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Islamic and Traditional Finance in Malaysia Essay

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Updated: Jun 10th, 2022

Background

  • Date of introduction: 1963.
  • First establishments: Malaysian Pilgrims Fund Board and Bank Islam Malaysia Berhad.
  • Objective: parallel operation of the Malaysian Islamic financial system and Malaysia’s conventional financial system.
  • Strategic plan: Financial Sector Master Plan (FSMP).
  • Relevant institutions: International Centre for Education in Islamic Finance (INCEIF) and Islamic Banking and Finance Institute of Malaysia (IBFIM).

It is essential to point out that the integration of Islamic financial system has a series of positive outcomes for Malaysian economy: wider general market, additional flexibility, innovative approaches, to name but a few (Rammal 189).

Strengths

  • Diversity short-term Islamic finance market instruments;
  • Leaders in global sukuk issuance;
  • Liberal domestic Islamic finance sector;
  • Exclusive stability of sharia-compliant banks contrary to conventional peers;
  • Forbidden speculations –returns are based on profit-sharing.

It is essential to note that sharia prohibits charging interest that makes the financial system more reliable and transparent (Bahru par.8). Moreover, specialists point out the fact that Malaysia has a critical competitive advantage over other players in the Islamic finance market (Pak par.6).

Weaknesses

  • Low activity of the private sector
  • Low oil and commodity cost
  • Focus on state-linked companies instead of large corporations in launching new products
  • Relatively low public awareness

According to the report of the Bank Negara Malaysia, poor public awareness creates critical obstacles for the development of consistent Islamic stock market and attracting new investors (Bank Negara Malaysia 7).

Prospects

  • Taxes reduction for issuance costs of SRI sukuk
  • Strengthening the legal and Shariah frameworks
  • Attracting new players in the domestic Islamic Finance industry
  • Generating innovative alternative solutions to meet the investment demand in Asia
  • Investing in Human capital development

The tax cutting was implemented in the new budget 2016 along with stamp duty exemption for sharia-compliant loan instruments (Chow par.5). Investing in human resources is one of the principal short-term aims in the relevant sector. There is a shortage of high-quality innovators, researchers and regulators in Malaysian financial system. Therefore, the Financial Sector Blueprint reports the necessity to ensure sustainable availability of professionals in managing financial assets (“Financial Sector Blueprint” par. 5).

Works Cited

Bahru, Johor. . 2013.

Bank Negara Malaysia. How Will the Affordable Care Act Affect Jobs? 2015. PDF file. Web.

Chow, Emily. . 2015.

Financial Sector Blueprint 2016. Web.

Pak, Jenifer. . 2012.

Rammal, Hussain. “Islamic finance: Challenges and opportunities.” Journal of Financial Services Marketing 15.1 (2010): 189-190. Print.

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IvyPanda. 2022. "Islamic and Traditional Finance in Malaysia." June 10, 2022. https://ivypanda.com/essays/islamic-and-traditional-finance-in-malaysia/.

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