Malaysia is undoubtedly the world leader in Islamic banking and finance (IBF). In this success story, the role of successive heads of government (starting from Tun Mahathir Mohamad to the current Prime Minister, Dato’ Sri Najib Razak) cannot be understated. Without the vision of the Prime Ministers of Malaysia, planning and execution of an impressive strategy for IBF for the country would not have been possible. ISFIRE had the exclusive opportunity to speak with the Prime Minister of Malaysia to gauge an understanding of his government’s approach towards IBF. The following is an excerpt of a conversation that took place with the Prime Minister during a visit of our Editor-in-Chief, Professor Humayon Dar, to the Malaysian capital, Putrajaya.
HD: According to the recently released Islamic Finance Country Index, Malaysia stands number 2 (behind Iran) for the fourth consecutive year. Could the Prime Minister please share with us his government’s specific role in making Malaysia the global leader in Islamic banking and finance?
PM: First of all, we are immensely happy that there is worldwide recognition of the role Malaysia is playing in developing a system that is based on Islamic notions of justice, equality and equal opportunities for all. Malaysia has taken IBF very seriously since 1982 when the government helped in establishing Bank Islam as the first fully-fledged Islamic bank in the country. IBF comes to us naturally. Malaysia is a modern Islamic country, with a multicultural and multi-faith society living in complete harmony. Our approach has always been to expand opportunities for all, without imposing one narrow set of options on all. Our government was the pioneer of the dual banking system, i.e. allowing Islamic and conventional banks to operate side by side in the market. The customer has, now, access to a wide range of financial products, irrespective of their ethnicity and faith. This approach has proved so successful that many countries studied our model and decided to adopt it. It is such a beautiful model that even Chinese banks are now offering Islamic banking services, without any coercion or external persuasion.
HD: The market has played a crucial role in the development of IBF in Malaysia, but there can be no denial of the fact that the government has also pushed its agenda for the promotion of IBF in the country.
PM (smiling): I was coming to this point. The government has certainly played its role in ensuring a proper infrastructure for Islamic financial institutions to operate on a level- playing field. This is an approach adopted by, more recently, the UK government. I was glad to hear Prime Minister David Cameron and his government announce their commitment to making London a regional centre of excellence for IBF. Malaysia adopted this approach a long time before any other country in the world.
We aspired to be the global leader in IBF, not exclusively for religious reasons but also because we firmly believed that IBF provides viable business opportunities for governments and institutions to benefit from it even on a purely commercial basis. On becoming Prime Minister, I instructed my team not to lose the momentum that my predecessors had successfully created over the last few decades. And I am glad that now Malaysia’s leadership role is well-established in the global Islamic financial services industry.
HD: Prime Minister, you referred to the British Prime Minister, David Cameron, whose statement on IBF at the 9th World Islamic Economic Forum (WIEF) held in London last
November hit the international press with a bang. Was it a surprise for you and other heads of government from the Muslim world to attend WIEF?
PM: I am not sure about other Prime Ministers and Presidents attending the 9th WIEF in London, but I wasn’t surprised at all. We in Malaysia have very closely been watching what is happening in other parts of the world in the field of IBF. UK has always been a serious player, and I am happy to share with your readership that Malaysia has been sharing Islamic financial intelligence with the UK government and different bodies involved in regulating financial services in the country. I, as Prime Minister of Malaysia, am happy to see that even predominantly non-Muslim countries have a friendly approach towards IBF. This confirms the stance of successive governments in Malaysia that IBF should be developed as an ethical business consideration.
HD: There is no doubt that IBF is primarily a business phenomenon but its religious dimension cannot be ignored completely.
PM: Absolutely. Religious consideration drives the demand for IBF. The previous governments in Malaysia ensured that the religious value proposition was not diluted. My own government has adopted this stance as well. I am proud to state that today Malaysia has developed the most comprehensive regulatory framework for IBF. My government enacted a new Islamic Financial Services Act last year, which is the most comprehensive legislation on IBF anywhere in the world. The objective of all this is to ensure that we in Malaysia uphold the most authentic version of IBF, without compromising on our efforts to develop Malaysia as a modern welfare state where all faith groups live and work in cohesion and without compromising on their religious beliefs.
HD: Your Excellency, you are the most informed Prime Minister about IBF in the world. How do you keep pace with all the new developments in IBF, despite having a hectic schedule? PM. Yes, as Prime Minister of Malaysia, I am preoccupied with state affairs and constantly engaged on a number of official and political activities. However, modern technology has allowed us to access information even when we are on the go. For example, when I came to know of a CEO of a Malaysian Islamic bank winning the Islamic Banker of the Year Award last year in Dubai, I immediately tweeted to congratulate him. The tweet was instantaneously picked up by the Malaysian media and was covered by all the national newspapers the next morning. This kind of involvement serves a number of purposes. Firstly, I, as head of the government, remain informed of major activities and developments in IBF. Secondly, it encourages top management of such institutions to excel even more. Knowing that their Prime Minister keeps a close eye on their activities and achievements is bound to be efficiency-enhancing. Finally, the process gives me useful feedback directly, allowing me to remain accessible to anyone.
Anyone in Malaysia and overseas can tweet me on any issue of national significance.
HD: Prime Minister, recently your government offered the government of the Philippines the required cooperation and support to develop IBF therein. Is this part of a policy to export IBF to other countries in the region?
PM: No one can deny the fact that Malaysia has invested heavily in developing a comprehensive infrastructure for IBF. Kuala Lumpur is host to Islamic Financial Services Board (IFSB) and International Islamic Liquidity Management Corporation (IILMC), two organisations that are playing tremendously important roles in developing a comprehensive regulatory framework and offering liquidity management solutions, respectively, to the global Islamic financial services industry. We also established an endowment of RM500 million to set up INCEIF, which is the only university in the world to specialise in IBF.
Furthermore, we also set up an endowment of RM200 million to establish the International Shari’ah Research Academy (ISRA) for Islamic Finance. Today, almost all of our universities offer courses and degree programmes in IBF. Islamic Banking and Finance Institute Malaysia (IBFIM) specialises in courses that serve the needs of the Islamic finance industry in talent and business. Bank Negara Malaysia – our central bank – and Securities Commission Malaysia started a joint venture called Finance Accreditation Agency (FAA) that focused in its first year of operations the standardisation and accreditation of qualifications and courses in IBF offered by any institution in the world. All this puts us in a unique position to offer our advisory and mentoring services to other countries of the world. My offer to President Acquino was in this context. I offered the President to help them train their bankers in Islamic banking and finance.
HD: Your Excellency, it will be helpful if you could inform our readership how IBF is helping Malay Muslims in your country.
PM: I must emphasise that IBF is not only for Muslims. In my country, all ethnic groups and faith communities are engaged in IBF. IBF has emerged as a tool for social cohesion and respect for all in the country. This is consistent with our motto of 1Malaysia. It gives me immense pleasure to see a bank like Hong Leong Islamic Bank (which is owned by Malaysian Chinese) emerging as a major player in IBF. This bank has over 95% Malaysian Chinese shareholders and its CEO is a young Muslim lady. It is an interesting case reflecting the efforts of different ethnic communities and faith groups to benefit from IBF. It also shows that women are playing leadership roles in IBF. Malaysia is among the developed countries that offer women top opportunities in the industry. Our National Shari’a Council has representation from men and women, a distinction that can hardly be boasted by any other country in the world.
Coming back to your question, IBF has helped promote financial inclusion amongst the Malay Muslims who have historically shied away from banking and finance. Today, we find an increasing number of Muslims, especially those coming from a Shari’a and law background, joining Islamic banks throughout the country. Employment generation for young Malay Muslims in Islamic banks, takaful companies and other Islamic financial institutions has certainly helped some of the Muslim communities that were previously not engaged in banking and finance altogether.
HD: What are the next steps for further developing IBF in Malaysia and elsewhere in the world?
PM: We are extremely pleased with the development of IBF in Malaysia and in other parts of the world. It conveys a positive image of Islam to the wider world. In the contemporary world where Islam is associated with extremism, violence and disengagement, IBF provides a bridge between Islam and the West. We are happy that Malaysia is playing a leadership role in this respect. We shall continue to develop IBF as a viable business model, and its socio-economic benefits will come out automatically. I must emphasise that IBF has no hidden agenda. It is purely an ethics-based business phenomenon, but of course it draws guidelines from the principles of Shari’a, which in spirit are shared by all the religions and faith groups in the world.
HD: Finally Dato, Sri, is there any message you would like to give to the people involved in IBF?
PM: I have a simple message. If you remain true to your profession and continue to develop
IBF as an ethical alternative to conventional banking and finance, there is no reason that others will not adopt it in due time. You must show to the world that IBF is an ethical way of doing business, and if you are true in your intentions and practice all the stakeholders in
the industry will benefit from it. I shall also like to highlight Malaysia’s role in promoting Islamic microfinance. Islamic financial institutions around the world should study our al-rahnu-based model of microfinance, which has successfully broadened the scope of Islamic finance by bringing a significant number of families into the fold of IBF.
