening.

I am indeed honoured to be at tonight’s dinner to acknowledge the winners of KLIFF Islamic Finance Awards 2009. Let me take this opportunity to commend the organizers, the Centre for Research and Training and Hisham, Sobri and Kadir, as well as the sponsor, Bank Muamalat Malaysia Berhad, for giving tribute to financial institutions and individuals who have shown stewardship and contributed to the development of Islamic finance.

2. I would also like to congratulate winners of the Awards. Indeed, these awards represent our acknowledgement and recognition of your achievements and significant contribution to Islamic finance. I am confident these Awards will inspire you to further propel Islamic finance to greater heights.
Distinguished guests,

3. The global financial crisis has revealed significant flaws in the global financial architecture that had contributed to the crisis. The crisis, sparked by aggressive financial innovations, indiscriminate lending and excessive risk-taking, has brought to the forefront structural weaknesses and imbalances which had caused severe financial stresses and the build up of systemic risks in the international financial system.

4. In the wake of the crisis, there has been increasing calls for urgent reforms to the regulatory environment to prevent a recurrence of the crisis. Much of the call for reforms centers on the need for a regime that can more readily identify emerging vulnerabilities and able to address systemic risks effectively and efficiently.

Distinguished guests,

5. In this search for reforms, Islamic finance clearly provides a more equitable and risk averse alternative to the conventional approach. Indeed, Islamic finance has much to offer in promoting financial stability through its prudent and socially-responsible principles. Its inherent emphasis on the ethical considerations of finance is embedded in the Shariah principles on transparency and risk taking. Its rules on disclosures, leveraging and risk-taking as well as prudent behavior have to a large extent contributed to its relative stability during the recent global financial turmoil.

6. The pillar of Islamic finance lies in the syariah principles which not only emphasize underlying assets but also ethical values, including socially responsible investment, fair trade and good governance and transparency. The Shariah-based approach contains in-built checks and balances through risk- and profit-sharing structures, and prohibit excessive leveraging, imprudent risk taking and speculative financial activities.

7. More importantly, it demands a high level of disclosure and transparency in the financial system which is consistent with the principles of sound regulatory framework. This in-built governance and risk management provide safeguards against potential risks arising from excessive risk exposures.

8. Whilst Islamic finance has not been fully insulated from the recent financial crisis, these Shariah principles have demonstrated its resilience and stability which has enabled Islamic finance to continue to expand in terms of growth as well as diversity of products and services.

9. Malaysia has been the pioneer in the global sukuk market. Our market has experienced tremendous growth and we remain as one of the largest issuers of sukuk globally. In 2008, about 60 percent of the world's issuance of sukuk originated from Malaysia.

10. In the Malaysian bond market, Sukuk has maintained its dominance, accounting for 58 percent of total bond market. In the first quarter of this year, sukuk issuances totaled 6.4 billion ringgit, with three large issues of between 1 to 2.5 billion ringgit.

11. In the Malaysia bond market, Sukuk has maintained its dominance in the bond market. Up to October this year, sukuk issuances totaled 26.1 billion ringgit, accounting for 54 percent of total bonds issued of 48.6 billion ringgit.

12. Previous issuances of sukuk by multi-nationals, foreign corporations and Multilateral agencies, such as the International Finance Corporation, World Bank and the Islamic Development Bank have also successfully garnered overwhelming response from resident and non-resident investors, as reflected by the oversubscription of these sukuk issuances.

13. The rapid development of our Islamic capital markets is not only confined to sukuk. Issuance of Islamic securities has also maintained its dominance. About 87 percent of the listed securities on Bursa Malaysia are Shariah-compliant. They account for some 65 percent of total market capitalization. In the unit trust industry, while Islamic funds currently account for 12 percent of the total net asset value of the industry, its growth has been encouraging.

Distinguished guests,

14. Looking beyond the current global financial situation, and as Malaysia embarks on a new economic model aimed at shifting onto a high growth and high income path, clearly an area that we must continue to leverage on our strengths is Islamic finance. Malaysia has already achieved global positioning and is recognized as a leader in Islamic finance. Notwithstanding this, the greater challenge is to enhance our global position, particularly given the increasingly intense competition in this fast-growing segment of the international financial market.

15. As we move forward to further strengthen our position as the leading global Islamic financial hub, vigorous efforts are required to drive innovation to meet the changing requirements of businesses and investors. Indeed, innovation is key to value adding the future of Islamic finance and thus, securing greater competitive edge.

16. We also need to take the lead in further strengthening the architecture of Islamic finance and continue embarking on extensive marketing and promotional efforts. All these efforts are particularly essential in creating attractive environment to attract global Islamic fund management companies to establish their operations in Malaysia.

CONCLUSION

17. The global financial crisis underscores the paramount importance of ethical considerations of finance, based on the foundation of disclosure, transparency and governance. These ethical considerations as underscored by Shariah principles will increasingly pave the way for Islamic finance to be an integral component of the international financial system and contribute towards greater global financial stability.

18. On this note, I would like to thank the organizers for inviting me to join you in honoring the achievers who have played a leading role in bringing the development and growth of our Islamic finance.

Thank you.
Wasalamualaikum warahmatullahi Wabarahkatu.
Economic Planning Unit
Prime Minister’s Department
3 November 2009