Malaysia needs ‘Islamic economy’ to avoid stagnation

By Tanu Pandey, The Malaysia Reserve

Malaysia should develop a strong Islamic economic system to beef up its leading role in Islamic banking and finance, if it wants to avoid stagnation in the related sectors, said a local industry expert.

IBFIMIslamic Banking & Finance Institute (IBFIM) CEO Datuk Dr Adnan Alias said this new framework is necessary in order to bring about greater awareness and promotion of the Islamic banking and finance sectors.

Adnan believes that Islamic economics, the foundation for the other two facets of the industry — Islamic finance and Islamic entrepreneurship — has not been developed in the country and that may be leading to stagnation.

“Malaysia is heading towards stagnation as there is no innovation in the sector. We need to develop and unlock the system of Islamic economics to beef up the system,” Adnan said.

As a result, there is this opportunity for United Arab Emirates (UAE) to take that position with innovative products.

“So, we need structural reforms,” he said to The Malaysian Reserve in an interview. In December last year, Dubai promulgated a law to establish a ‘Dubai Islamic Economy Development Centre’.

The aim of the centre is to promote the emirate of Dubai as a global capital of Islamic economy, with the promotion of economic activities compatible with Islamic law in goods and financial services sectors, as well as the non-financial sector as a main pillar on which the economy of the UAE is based.

Nevertheless, Adnan said Islamic finance experts across the globe have started to feel the lack of innovative products and development of the fundamentals, putting at risk Malaysia’s pole position in the industry.

There are a number of areas in the Islamic finance that the country has not explored. The concepts of Infaq Islamic (donations made for exemplary returns), Adnan said has not been touched upon. Among other areas that also need to be explored is Musharaka (Islamic equal for venture capitalism).

“We have to make the Islamic economics as an agenda,” he stressed.

Among other challenges faced by the Islamic finance sector, he said, is the mindset of professionals in the industry who bring with them the conventional paradigm of banking and commercial finance when they migrate to Islamic finance institutions.

“ I do not blame the CEOs or CFOs too. They are caught between the two aspects,” he added.

However, the country has made progress in terms of creating a talent pool for the Islamic finance sector. With industry qualifications, training programmes and accreditation in place, Bank Negara Malaysia (BNM) has taken initiatives to develop the pool.

“This year there will also be a professional services body for the Islamic finance sector. BNM is working on it,” he said.

IBFIM is also running special programmes to train professionals in the field, Adnan pointed out.