Country Economic Work for Malaysia - Islamic Development Bank

construction engineering sectors are expected to see a major increment in terms of Sukuk to
be raised as Malaysia will be moving ahead with major public infrastructure projects i.e. the
Klang Valley Mass Rapid Transit, Greater Kuala Lumpur / Klang Valley development and
many other economic corridors projects.
Challenges/ Constraints for Private Sector Resource Mobilization
112. Following are the binding constraint for private sector resource mobilization in
Malaysia:
While Islamic banks worldwide have proven their resilience during the global crisis, the
supply shortage of Islamic instruments has impacted the effective management of
liquidity within Islamic banks. Recognising this, Malaysia has collaborated with other
countries to establish the International Islamic Liquidity Management Corporation (IILM) in
2010 to support cross-border liquidity management with the intent of both deepening and
broadening the global Islamic finance industry. The establishment of IILM was initiated by a
recommendation from the High Level Task Force on Liquidity Management, which was
established by the Islamic Financial Services Board Council.
Due in large part to the recent financial crisis, there has been default cases involving
Sukuk in the Islamic financial industry worldwide. A significant component of an
established global Islamic financial system has the dispute resolution framework, which is
crucial to providing the necessary assurances and strengthening confidence in the system,
especially in the event of a crisis or transaction default. As part of the effort to strengthen the
dispute resolution process for the Islamic finance industry, Malaysia has already established a
dedicated High Court in Kuala Lumpur to adjudicate Muamalat cases. As an alternative
dispute resolution channel to the court system, the Kuala Lumpur Regional Centre for
Arbitration has been enhanced to serve as a platform to deal with cases involving Islamic
finance, particularly within the Asia Pacific region. By having adopted United Nations
Commission on International Trade Law Arbitration Rules, it offers speedier settlements
relative to the court’s process and freedom to choose governing laws.
New strategy is needed to facilitate internationalisation through the widening of the
Islamic Capital Market’s international base. This includes the need to further strengthen
the capacity to structure multi-currency and cross border transactions and build greater scale
to enable Malaysian intermediaries to make greater inroads into the international market. The
transition into the mainstream of the global financial system will provide opportunities for
Malaysian market intermediaries to seek new frontiers and expand new markets, as well as
contribute towards further widening the diversity of products and services.
In order to meet the new challenges, innovation in Islamic financial system is
paramount. In this context, the Islamic financial system has to continually innovate and
adapt in order to be competitive. At the same time, innovation is also the driving force behind
developing greater diversity of products and services. Therefore, there is a need to focus on
product innovation and development efforts that will provide a comprehensive array of
Shariah-based products for the industry. While in Islamic finance, innovation has been
significantly pervasive, there is a need to further accelerate its momentum to ensure that they
achieve the objectives that they aspire. However, the challenge to innovate and adapt must
be based on the core principles and values as well as ethics of Islam.
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