Diversification of Islamic Financial Instruments
164
According to the Takaful report 2016, most of the Malaysian Takaful operators’ Sukuk
allocations are held in unquoted instruments within Malaysia, most of which are likely to be
the corporate Sukuk not listed on Bursa Malaysia and are able to deliver higher yields than the
government Sukuk. Sukuk from outside Malaysia represent a small portion of the investment
allocation to Sukuk within Malaysia.125
According to the Takaful report 2016, a comparison of GCC and Malaysian Takaful operators’
investment allocation, particularly the allocation towards fixed income (or cash equivalents as
the case may be), highlights some of the most important capital markets gaps relevant to
Takaful operators. For the Takaful operators considered in this analysis, the problem is
different than on the conventional side where excessive real estate market exposure is the
most significant.126
Future Direction of the Islamic Finance Industry in Product Offering and Best
Practices in the Market in Malaysia
A new wave of innovation which includes Fintech solutions started in 2016 in Malaysia by
introducing a range of products under the Central Bank of Malaysia and the Securities
Commissions Malaysia. In addition to that few initiatives from the regulators have been
undertaken to ensure comprehensive and robust Islamic finance market. These products and
initiatives are regarded as innovative measures in the market.
Toward Strong Shariah Compliance Operation of the IFI and Close Monitoring
of Shariah non-Compliance Risk
The Islamic Financial Act (IFSA 2013) has shifted the legal framework and legislation in
Malaysia to a higher level compliance and certainty. It marks a new face in the history of the
Islamic banking and finance legislation in Malaysia. The objective of the new legislation is to:
1) Promote financial stability and Shariah compliance in the banking activities. 2) Strengthen
the foundations for the entire business banking model, it is end-to end Shariah governance and
compliance. 3) Support the Shariah compliance contracts in the Islamic financial products and
services. 4) Strong warning followed by penalties in case of the failure to comply with Shariah
mandate.
Following up, the issuance of IFSA 2013, the central of Malaysia has issued a series of Policy
documents to ensure consistency and standardization in the Islamic banking operation. The
policy document contains two distinctive parts, namely the Shariah requirements and
operational requirements. Shariah requirement highlights the salient features, essential
conditions and optional practices of the Ijarah contract including arrangement of the contract
with other Shariah contracts or concepts. The operational requirements are based on the core
principles of good governance and oversight, proper product structuring, effective risk
management, fair business and market conduct and sound financial disclosures.
Malaysia as a Global Hub for Wealth Management
Great focus has been given to wealth management, in line with inspiration from the Securities
Commissions Malaysia’s launching of a 5-year Islamic Fund and Wealth Management Blueprint
in Jan 2017 to identify strategies and key initiatives to strengthen Malaysia’s positioning as a
125 World Takaful report 2016. P20.
126 World Takaful report 2016. P21.