Islamic Fund Management
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4.2.4 Key Factors Underpinning the Development of Malaysia’s Islamic Fund
Management Industry
Legal and Regulatory Framework
Malaysia adopts a comprehensive legal and regulatory framework that transcends the various
facets of the financial markets. The country’s financial stability has been supported and upheld
by the Capital Markets and Services Act 2007 (which governs capital market activities), the
Financial Services Act 2013 and Islamic Financial Services Act 2013 (which oversee the
respective conventional and Islamic banking sectors), as well as other various policies and
guidelines released through the years.
Specifically for the Islamic fund industry, and as mentioned earlier i the regulators
have put in place various measures to support the development and expansion of products, as
well as to attract a wider array of investors, both domestically and internationally.
Shariah Governance Framework
The hallmark of developing a successful Islamic finance landscape is the lofty ethical values
under the Shariah governance framework. In 1996, the SC established the SAC, which was
given the mandate to ensure that the implementation of the ICM complied with Shariah
principles. The SAC advises the SC on all matters related to the development of the ICM and
functions as a reference centre for all ICM issues. This centralised approach promotes the
transparency of Shariah rulings and resolutions, which in turn builds investor confidence.
Market Infrastructure
The transformation of the Malaysian economy into becoming more diversified and private
sector-driven has been key to propelling the debt securities and sukuk markets, thereby
reducing its reliance on the banking sector following the Asian financial crisis in 1997. In
ensuring the efficient functioning of the market, mechanisms had been put in place to improve
liquidity and enhance the overall price-discovery process. At its core had been a
comprehensive and modern depository, delivery and settlement system to facilitate the
issuance, trading and settlement of debt securities in the market. MyClear, a 100%-owned
subsidiary of BNM, operates as an integrated large-value payment and securities settlement
system, known as RENTAS. RENTAS functions as a real-time gross settlement system, which is
also integrated with a central depository system (CDS) and handles the settlement of unlisted
government, BNM and corporate debt securities. Similarly, Bursa Malaysia handles the clearing
and settlement of securities and derivatives on the stock exchange. Over the years, listing and
other fees have been reduced to encourage the listing of private companies and facilitate faster
time to market for IPOs. On the Shariah-compliant side, Bursa Suq Al-Sila (BSAS) was
established to facilitate Islamic liquidity management and financing by Islamic financial
institutions.
With such infrastructure in place, Malaysia’s debt securities and sukuk market is the third
largest in Asia. Its equity market houses the largest number of listed companies in ASEAN (SC
Annual Report, 2017).