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Significant progress has been
achieved in the development of the Malaysian sukuk market. In 2007, Malaysia
accounted for about two-thirds of the global sukuk outstanding, amounting to
about USD47 billion. Malaysia not only represents the largest sukuk market
in terms of outstanding size, but also in terms of number of issuance.
In developing the sukuk
market, Malaysia provides a total solution for sukuk activities by providing
a complete sukuk issuance and trading platform, that is supported by four
elements: a wide range of Islamic instruments, strong legal and regulatory
infrastructure, sound Shariah governance framework and the talent supply.
These elements are also further strengthened by Malaysia's comprehensive
Islamic financial system with all the key components of the financial system
comprising the Islamic banking, takaful, Islamic money and capital markets
that are now at an advanced stage of development. These different parts of
the Islamic financial system not only facilitates the issuance and the
distribution of the papers but also creates a strong demand for sukuk by
providing a broad investor base.
There is also a variety of Islamic instruments in the sukuk market in
Malaysia that includes currency swaps and Islamic forward contracts
available to facilitate hedging and other risk management activities. The
Malaysian Sukuk market, is also supported by appropriate rules and
regulations, and by the pool of experienced global and domestic players as
well as the legal and accounting professionals including legal and tax
consultancy, as well as documentation in the issuance and trading exercise.
In promoting Malaysia as an International Islamic Financial Centre (MIFC) we
aim to develop Malaysia into a centre for the origination, distribution and
trading of sukuks to provide further impetus to the development of an
increasingly vibrant and progressive bond market in Malaysia as well as in
the Asian region. This would reinforce the international dimension of the
sukuk market in Malaysia by providing linkages with international issuers
and investors. To deepen and widen the bond and sukuk markets, Malaysia has
further liberalised the foreign exchange administration rules to allow
multilateral financial institutions, multinational and other national
corporations to issue both ringgit and non-ringgit denominated instruments
in our capital market.
Malaysia also has in place the financial infrastructure and facilitative
rules that contribute towards efficient price discovery and shorter time to
market, thus providing an efficient platform for sukuk issuance and trading
activities. The established legal, regulatory and Shariah framework in the
Islamic financial infrastructure in Malaysia is reinforced by the supporting
financial infrastructure, including the settlement and bond information
system.
To facilitate an efficient sukuk issuance process in Malaysia, an MIFC
One-stop centre is being established as a single contact point for efficient
delivery process to facilitate the issuance of sukuk. To further facilitate
this process, there is no restriction on the ability to use international
rating services, on the ability to hedge positions and on the ability to
swap issuance proceeds into foreign currency.
As part of ongoing efforts to position Malaysia as an attractive gateway for
the issuance of sukuk, a number of legal and regulatory requirements are
further customised to reduce the cost of sukuk issuance. Profits and
dividends received by non-resident investors from holding of ringgit and
non-ringgit Islamic instruments issued in Malaysia are exempted from
withholding tax. Special Purpose Vehicles (SPV) for Islamic financing
purposes via the Islamic capital market are not subject to the
administrative procedures under the Income Tax Act 1967. In addition,
companies that establish these SPVs are given a tax deduction on the
issuance cost of the Islamic securities incurred by the SPV. The issuance
cost for all Islamic securities approved by the Securities Commission are
also eligible for tax deduction. Finally, there is a stamp duty exemption
for 10 years on instruments relating to Islamic securities under the MIFC.
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