National and Global Islamic Financial Architecture:
Prolems and Possible Solutions for the OIC Member Countries
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4.4. Malaysia
One of the first Islamic nonbank financial institutions, the Pilgrims Management and Fund
Board (Lembaga Tabung Haji), was established in Malaysia in 1969. Thereafter, the first
Islamic bank was launched in 1983 and a takaful company was initiated in 1984. The Islamic
financial sector has grown rapidly in Malaysia to become a significant and robust component of
the overall financial sector. With 76 Islamic financial institutions and an estimated value of
USD 423.3 billion in 2013, the country is a global leader in Islamic finance accounting with
25.5% of the total global Islamic financial assets (IRTI and TR 2015: 5). The Islamic banking
assets in the country are worth USD170.28 billion, constituting 21% of the overall banking
sector, and the takaful assets were worth USD 8.596 billion accounting for 10% of the
insurance industry (CIBAFI et. al. 2015: 5, 10). The size of the capital market in Malaysia in
2013 was RM 2.733 trillion (USD 810 billion), of which 56.4% was Shariah compliant. The
Islamic equity market was worth RM 1.029 trillion and the sukuk market constituted RM 512.1
billion (CIBAFI et. al 2015: 199).
Malaysia launched financial sector strategic documents to provide strategic directions to the
banking and insurance industry on the one hand and the capital markets on the other hand.
The Financial Sector Master Plan 2001-2010 was launched by Bank Negara Malaysia, the
central bank of the country, in 2001 to promote a resilient, competitive and dynamic financial
system (KPMG undated). The key pillars of the Master Plan included strengthening the
regulatory and supervisory framework, developing a domestic financial infrastructure,
enhancing competition and domestic capacity, and promoting shareholder and consumer
activism. The Master Plan has specific targets for the development of Islamic banking and
takaful industries that include strengthening operational and institutional infrastructure,
stimulating competition, and raising performance standards. Similarly, the Capital Market
Master Plan 2001-2010 was also initiated in 2001 to make the Malaysian capital market
internationally competitive in all core areas. One of the key goals of the Master Plan was to
establish Malaysia as the International Islamic Capital Market's Center.
With the expiry of the Master Plan, a new set of strategic documents was published to guide
the financial sector in the future in 2011. While the Financial Sector Blueprint 2011-2020
prepared by BNM lays down the key strategic elements of the development of the banking and
insurance/ takaful sectors, the Capital Market Masterplan 2 produced by the Securities
Commission Malaysia does the same for the capital markets for the period 2011-2020. In order
to promote Malaysia as an international hub for Islamic finance, the Malaysian Islamic Finance
Center (MIFC) was launched in 2006. Another key development of the Malaysian financial
system is the International Business and Financial Centre (IBFC) in Labuan. IBFC has a
separate regulatory authority which is the Labuan Financial Services Authority (Labuan FSA)
created under the Labuan Financial Services Authority Act 1996. In 2010, the Labuan Islamic
Services and Securities Act 2010 was promulgated to promote the development of Islamic
finance in the IBFC (BNM 2011: 33).