Last of a series
Malaysia has shortlisted two foreign banks to be licensed as mega-Islamic banks with a minimum capital of $1 billion each. At the same time the country currently has 14 wholly-owned foreign banks (both conventional and Islamic) and may give another five banking licenses by 2012. Zeti Akhtar Aziz, governor of Bank Negara Malaysia, the central bank, confirmed that the applications for the two mega-Islamic banks are still being processed and an announcement to this effect would be made by the end the first half of 2010.
The government of Prime Minister Najib Razak introduced new financial sector liberalization measures in April this year under which Bank Negara Malaysia would issue up to two new Islamic banking licenses in 2009 under the Islamic Banking Act 1983 to world class foreign players to establish new Islamic banks which would be 100 percent foreign owned and with a minimum paid-up capital of at least $1 billion; and up to two new family Takaful (Islamic insurance) licenses to players that could spur the development of the Malaysian Takaful industry. However, foreign investment in domestic banks remains restricted at a ceiling of 30 percent.
“We have liberalized other sectors such as insurance, Takaful and investment banking even more aggressively. One of the reasons why we have retained the 30 percent ceiling for foreign stakes in domestic banks is that we wish to have a strong core domestic banking sector. We want balanced growth in the financial services sector. Under our financial inclusion policy, we would like every part of the country to have access to banking products and services, because we see this as a catalyst for economic development. Fortunately, in Malaysia income disparity is not so great. In fact, the World Bank in a recent survey has ranked Malaysia No. 1 for financial inclusion,” explained Zeti.
Bankers in Kuala Lumpur stress that foreign banks have done very well in Malaysia over the last decade, repatriating massive profits as evidenced in the country’s balance of payments. Indeed Bank Negara Malaysia is now allowing foreign banks, including Islamic banks, to open eight additional new branches on top of the number originally agreed. These are conditional on the banks opening four in urban areas and four in non-urban areas. In addition, the central bank is also allowing these banks to open a further 10 microfinance branches.
The governor stressed that Malaysia is keen to enhance the international dimension of Islamic finance through linkages not only with the international financial centers, but also with those in the emerging countries of the Middle East, Africa, Central Asia and even Latin America. “It is in the latter areas we believe that economic recovery will be the fastest. Bilateral trade is still important, but we also need strategic alliances and Islamic finance can play an important role in this respect. Financial institutions all over the world can participate in this process,” she added.
The inherent features of Islamic finance also contribute to financial stability, and Malaysia is involved with the strengthening of the Islamic finance architecture to ensure the stability and resilience of the industry. Zeti ruled out capital controls and other such measures to contain the impact of the current financial crisis stressing that the Malaysian financial system is far more developed and less volatile than during the Asian financial crisis in 1998 and can adjust to the current crisis much better.
Gov. Zeti revealed that uptake of the guarantees introduced by the government of Prime Minister Razak in April 2009 has been limited in the Malaysian sukuk market. The RM15 billion of guarantees was part of the RM60 billion economic and financial stimulus package announced in April by the Malaysian government to the financial sector, which bankers stress has playing a key role in boosting confidence in the sukuk market and leading its recovery. Under the RM60 billion stimulus package, Kuala Lumpur hoped to stimulate the Islamic and conventional capital markets, especially the sukuk market, through the establishment of a financial guarantee institution to provide credit enhancement to companies that raise funds from the bond market including the sukuk market. Malaysia is the largest Islamic capital market in the world. Islamic bonds accounted for some 58 percent of total issuances in the market in 2008. “The guarantees were a pre-emptive measure. The fact that it has not been accessed much by the sukuk market is a sign of success of the market. The less it is used means that originators are going directly to the market without recourse to the guarantees. Where the guarantees have been utilized much more is in the SME (small-and-medium-enterprise) sector,” explained Zeti.
She defended the Malaysian government plans to introduce a tax on credit card transactions — whether conventional or Islamic credit cards. “The aim of the tax is to make households more efficient in their debt management. Of course it will generate revenues, but it is also aimed at facilitating customer migration from credit cards to debit cards. We want people to spend within their means.”
Malaysia is also encouraging a drive toward electronic payment, and Bank Negara Malaysia estimates that a move toward debit cards could mean a growth of 1 percent in electronic payments. According to Zeti, the government is driving electronic payments. All government payments are done electronically including tax and Zakah payments; road tax and even car insurance.
However, on the question of a banking transaction tax, the so-called Tobin Tax, aimed at curbing the excesses of investment bankers, especially of highly speculative and risky activities, Zeti is sanguine, stressing that it is worth looking at.
But she is not sure whether such a tax would materialize because it requires global cooperation and is only one measure out of several others that needed to be adopted. “I have seen many crises in my career. After each crisis, the major economies — both developed and emerging — come together and set up working groups to look at this and that measure. But not much gets implemented.
The latest is the Financial Services Working Group on capital flows. We need strong leadership to drive this transformation of the global financial services industry to pre-empt the crisis we have been experiencing,” she added.
Other related articles by Mushtak Parker:
Islamic finance is growing at a phenomenal pace: Al-Jasser
Luxembourg is emerging as important domicile for funds, sukuk
Luxembourg is emerging as important domicile for funds, sukuk
Luxembourg advised of more involvement in Islamic finance
MIFC promoting global Islamic finance
