Barriers and Opportunities for Enhancing Capital Flows
In the COMCEC Member Countries
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Foreign ownership of land is generally restricted, although the rules of individual emirates
may specify freehold or leasehold rights for non-GCC nationals. No foreign-exchange controls
apply to restrict the repatriation of profits or capital.
Developing capital markets in Malaysia: a history of successful regulations
Malaysia adopted a very structured approach to developing its capital markets. The first
Capital Market Master Plan (CMP1) was the guiding force for the development of the capital
market from 2001 to 2010. According to the Bank Negara Malaysia (BNM, the central bank),
since 2000, the growth of the Malaysian capital market outpaced the growth of the economy,
expanding from RM718bn ($223bn) to RM2trn ($623bn), an annual compound growth rate
of 11%.
Rapid expansion and strong regulatory oversight were key to the growth of the capital
market. In 2000, Malaysia’s capital markets primarily comprised equities and government
debt securities and under the aegis of the master plan, CPM1, the private debt securities
market and markets for investment management were developed. This was accompanied by
the development of an Islamic capital market (ICM). The CMP1, which was governed by 152
recommendations, provided a comprehensive roadmap for the orderly growth and
diversification of Malaysia’s capital market. Its strategic focus included initiatives to
promote the growth of the investment management industry, enhance market and
intermediation competitiveness and provide a strong regulatory regime, among others,
along with the goal of establishing Malaysia as the centre of an international Islamic capital
market.
According to the central bank, 95% of the recommendations in the CMP1 had been enacted
by the end of 2010. The key foundations of the capital market were the development of
conditions that promoted the rapid growth of industry, and the establishment of a strong
regulatory and institutional framework that provided investor protection in line with
international standards. In terms of Shariah compliance, the central bank believes Malaysia
leads the way in providing the most consistent and comprehensive regulatory framework.
The important component of the development of Malaysia’s capital markets was the move
from a narrow capital market to a broad capital market. In the 1990s, Malaysia’s capital
market was relatively narrow and infrastructure projects were largely funded by the
banking system; the mismatch in maturity was identified by the central bank as a source of
systemic risk during the 1997-98 Asian financial crisis. Structural changes under the CMP1
focused on changing the channels of savings mobilisation and intermediation to reduce
funding vulnerabilities.
The expansion of the capital markets has been accompanied by the diversification of
financing sources, and a balance between debt and equity assets was actively sought to
strengthen the resilience of the financial system.