Infrastructure Financing through Islamic
Finance in the Islamic Countries
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4.2. Malaysia
4.2.1. Malaysian Financial Sector and Islamic Finance: An Overview
After the Asian financial crisis of the late 1990s in which the Malaysian financial sector and the
economy were affected adversely, the government of Malaysia made a decision to strengthen
the domestic financial industry to make it more resilient and be able to meet the needs of its
growing economy in a changing and competitive global world. Bank Negara Malaysia (BNM),
the central bank and regulator of the banking and insurance sectors, launched the Financial
Sector Masterplan 2001-201032 to strengthen the banks, insurance/takaful companies and
development financial institutions. The goals of the plan were to provide a supportive legal
and regulatory framework and institutional environment for a strong, innovative and
diversified domestic financial sector that is able to promote a growing and dynamic real
economy efficiently and effectively (BNM 2001). With the expiry of the Masterplan in 2010,
BNM launched the Financial Sector Blueprint 2011-202033 to further bolster the financial
sector by making it progressive and dynamic to help advance the country’s vision of becoming
a high value-added and high-income country.
Similar initiatives were taken by the Securities Commission Malaysia (SCM) that regulates the
capital markets. A 10-year Capital Market Masterplan was published in 2001 to strengthen
different aspects of the Malaysian capital markets. The aim of the Masterplan was to develop
the ‘Malaysian capital market as internally competitive in all core areas necessary to support
the country’s basic capital and investment needs, as well as its longer-term economic
objectives.’ (SCM 2001: 13). Subsequently, SCM issued the Capital Market Masterplan 2 in 2011
to further increase the capacity and efficiency of the Malaysian capital market to meet the
financing requirements of economic growth. The objectives of the plan included providing the
regulatory framework that can promote, among others, capital formation from start-ups to
large-scale projects, enhancing retail participation in the capital markets, and deepening
secondary market liquidity (SCM 2011).
Due to the steps taken by the regulatory bodies, the financial sectors in Malaysia developed in
a robust manner. Chart 4.2.1 shows that the status of the overall Financial Development Index
of Malaysia (0.66) is higher compared to the averages of both OIC member countries (0.23)
and countries belonging to the Asia Pacific region (APR) (0.36). The index values of both the
financial institutions (0.71) and financial markets (0.60) for Malaysia are also significantly
higher than those of the OIC (0.13 and 0.26) and APR (0.33 and 0.46) respectively.
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