At least this is something Malaysia can proud of, Islamic Banking

I think this is my first time talking about my school project.
Well, school projects..they a€re just not interesting enough to discuss on blog...
But this one, the reason I mention it here is because the project is something related to Malaysia.

I have to do a project about Islamic Banking for my finance module.
As I come from Malaysia, Islamic banking is not a very unfamiliar topic to me.
But, in Singapore, the development of Islamic banking is relatively small compare to conventional banking.
On the other hand, Muslim population is quite small in Singapore, so Islamic banking remain unpopular.
But for Malaysian, we familiar with Islamic banking, we might not fully understand how it works but we know that everything under Islamic banking must be Halal and it prohibits interest.
I believe some of my friends even have a saving account in Islamic bank.

Doing this project gives me a chance to explore on Islamic banking.
The more I read and research on the topic, the more I found that Malaysia is actually quite famous in Islamic financial industry and it is recognised by some media as "Islamic banking hub".
Asset involved in Islamic banking system is USD62 billions in year 2008 in Malaysia.
Total asset of Islamic banking system across the globe is USD580 billions.
So, with some simple math, you will learn that Malaysia is holding approximately 11% of the global assets.
(Other major players in Islamic banking are Kuwait, Saudi Arabia, UAE, Turkey, Bahrain and Qatar)
11% might seems insignificant, but think about most of the Islamic countries are located in Middle East where the countries are rich and wealthy with the oil reserve they have.
I think 11% is quite a good percentage given the size and the ripeness of our financial market in Malaysia.

One of the reasons that contributes to Malaysia's success is its uniform regulation in Islamic banking.
As most of us know, the law of Shariah (where Islamic banking must comply with) is based on Quran and it depends on the Islamic scholars to interpret and translate Quran to the followers.
Therefore, in some countries, like Iran and Pakistan, the country doesn't have one single Shariah law they the whole nation could agree on.
Hence, it is difficult for the bankers to develop the financial instruments as the consumers has no idea whether the products are halal.
But in Malaysia, we have Shariah Advisory Council under Bank Negara which will oversee the legality of the Islamic products that are offered by the banks.
the advisory board not only assure the legitimacy of the Islamic banking system but also help the consumers to identify the Shariah compliance products.
On the other hand, it will also reduce the controversial issue in certain financial contracts.
For example, mark-up principle which is widely use in the financial products (such as Murabahah and Ijarah) in Malaysia often receive critic from the Islamic scholars from Middle East as they believe mark-up principle is still interest-based and should be prohibited.
However, Islamic banks in Malaysia are still allowed to use that principle to design their contracts as it is halal according to the Shariah Advisory Council in Malaysia.

Secondly, Islamic banks in Malaysia receive strong government support.
Islamic banking was initiated as early as 1983 by Tun Mahatir, who was the prime minister that time.
I personally think that Tun Mahatir is very smart and respectable leader.
And if Tun Mahatir is an American, he most probably will become one of the presidents.
I would say that Tun Mahatir was quite ambitious when he first introduce Islamic banking in 1983.
Since then, Malaysia government has introduced a number of supporting measures, including the introduction of takaful (Islamic insurance) as to robust the development and boost the growth of the sector.
While other Islamic countries like Brunei and Indonesia in SEA region stays small in the industry, Malaysia soon evolved as the biggest player in Asia-pacific region.
Brunei only started Islamic banking at 1993, 10 years later than Malaysia.
Indonesia, despite the huge Muslim population they have, the industry's market share is still less than 2%, about USD3 billion.

I think stable political environment also plays a role.
Malaysia is considered safe (by ignore the political drama that we have recently) as compare to Middle East region.
Some of the banks in Middle East were claimed (allegedly) to finance the terrorists' attacks.
As a result, immediately after the 911, many Middle East investors pulled their fund out from the US.

Conversely, Malaysia should also realize the difficulties it will face in the future.
Even though we have a very sophisticated system in place, other upcoming challenges should not be neglected.
1. How to attract a large number of global players?
2. How to develop a broad variety of instruments which can meet consumers' demand?
3. How to install a comprehensive financial infrastructure?
4. How to train more skilled professionals in Islamic banking?

After doing much research, I become qutie acquainted in this topic.
And I think I enjoy doing on this project, you can tell by seeing me typed all those boring facts in my blog.
As Malaysia performs so well in this sector, we should really carry on and make Islamic banking as one of our country's competitive advantages.
But, we need to watch out, Islamic bankning is becoming more and more popular nowsaday where Singapore, Hong Kong, London and the United States started to develop Islamic banking in their countries and compete with us.
(Mostly because after the financial crisis, investors are looking for more ethical and less-risk investments which are also the characteristic of Islamic banking. Most importangly, Islamic banking could provide liquidity which cenventional banking is deperately needing. )
So probably finance students in Malaysia can consider to start their career in Islamic banking, since Malaysia is so resourceful and knowledgable in this industry.
Exploit on the strength, why not!