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Malaysian banks urged to set up Islamic financial institutions abroad

KUALA LUMPUR: Malaysian Islamic financial institutions (FI) are strongly urged to set up offices abroad, especially in Gulf Cooperation Council (GCC) countries to take a bigger slice of the oil money.

The oil windfall already has the new generation of Gulf leaders coming up with more investments and economic development plans to channel the excess liquidity.

“When it comes to infrastructure alone, there’s US$600 billion worth of project financing to be done in GCC for the next few years,” said Dubai International Financial Centre (DIFC) executive director of Islamic Finance, Nik Norishky Thani.

DIFC is one of the fastest-growing financial centres. A full-fledged onshore capital market, it offers participants 100% foreign ownership and zero tax on income and profits as part of its many financial incentives.

Speaking to The Edge Financial Daily, Nik Norishky said Islamic finance’s year-on-year average growth of 15%-20% had powerhouses such as HSBC Bank, Citigroup, Barclays, JPMorgan and Standard Chartered Bank setting up headquarters in DIFC.

He said global Islamic finance (IF) was expected to grow to US$1.4 trillion in 2010 from US$800 billion currently.

“We need to come up with more investment products, so that the petrol money can go somewhere. It’s a question of demand meeting supply and right now there’s a lot of demand. Where this liquidity goes to is not quite there yet,” he said.

“When it comes to IF, there’s not enough fixed income instruments out there for IF to grab on to. You find that whenever sukuks are issued, they are pretty much taken up,” said Nik Norishky.

“It’s oversubscribed multiple times. So the money has to go somewhere. It goes to Commodity Mudarabah as the last form of alternative in the money market,” he added.

A Malaysian, Nik Norishky urged the country to be a more pro-active global player in IF.

“In any IF conference, Malaysia would always be mentioned as the leader in this industry with cutting-edge approach,” he said.

“Hence when other competing financial centres start to develop IF, they look to Malaysia for the skills. So our talents, especially in Islamic finance, are being exported and doing very well abroad,” said Nik Norishky.

He said he learnt that there were an estimated 1,300 to 1,600 Malaysian bankers working in the GCC.

To reverse the brain drain, he said Malaysian FI needed to venture abroad and the Malaysia Islamic Financial Centre (MIFC) was the perfect platform for competing in the international market.

Malaysian Islamic FI needed to “export” their expertise and products to progress, said Nik Norishky.

“Use your MIFC springboard to export your product and it can be hosted easily in DIFC,” he said.

“Out of the 300 financial institutions in DIFC, 10% are actively involved in IF. The products that they come up with are pretty much the same products we’ve been coming up with for donkey years but they are out there while we are still pedalling our goods here,” he said.

“Look at what KFH (Kuwait Finance House Bhd), Al Rajhi Bank and AFB (Asian Finance Bank) did and how successful their brands are in Malaysia. Al Rajhi, for example, never ventured beyond the Saudi shores,” said Nik Norishky.

However, a strong presence and branding was needed when Malaysia decided to venture into GCC, he stressed.

“Don’t go in with just a three-man team because you would be competing with the likes of Barclays, HSBC, JPMorgan and UBS. These big players have set up headquarters for IF activities there and they have their best guys. You would be a non-starter,” said Nik Norishky.

“If a Malaysian Islamic FI expands business abroad but takes this approach more as an afterthought rather than a serious expansion, they would not be able to compete with them,” he added.

“We need to think outside the box and go out there with our expertise. You do that, and you’ll start to see Malaysians abroad coming back for the action.

“Remember back in the late 90s, when we kept talking about globalisation? Globalisation is on us now but somehow we have not really gotten up for it. We needto evolve.”

by Lu Jing Shia

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