MEDIA CENTRE - Welcome Remarks by John Zinkin
Monday, 7th July 2008
John Zinkin
CEO, Securities Industry Development Corporation
the Islamic Markets Programme Innovating For Growth 6-11th July 2008
Securities Commission, Kuala Lumpur
Honored Guests, Distinguished Scholars and Panelists,
Ladies and Gentleman,
Good morning everybody; and to our foreign participants, a very warm welcome indeed to Malaysia.
My name is John Zinkin, and I am privileged to serve as the Chief Executive Officer of the Securities Industry Development Corporation popularly known as SIDC. It is an honor and pleasure for me to welcome you to SIDC’s third Islamic Markets Programme.
Some of you may wonder why we are holding a third conference on Islamic Capital Markets here in Malaysia and why the SC and SIDC regard the IMP as one of their most important flagship training programmes.
There are three reasons: Islamic Capital Markets matter more than ever before globally; Malaysia is committed to retaining its global leadership position in Islamic Finance; the full potential of Islamic Capital Markets will only be realised when we have successfully trained and developed enough experts to meet the soaring demand.
Islamic Capital Markets matter more than ever
Last year I said that “the increasingly widespread acceptance of Shariah-compliant investments and instruments demonstrates that Islamic finance is being preferred not only on ethical and moral grounds by the Islamic community, but also as commercially viable alternatives in terms of product, cost and efficiency when compared against conventional finance by non-Muslims. Islamic capital markets are experiencing exceptional growth not only in the Muslim world, but also in non-Muslim countries. As a result, today Islamic finance has a presence in over 75 countries”.
That was of course before the extent of the damage caused by sub-prime on the conventional capital markets was even dreamt of. Now we have some inkling of the size of the bill – anywhere between US$400 billion and US$ 1 trillion depending on whom we listen to. The lack of a moral compass in the Wall Street model of “originate, repackage and distribute” has not only hurt conventional financial markets badly in terms of the losses incurred, but it has also cast a spotlight on the alternative approach offered by Islamic products and instruments where there is genuine asset backing that is much more transparent, so that buyers know what they are buying.
Although Islamic products may have been affected somewhat by the credit crunch in the conventional financial markets, Moody’s latest estimates suggest the market for Islamic finance is now worth about US$700 billion annually reflecting a growth rate of around 17 percent per annum1. Sukuk has grown even more dramatically. According to Goldman Sachs, global sukuk in 2006 totaled US$14 billion, while in 2007 it reached US$ 80billion – a growth of 471 percent. In Malaysia alone, approved sukuk totaled RM121.3 billion or US$ 38.4 billion – more than double the global supply just one year earlier.
The rise and acceptance of Islamic finance in the last thirty years is one of the most significant innovations the financial industry has witnessed. Much has been accomplished by addressing the financial needs of customers within the framework of underlying tenets of Islam.
Malaysia is committed to retaining global leadership
Despite increasing competition from the Gulf and the future challenge posed to Malaysia’s position by Singapore and Hong Kong, Malaysia remains the world’s leading supplier of sukuk with 62 percent of the global market in 2007 as compared with 67 percent of a nearly three times smaller market in 2006. Recently Malaysia had the largest ever sukuk, valued at US$4.7 billion which was twice oversubscribed.
This market dominance is the result of two things: an integrated regulatory approach to developing the Islamic capital market; and a continuous history of innovation.
Let me begin with the regulatory approach: the SC’s Capital Market Masterplan (CMP) launched in 2001 recognised there was a historic opportunity for Malaysia to become the third Islamic market hub with London and the Gulf. The CMP provided a strategic blueprint designed to meet the twin challenges of international competition and financial globalisation. Consequently no single sector within the Malaysian capital market has, within such a short time, received as much attention, commitment, resources and facilitation from the government and the regulators, as the ICM. In the view of Abdelkader Thomas, no other Islamic capital market can compare with Malaysia for the integrated infrastructure put in place by the regulators (SC and Bank Negara), which has been further streamlined by the establishment of the MIFC. At the heart of this approach is a unique framework for integrating the interpretation of Shariah compliance across companies and products. This is achieved through the existence of the Shariah Advisory Council advising the regulator working together with the Shariah committees or advisors at an industry level.
This brings me to the second element, continuous innovation. Malaysia set up the first Islamic bank, the first Takaful, the first Islamic REIT and the first Islamic ETF in Asia. As a result, the Malaysian Islamic capital market now has a full complement of products, infrastructure, institutions, intermediaries and investors, contributing to the development and deepening of the entire capital market. This comprehensive range of products and services includes Shariah compliant equity investment representing 86 percent of listings and 65 percent of total market capitalization; fixed income securities; derivatives and structured products as well as Islamic stock broking and fund management services, including 136 Shariah based Unit trusts with a Net Asset Value of RM 17.4 billion.
Great progress has been made, yet there is still room for further improvement as evidenced by the shortfall of supply to meet huge pent-up demand. There is a pressing need to achieve balance between demand and supply through new product introductions in addition to raising awareness of existing products in other jurisdictions. In short we are still faced with the challenge of creating more liquidity - the result of a lack of sufficient knowledge and understanding of the products that are currently available in different jurisdictions; a lack of innovative products to satisfy unmet needs; and finally a shortage of people skilled in Islamic finance to understand the opportunities and to create and market the instruments to meet them.
Training is essential if the potential is to be realised
Perhaps the biggest single obstacle to growth is the shortage of people well-versed in both Shariah and finance. The enormous growth of the market in a number of different jurisdictions with their own variations in interpreting Shariah, combined with the rapid growth of new products and services is creating increasing demand for scarce skills.
It therefore goes without saying the continued development of an ICM talent pool is indispensable for sustaining the performance, competitiveness and future growth of this sector. As a result raising the standards of our intellectual capital is a key priority on any agenda designed to meet this challenge. The ICM needs a continuous supply of innovators, regulators, intermediaries and risk managers with the right blend of capital market knowledge and understanding of Shariah principles.
And that is why the SIDC’s annual Islamic Markets Programme is of particular relevance because it represents a planned and carefully thought through process designed for creating educated and well-informed ICM practitioners.
Why “Product Innovation: Integrating Shariah and Market Needs”?
This year we have chosen to concentrate on the need for integration whilst innovating. Given the strong growth in demand for Islamic financial instruments and a shortage of satisfactory ICM products, the role of innovation in meeting client needs still remains absolutely critical. However, the rapid innovation required must be based on a profound understanding of the fundamentals and mechanics of the Islamic capital market and its instruments. Therefore the IMP covers the principles of Islamic finance on which further successful innovation and product development must be based.
As I said last year, “ICM Products must be structured so that they offer equivalent or better investment returns than their conventional rivals. However, product proliferation should aim at creating not only viable but also attractive options to investors. With more intermediaries worldwide rushing in to tap into the Islamic capital market, competition is fierce when it comes to developing new instruments that will satisfy increasingly sophisticated Islamic investors. Constructive thinking, creative product differentiation and positioning, global compatibility, credible pricing, aggressive branding and promotion will ensure that we meet competition head on with mature products to satisfy sophisticated investors. Institutions and intermediaries must take these essentials to heart when structuring innovative Shariah compliant financial instruments”. This has not changed. On the contrary, the need for creativity and innovation, global compatibility and aggressive branding has never been greater.
As a result, during the course of this program, you will not only deal with Islamic Capital Market fundamentals, concepts and mechanics, but you will also get to take away new ideas and approaches generated from discussions with our line up of distinguished ICM experts and scholars.
The programme
The IMP is designed, as always, to cater to a wide audience of both experienced practitioners and new entrants into the world of Islamic Finance.
It is an interactive programme designed to facilitate the exchange of views through presentations, case studies and panel discussions. I believe that the resulting interaction will provide ample opportunities for you to share the concerns and challenges you face in your home markets. I would encourage you to participate actively in all the sessions and freely voice your thoughts or ideas and challenge “received wisdom” in order to gain maximum benefit from the programme utilizing the unique mix of expert speakers gathered here. As the saying goes, “Learning is like life, what you get out of it, depends on what you put into it”
Given the array of experts we have here with us in this programme, I am confident that you will go back to your countries with fresh perspectives, innovative ideas and successful models to help you address issues, unique to your countries.
Please do not forget to use this opportunity to network, make new friends, and reconnect with old friends; for only by fostering an active interchange of ideas and experiences and by building a strong international network of expertise will we be able to create the climate of innovation and collaboration needed to produce the new instruments necessary to satisfy the demands of sophisticated Islamic capital market participants.
Conclusion
I hope that this introduction to the week has whetted your appetites to learn more. I am sure you will have much to share and learn from the speakers, and from each other.
Distinguished speakers, practitioners and experts, please accept our deepest appreciation for taking time out of your busy schedules to share your experiences and views with the participants of this programme.
A special note of thanks is due to our course director Mr. Wan Rahim for all his efforts in putting this program together and agreeing to coordinate the programme sessions.
Let me not keep you any longer from the programme we have prepared for you. I hope all of you have a fruitful and rewarding week, and a memorable stay in Kuala Lumpur and I look forward to seeing you again next year.
1Goldman Sachs expect the market to be worth US$1.3 trillion by 2012