Malaysia’s Super Power Status In Islamic Finance Facing Challenge

If we focus on Islamic capital market development, Malaysia is once again a long way ahead of its competitors. The country boasts more than 60% of the global sukuk market amounting to US $164 billion worth of outstanding sukuk in the first half of 2014. London on the other hand has US$38 billion of outstanding sukuk raised through 53 issues on the London Stock Exchange since 2009. Dubai fares the worst with just US$21.08 billion as of May 2014 in sukuk on its exchanges. In fact state- owned companies in the UAE have gone to London to seek further capital.

As for the future of Islamic finance in relation to the Islamic finance education infrastructure, the UK is actually ahead of the game. The UK has been ranked as the global leader in Islamic finance education with more than 60 institutions offering Islamic finance courses and 22 universities offering degree programs specializing in Islamic finance. Malaysia and the UAE follows suit.

Malaysia has 50 course providers and 18 universities offering degree programs, while the UAE has 31 course providers and nine universities offering degree programs. But when it comes to research output in Islamic finance, Malaysia stood first with more than 100 peer-reviewed research papers released in the past three years. The UK followed with 56 peer reviewed research papers and there was no data available for the UAE.

Based on the above observations, it is apparent that Malaysia is still the superpower of Islamic finance. But with the recent developments in the rival centers this position is going to be under continuous threat. The Islamic Development Bank has set up a US$10 billion sukuk issuance program on the Nasdaq Dubai exchange that will be a big boost to Dubai’s efforts to become a top center for Islamic finance.

And London, which is already a global financial center, is making its moves to bolster Islamic finance from education to cultivating relationships with Muslim banks and investors.

David Cameron recently said “London is already the biggest center for Islamic finance outside the Islamic world … I want London to stand alongside Dubai and Kuala Lumpur as one of the greatest capitals of Islamic finance anywhere in the world.”

London followed this up by launching a £200m sukuk in June 2014 and a groundbreaking new Islamic index on the London Stock Exchange. But can the non-Muslim power really challenge the traditional centers?

Malaysia, however, still has the advantage of a vibrant market in sukuk issuance, thanks to the Islamic hinterland of southeast Asia and its good reputation for a strong and robust Islamic finance regulation. So, it’s not a surprise that other international banks are going there to do business. And we can expect this to continue for the foreseeable future. But how Malaysia reacts to its competitors and maintain its position is another matter.

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