Development of Sukuk Market in Malaysia

Nurulhuda Abd Mutalib
6 Jan 201922:14

Summary

TLDRThis transcript discusses the Islamic capital market, focusing on Sukuk, an Islamic financial instrument structured in compliance with Sharia law. It covers the historical development of Sukuk, its types, and the factors contributing to its growth, particularly in Malaysia. Key drivers include political and economic stability, good governance, and religious influence. The transcript also addresses the challenges facing the Sukuk market, such as legislative frameworks, tax issues, and standardization. The outlook for the Sukuk market is positive, with projections for continued growth in Southeast Asia and the global market.

Takeaways

  • 😀 Sukuk is an Islamic financial instrument structured in compliance with Sharia principles, representing ownership in tangible assets or investments.
  • 😀 Unlike conventional bonds, Sukuk avoids interest (Riba) and offers income generated from assets or businesses based on Sharia-compliant contracts.
  • 😀 The concept of Sukuk was first proposed in the 1960s but was initially rejected by the Malaysian government, later gaining traction in the 1990s.
  • 😀 Malaysia is a key player in the global Sukuk market, having been the first to issue Sukuk in the 1990s and continuing to dominate global issuance.
  • 😀 By 2018, global Sukuk issuance was projected to reach $90 billion, with significant contributions from countries like Malaysia, Bahrain, and Indonesia.
  • 😀 Sukuk issuance has faced challenges, including legislative issues, double taxation, and the lack of standardization across Sharia advisory councils in different regions.
  • 😀 Factors contributing to the growth of the Sukuk market include political stability, strong governance, the influence of religious scholars, and a favorable legal and tax framework.
  • 😀 Malaysia has a robust regulatory framework, with the Securities Commission of Malaysia and the Sharia Advisory Council ensuring Sukuk's compliance with Islamic principles.
  • 😀 The Sukuk market has expanded into sectors like green technology, with growing interest in sustainable investment opportunities.
  • 😀 The future of the Sukuk market in Southeast Asia looks promising, with a projected annual growth rate of 10-13%, maintaining its role as a key fundraising tool in the region.

Q & A

  • What is sukuk, and how is it different from conventional bonds?

    -Sukuk is an Islamic financial instrument structured according to Sharia principles, often backed by tangible assets, and involves equity and profit-sharing elements. Unlike conventional bonds, sukuk does not generate money from interest (riba), which is prohibited under Islamic law. Instead, sukuk provides a stable income through asset-backed investments.

  • Who proposed the concept of sukuk, and when did it gain traction?

    -The concept of sukuk was proposed by Professor Foucault in the 1960s but was initially rejected by the government. It gained traction in the 1990s, with Malaysia playing a key role in introducing and developing sukuk in the Islamic financial market.

  • What are the primary regions contributing to the global sukuk market?

    -The primary contributors to the global sukuk market are the Middle Eastern and Southeast Asian countries, with Malaysia and the GCC (Gulf Cooperation Council) countries leading the market, particularly in sukuk issuance.

  • How does sukuk provide value to investors?

    -Sukuk provides value to investors by offering stable and predictable returns, either through fixed or variable rates, backed by tangible assets or business ventures compliant with Islamic principles. Investors gain ownership in underlying assets and share in the profits or returns generated from those assets.

  • What are the different types of sukuk contracts mentioned in the transcript?

    -The transcript outlines several types of sukuk contracts, including: sale agreements, lease agreements, agency agreements, and profit-sharing agreements. These contracts are structured based on Islamic law and are designed to cater to different sectors such as real estate, construction, and finance.

  • Why is Malaysia considered a key player in the sukuk market?

    -Malaysia is considered a key player in the sukuk market due to its early adoption and development of sukuk issuance, starting in the 1990s. Malaysia has created a conducive environment for sukuk issuance with a stable political and economic climate, strong governance, and a robust Islamic financial framework.

  • What are some of the factors driving the growth of sukuk in Malaysia?

    -Key factors driving the growth of sukuk in Malaysia include political and economic stability, effective governance by the Securities Commission, a well-established legal and regulatory framework, and strong support from Islamic scholars and religious institutions advocating for Sharia-compliant financial instruments.

  • What challenges does the sukuk market face in its development?

    -The sukuk market faces several challenges, including legislative and tax frameworks, standardization of Sharia-compliant practices, the sustainable supply of corporate sukuk, and the development of a strong network of financial intermediaries. These challenges hinder the further growth and expansion of sukuk markets globally.

  • What are the future prospects of the sukuk market in Southeast Asia?

    -The sukuk market in Southeast Asia is expected to continue growing, with Malaysia remaining a dominant player. The market is forecasted to increase by 4% annually, and sukuk is anticipated to remain a key source for corporate fundraising and infrastructure development in the region.

  • What role do Islamic scholars play in the sukuk market?

    -Islamic scholars play a critical role in the sukuk market by ensuring that sukuk issuances comply with Islamic law, particularly the prohibition of riba (interest). They provide guidance and certification on the Sharia compliance of sukuk products, which boosts investor confidence and promotes market growth.

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Related Tags
SukukIslamic financeCapital marketGlobal financeSharia complianceFinancial growthMalaysiaEconomic stabilityFinancial challengesInvestment trendsFuture prospects