Malaysia's Strength in the Sukuk Market

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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