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