Role of Islamic Capital Market in Economic Growth Zainal Izlan Zainal Abidin Executive Director, Islamic Capital Market Securities Commission Malaysia 1 Role of ICM in Economic Growth OIC countries are expected to record higher average GDP growth compared to the global average over the next five years Opportunity for Islamic capital market to facilitate mobilisation of wealth and funds to support sustainable economic growth Sources: KFH Research, Pew Research (2011), World Bank (2013) 2 Global Sukuk Market Total sukuk outstanding globally reached USD286.4 bn as at end 1H2014 Debut sovereign issuances in 2014 by the UK, Hong Kong, South Africa, Luxembourg Growing diversity in the sukuk market in terms of investors, currencies, sectors, etc. 3 Sukuk Issuance by Sector (Global) Selected issuances in recent years: • PLUS (Malaysia) – Transport • Saudi Electricity – Power • Oooredoo (Qatar) - Telecom Sources: Bloomberg, Zawya, IFIS, KFH Research 4 Sukuk: Value Proposition Broadens the investor/subscriber base thus providing more competitive pricing for issuers Enhances inclusiveness thus promoting more equitable wealth distribution/sharing Contributes to development and growth of Halal as well as SRI businesses and economy Provides more options for issuers and investors – facilitates diversification and reduces concentration risk 5 Malaysia: Trend in Sukuk Issuance Year Sukuk issued to total bonds issued (%) 2008 2009 2010 2011 2012 2013 27.5 32.0 32.4 35.7 51.1 54.9 Size of sukuk issued Size of total bonds issued (RM billion) (RM billion) 110.1 116.4 132.8 185.0 324.6 275.8 400.1 363.3 410.5 518.8 635.5 502.2 6 Yield Comparison Between Sukuk and Bonds in Malaysia 3-yr bond yield matrix 3-yr sukuk yield matrix Q3 13 Q4 13 Q1 14 Q2 14 Q3 14 GII 3.37 3.49 3.56 3.59 3.64 4.09 AAA 3.85 3.91 3.96 4.08 4.04 4.29 4.25 AA 3.97 4.04 4.11 4.24 4.20 5.46 5.55 5.50 A 5.30 5.32 5.41 5.50 5.45 3.75 3.84 3.83 IRS 3.47 3.68 3.75 3.84 3.83 Q3 13 Q4 13 Q1 14 Q2 14 Q3 14 MGS 3.43 3.43 3.41 3.55 3.51 AAA 3.89 3.96 4.01 4.13 AA 4.01 4.09 4.16 A 5.34 5.37 IRS 3.47 3.68 Source: Bond Pricing Agency Malaysia 7 Shariah-Compliant Equities Dow Jones Islamic Market World Index - Sector Allocation Classification of Shariah-compliant equities: Attracts wider range of investors to own shares in listed companies, directly and indirectly via funds Provides listed companies incentive to comply with screening criteria and more options for fund raising Participating in economic growth through investment in Shariahcompliant stocks across various sectors of economy Total market capitalisation – USD 23.2 tn Component number - 2,578 stocks (as at end Sept 2014) Source: S&P Dow Jones Indices 8 Global Islamic Funds Total global Islamic AUM reached USD75.1 bn as at June 2014 Total number of Islamic funds increased to 1,069 funds The growth, albeit gradual, is driven partly by rising wealth and portfolio diversification 9 Islamic Funds: Value Proposition Enables pooling of resources to invest in diverse range of Shariah-compliant securities & instruments Facilitates effective mobilisation of funds to participate in various sectors & create more wealth in the economy Provides different fund structures to suit specific needs, requirements and preferences Creates opportunities for cross border linkages and businesses 10 Development of SMEs Islamic Private Equity and Venture Capital segment can spur development of small and medium scale businesses SC Malaysia working on regulatory framework for equity crowdfunding Source: World Bank 11 Building Blocks for an Effective ICM Talent Pool Strong Intermediation Institutions Legal and Regulatory Framework Shariah Governance Framework ICM Ecosystem Tax Framework Diverse Pool of Players Government Support 12 Action Plans for ICM Development Implement tax neutrality provisions for sukuk issuance Adopt screening of equities for Shariah compliance Intensify stakeholder awareness & education programmes Enhance capacity building and research &development initiatives 13 Thank You 14