Lest cynics get bogged down in the semantics of FSBP 2011/20, Bank Negara, the central bank, has impressive form in delivering its previous Financial Sector Master Plan (FSMP) 2000/10. In the Islamic financial space, the FSMP, for instance, was fast tracked some three years ahead of schedule especially in opening up the domestic market to foreign players, and the introduction of a spate of enabling legislation and initiatives to take the industry to the next level of its development.

The only downside is that no other country in the world, especially among the Muslim countries, has reached the same level of systemic development of its Islamic banking system and architecture. This means that there is an inherent structural mismatch between Malaysia and its partner countries when it tries to forge close connectivity in the Islamic finance space. The degree of this mismatch depends of course on the partner country in question.

"We have completed our 10-year Financial Sector Master Plan. We achieved all our objectives. We are releasing a new master plan for the next 10 years. We do not plan to have any market share or other targets for the Islamic finance industry incorporated as part of the new Plan," explained Zeti Akhtar Aziz, governor of Bank Negara.

The FSBP 2011-2020 which was launched by Malaysian Prime Minister & Finance Minister Mohd Najib Abdul Razak at a ceremony in Sasana Kijang in December in the presence of Ahmad Husni Hanadzlah, minister of finance II and Gov. Zeti, charts the future direction of the financial system as Malaysia transitions toward becoming a high value-added, high-income economy. It also positions the country to reap the benefits of increasing regional economic and financial integration; its leadership in Islamic finance to develop Malaysia as an international Islamic financial center; and the growing internationalization of the Islamic finance industry.

"The role of the financial sector is envisioned to grow beyond its role as an enabler of growth to be a key driver and catalyst of economic growth. Toward this end, the aim is for the financial sector to be more competitive, dynamic, inclusive, diversified and integrated, with the ability to offer world class financial services, in terms of breadth, depth and quality to serve the needs of Malaysia. The growth of the financial system should be ultimately anchored to the growth in the real sector. Based on the rate of growth of the economy projected for the next decade, the financial sector is envisaged to expand to six times of GDP in 2020 from 4.3 times of GDP currently. At the same time, the contribution of the financial services sector to nominal GDP is expected to grow from 8.6 percent of nominal GDP to between 10 and 12 percent by 2020," said Bank Negara in a statement.

In the light of the global financial crisis and its impact on the global economy, and the euro zone debt crisis, there is much talk about banking going back to its roots, in that the industry needs to re-focus on serving the economy and not the other way round.

At the same time, due to globalization, increasing international connectivity and regional financial integration and the massive advances in information technology, the authors have structured FSBP 2011-2020 differently - moving away from the sector-based approach of the previous Financial Sector Master Plan (FSMP), and adopting an integrated approach where recommendations are based on shared outcomes applicable to various sub-sectors within the financial sector.

Beyond domestic borders, the Blueprint envisions greater participation by the Malaysian financial sector in facilitating regional financial flows, especially in supporting regional trade and investment, regional financial integration, as well as the internationalization of Islamic finance. "The formulation of the Blueprint also draws important lessons from the recent global financial crisis where financial stability is an important prerequisite in ensuring orderly and sustainable development of the financial sector and the economy as a whole," said Bank Negara.

Prime Minister Mohd Najib described the Blueprint "a far-sighted vision of the systems and strategies we will need to put in place to ensure a more competitive, diversified and dynamic financial sector for the future. Built on the background of many years of strong performance, it is a blueprint designed to take Malaysia's financial sector to the next level as we continue together on the path toward developed nation status. To get there, we will need to forge deeper links between Malaysia and regional economies in other parts of the world. We will also need to break new ground in positioning Malaysia at the forefront of the international market in Islamic finance. I am confident this Blueprint will achieve both these things."

The Blueprint, stressed the prime minister, also complements the government's New Economic Model and Economic Transformation Program, which provides for greater liberalization of the services sector. Indeed the blueprint itself outlines a strategic approach to the further liberalization of the financial sector, which is not only necessary but is also an important means of enhancing the country's future growth and the strength, diversity and competitiveness of the financial sector.

"I want to see our financial sector playing a key role in the cross-border intermediation of Asia's financial funds, with Malaysia's financial institutions continuing to venture abroad and to replicate their domestic success in these new markets. As Islamic finance becomes an ever more important component of the global financial system, Malaysia should continue to develop and to capitalize on our world-beating expertise," he added.

The Blueprint is a comprehensive document focusing on new areas aimed at strengthening the competitiveness and efficiency of the financial sector and its potential role in facilitating Malaysia's ongoing economic transformation and greater regional economic and financial integration. It also comprises 69 recommendations aimed at helping the financial sector to meet the economic and financial realities of the coming decade and to achieve the vision for the financial sector in 2020.

While the blueprint deals with the financial sector in general, it also has several provisions and recommendations specific to the Islamic finance industry per se. Building on Malaysia's position of strength in Islamic finance, according to the blueprint, "initiatives will be put in place to further accelerate the internationalization of Islamic finance moving forward, thereby establishing a more significant role for the financial system in the intermediation of international financial flows. This will involve the introduction of more innovative Islamic financial products and services that will meet the more diverse global demands for Shariah-compliant financial solutions. The enabling environment in Malaysia will also need to continue to be strengthened with a wider range of ancillary services, more efficient delivery channels, adequate supply of high-quality talent and having in place a strong regulatory regime to promote the soundness and stability for the growth and development of Islamic finance."

Zeti in her speech projected that emerging economies will assume a more significant role within the global economic landscape. By 2030, emerging economies are deemed to account for 60 per cent of total world output, from the current 40 percent.

Together with other changes including in the domestic economy, the Malaysian financial system, she maintained, enters this new environment from a position of strength. Bank Negara's first Financial Sector Masterplan (FSMP) 2000-2010 indeed achieved all its objectives. During this decade Malaysia enacted wide ranging legislation and financial infrastructure that has given greater certainty and predictability in the financial system. This includes the Central Bank of Malaysia Act 2009 and the Financial Services Act which is expected to be tabled in Parliament in 2012.

This has led to Malaysia having today a deep and vibrant bond and sukuk market which is the largest in Southeast Asia and the world respectively, and a comprehensive Islamic financial system that is recognized as among the most advanced in the world.

The blueprint envisages that by 2020, the financial system is expected to expand from the current 4.3 times to six times of GDP. Correspondingly, the financial sector contribution to nominal GDP is projected to rise from 8.6 percent to between 10 to 12 percent in 2020. More than half of total financing in 2020 will be raised through financial markets, while Islamic finance will continue to increase in prominence, growing at a faster pace to account for 40 percent of total financing.

The blueprint, explained Zeti, has adopted an integrated approach that reflects a financial sector that has increasing linkages between the various sub-sectors in the financial system. The recommendations, in the blueprint are thus centered on achieving nine major areas:

i) effective intermediation for a high value-added, high-income economy;

ii) the development of deep and dynamic financial markets;

iii) greater shared prosperity through financial inclusion;

iv) strengthening regional and international financial integration;

v) internationalization of Islamic finance;

vi) safeguarding the stability of the financial system;

vii) achieving greater economic efficiency through electronic payments;

viii) empowered consumers;

ix) and talent development for the financial sector.
 
While Malaysia has made significant inroads in becoming an international Islamic financial center, efforts will continue to be undertaken to enhance the Islamic financial ecosystem. This will entail developing a more conducive environment for the mobilization of higher volumes of international Islamic financial flows from a diverse range of players to be channeled through innovative Islamic financial instruments to facilitate greater cross-border activities. In strengthening the legal and Shariah frameworks and further advancing Malaysia's thought leadership in Islamic finance, a single legislated body to be the apex authority on Shariah matters in Islamic finance will be established.

The blueprint also stresses greater emphasis on the management of Islamic funds in Malaysia through the advent of Islamic investment banks, fund managers and wealth advisory service providers with global reach and stature to meet the more sophisticated investment demands of the increasingly affluent population, including households in Asia; encourages the establishment of family offices to better accommodate the demands of ultra high net worth individuals and families, which will also contribute toward Malaysia's aspirations to become a global center for Islamic wealth management; envisages the enlarging of the size and range of Islamic money market instruments to cater for different market needs through innovative Shariah-compliant solutions by promoting equity-based (including hybrid) instruments.

The blueprint, in dealing with financial liberalization, normally a contentious issue, underpins a robust financial policy maturity on behalf of Bank Negara. Zeti stressed that financial liberalization will be pursued in the best interests of Malaysia. "The goals for financial liberalization," explained the governor, "are twofold: firstly, to improve efficiency to productive economic activities, to increase the operational efficiency and lower further the intermediation costs, thus encouraging greater financial innovation, and secondly, to strengthen further Malaysia's economic and financial linkages with the region and other parts of the emerging world. Key recommendations in the blueprint include more flexible limits on foreign participation in financial institutions, the issuance of new licenses to financial institutions with specialized expertise that are able to contribute to Malaysia's economic aspirations and financial sector development."