MORE PROFITABLE THAN THOU

Malaysia 2017 | FINANCE | INTERVIEW

TBY talks to Datuk Johari Abdul Ghani, Minister of Finance II, on the potential of Islamic banking, building a sharia-compliant marketplace, and Islamic wealth management.

 Datuk Johari Abdul Ghani
BIOGRAPHY
Datuk Johari Abdul Ghani started his career as an auditor at the international accounting firm, Peat Marwick & Co. (now KPMG). He has held key positions in several companies listed on the KLSE, especially in fast food industries, manufacturing, and agriculture. Prior to his appointment as Deputy Minister of Finance in June 2016, he served as the Group Managing Director of C.I. Holdings and Chairman of UDA Holdings. He has been active in politics for more than 28 years and was appointed as a Supreme Council Member of the UMNE. He obtained a degree in accounting from Institut Teknologi MARA, before continuing his studies in the UK, where he became a member of the Chartered Association of Certified Accountants.

Malaysia holds more than a quarter of the world's Islamic assets. What is your vision for moving the industry forward and making Malaysia the global driving force?

Malaysia's decades of work in Islamic finance has created a leadership position and led to the mainstreaming of the industry globally. In the Malaysian context, Islamic finance has become a key segment in the domestic financial system. Islamic banking assets now stand at about 27% of total banking system assets, surpassing the 20% target as originally intended in Bank Negara's Financial Sector Masterplan. There is also greater acceptance of takaful, with its increased penetration rate to 14.8% of the population. Backed by a robust sharia screening methodology, more than 70% of total listed securities in the country are sharia compliant, thus providing a wide array of selection for investors. Globally, Malaysia, with a consistent global sukuk market share of more than 50%, over the last 10 years, has sustained its position as the market leader. Progress is also evident in our agenda toward becoming the center for Islamic fund and wealth management. We emerged as the largest hub, with 35% market share and the highest number of Islamic funds. While achievements in various market segments have placed us at the forefront, more ground-breaking initiatives are needed to seize the opportunities in new growth areas and to re-energize the industry. An honest assessment of the existing business models and product offerings must be undertaken to recognize gaps and issues, which is a crucial step toward realizing the true value propositions of Islamic finance. The Malaysian brand of Islamic finance must also transcend beyond borders and beliefs as the industry has become part of growth strategies of global financial players, indicating greater appreciation of its value proposition. This is evident by the increasing presence of global banking players from diversified regions, including Japan, Europe, and the Middle East, in Malaysia.

Recently, Bursa Malaysia launched the Bursa-I platform, creating a sharia-compliant marketplace. What are your thoughts here?

It is worth noting that sharia-based equity investing has become a significant contributor to the growth of the domestic equity market in the past decade. Sharia-compliant securities in Bursa Malaysia now amounted to MYR1.1 trillion and account for about 64% of total market capitalization. Continued efforts and initiatives of the Securities Commission Malaysia as well as its Sharia Advisory Council not only have played an invaluable role in enhancing the depth and breadth of the Islamic capital markets but also facilitating the development of innovative products that we have today, such as Islamic REITs, Islamic ETFs, and retail sukuk. As such, it is encouraging to see Bursa Malaysia taking this leading role in strengthening the ecosystem by championing exchange-based, sharia-compliant investing and providing new options for those who wish to invest based on the principles of Islamic finance. Indeed, principled investing practices based on sharia are one part of the equation to living life responsibly, through investing responsibly. It is envisaged that this new platform will position Bursa Malaysia as the leading exchange in the Islamic capital market for sharia investments, and to be globally recognized as “The Marketplace" for sharia-compliant trading activities among domestic, regional, and global issuers and investors.

What role do you envision for Malaysia in driving Islamic finance across ASEAN?

Further intensification of financial linkages within the ASEAN region will indeed position Malaysia in good place to reap the benefits from the recently envisioned ASEAN Economic Community. ASEAN is home to a rapidly growing capital market, in which total market capitalization amounted to about USD2.3 trillion or 90% of GDP in 2015. With ASEAN households having one of the highest savings rates at about 30%, there is tremendous opportunity to bring sharia-based financial services to the 600 million people in ASEAN. Malaysia is now positioned at the forefront of international developments with increasing connectivity between financial centers, and more cross-border Islamic financial transactions.