Malaysia’s central bank is ramping up efforts to position this Southeast Asian Muslim nation as a global gateway for Islamic investments, focusing on the need for further innovation of Shariah compliant financial instruments and to also achieve mutual recognition for Islamic standards.
“The Malaysian Sukuk market stands to benefit from increased foreign investments, which would boost market liquidity and help bridge the gap between conventional and Islamic financial instruments,” Bank Negara Malaysia (BNM) said in its 2024 annual report.
To expand the array of Islamic instruments available to investors, including the Malaysian Government Investment Issues, BNM confirmed that the inaugural Wakalah Bi Al-Khadamat (agency for service) Sukuk will be issued this year.
Announced in May 2024, this instrument structure serves as an alternative to Murabahah – “aligning with both progressive Shariah interpretations and international market standards”.
Continuing to promote the issuance of green and SRI Sukuk to meet financing needs in renewable energy, biodiversity and public infrastructure projects, BNM noted that Malaysia experienced a significant growth in SRI Sukuk issuances – reaching RM11.9 billion (US$2.69 billion) in 2024. “This represents an almost ninefold increase since the Sukuk’s initial introduction in 2017.”
Other steps to broaden Shariah investment offerings include creating Waqf-based Sukuk to fund community and infrastructure projects, said BNM.
Acknowledging hurdles due to differing Shariah standards across jurisdictions, BNM said engagement via the Centralised Shariah Authorities Forum, AAOIFI and the IsDB is critical to articulate Malaysia’s Shariah applications and positions – to gain recognition and acceptance.
“While eliminating all differences may not be feasible as it could remove the uniqueness of Shariah itself, finding common ground is essential… These collaborations strive to balance local diversity with global applicability, thereby ensuring inclusivity and facilitating broader market integration.”
Other Shariah investment assets reported by BNM are in the domestic Takaful sector – with an estimated total value of RM59.68 billion (US$13.47 billion) at the end of 2024 – making up 13.9% of the overall Malaysian insurance sector.
Family Takaful assets formed the bulk at RM51.65 billion (US$11.66 billion) while general Takaful assets contributed RM8.04 billion (US$1.81 billion).
The ratio of Takaful to conventional assets has stayed roughly the same in the preceding two years, where total Takaful assets stood at RM49.86 billion (US$11.26 billion) at the end of 2022 and RM55.63 billion (US$12.56 billion) at the end of 2023.
