Infrastructure Financing through Islamic
Finance in the Islamic Countries
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of the money and foreign exchange markets (Fen and Tsin 2013). A key feature of IFSA 2013 is
the institution of robust Shariah governance at the organizational level and the highlighting of
the role of the central Shariah Advisory Council (SAC) at BNM that oversees the Shariah-
related issues at the regulatory level.
One of the requirements that IFSA 2013 introduced was the distinction between deposit and
investment accounts. Unlike deposits, the latter would be like an investment where the
customers take the risk of investments. As such, the principal amount for investment accounts
is not guaranteed and the funds are not protected under the Perbadanan Insurans Deposit
Malaysia (PIDM) scheme and the capital requirements are also less stringent.43 The Islamic
banks had to convert the existing accounts into deposit and investment accounts by 2016 with
consultations with their clients. Instead of investing the funds individually, Islamic banks
decided to develop a unified platform called the Investment Account Platform that gathers the
funds of investment accounts from different banks and invests in various ventures and
projects.
The capital markets in Malaysia are governed by the Capital Markets and Services Act 2007
(Act 671) (CMSA 2007). The Act has provisions for Islamic securities and authorizes SCM to
regulate different market segments that include the Islamic capital markets. As in the case of
BNM, SCM also instituted the Shariah Advisory Council (SAC) with the objective of overseeing
the Shariah issues related to capital market products. To facilitate the issuance of sukuk, SCM
issued several specific guidelines such as Guidelines on the Offering of Islamic Securities
(2004)44 , Guidelines on the Offering of Asset-Backed Securities (2004)45 , Guidelines on Sukuk
(2014),46 Sustainable and Responsible Investment (SRI) Sukuk Framework (2014), Guidelines on
Issuance of Corporate Bonds and Sukuk to Retail Investors47, and Guidelines for Sustainable and
Responsible Investment Funds (2017).48 SCM also issued Shariah parameters on Islamic
Exchange Traded Funds based on Gold and Silver (2014).49 The above guidelines were
subsequently replaced by the Guidelines on Unlisted Capital Market Products under the Lodge
and Launch Framework (LOLA Framework). The LOLA Framework seeks to promote process
efficiency, shorten times to the market, and provide certainty for product offerings for
sophisticated investors .50
An important feature that can partly explain the rapid growth of the sukuk sector in Malaysia
is the tax incentives given for the issuance of sukuk. For example, incentives for the issuers of
sukuk include tax deductions of the issuing costs incurred by SPVs and stamp duty exemption
on instruments used to issue sukuk. The incentives for institutional investors to invest in
sukuk include tax exemption and the withholding of tax exemption on profits received by non-
resident investors. In the case of investments in foreign currency sukuk issued in Malaysia,
there are stamp duty exemptions on investment and trading in sukuk and tax exemption on
profits received by resident and non-resident investors. For retail investors, there is an
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