KUALA LUMPUR: Malaysia Wednesday urged Muslim countries to lead the way in advocating the Islamic finance sector, saying it expects the "positive trends" for the burgeoning industry to continue.
Malaysia has been promoting Islamic finance — which follows religious laws prohibiting the payment and collection of interest — and has emerged relatively unscathed from the global financial crisis.
"The time is right for this," Prime Minister Najib Razak said in opening the annual World Islamic Economic Forum at the Malaysian capital.
"We see positive trends prevailing for the development of Islamic finance. In some countries, growth is as much as 10-15 percent annually," he told the forum, describing the figures as "encouraging".
"Muslim countries must continue to play a leading role in transforming this sector from being considered niche banking into something that’s widely accepted as central to long-term economic stability around the world," he said.
Islamic banking, a booming trillion-dollar industry, prohibits the payment and collection of interest, which is seen as a form of gambling, so highly complex instruments such as derivatives and other creative accounting practices are banned.
Transactions must be backed by real assets, while the customer and the institution share the risk of any investment and also divide any profits between them.
Indonesian President Susilo Bambang Yudhoyono said Islamic finance is a fast-growing sector, and that it should strive to attract all investors including non-Muslims.
"Muslim nations have a good opportunity to achieve greater growth," he told the forum.
Moody’s Investors Service has forecasted Islamic finance has a market potential of five trillion dollars. The sector also shuns investments in gambling, alcohol and pornography in favour of ethical investments.
On the same day, Malaysian prime minister announced that Malaysia will issue its first Islamic dollar bonds, or sukuk, in eight years, with analysts suggesting it is aiming to raise up to a billion dollars.
"I believe … Malaysia is now well positioned to make its second entry into the global sukuk markets," Razak said in a speech.
Barclays Capital, HSBC Holdings and Malaysia’s CIMB will jointly lead the sale in Asia, the Middle East and in the US.
The government did not disclose the amount of money it hoped to raise but Steven Clayton, Barclays Capital managing director and country head Malaysia, told reporters will be bigger than the 600 million dollars raised in June 2002.
Other analysts and reports said Kuala Lumpur was looking to attract about one billion dollars from the debt sale to pay for development projects to generate growth.
Malaysia is the world’s biggest market for Islamic bonds.
Clayton said a roadshow will end on May 27 after meeting potential investors in Dubai, Abu Dhabi, Hong Kong and in New York.
"We will know the pricing next Thursday. Demand will be very good," he said.
Malaysia, Southeast Asia’s third largest economy, grew 10.1 percent year-on-year in the first quarter, its highest jump in a decade, and is on track for six percent full-year growth.
Malaysia had a budget deficit of seven percent of gross domestic product last year and has vowed to reduce it to 5.6 percent this year by a rollback in fuel and food subsidies.
