Our presence in the global Islamic finance system has made its mark largely in the global sukuk market, where we have sustained our position as the market leader with market share of more than 50% over the last 10 years. Domestically, our achievements have placed the Malaysian Islamic finance industry at the forefront. Islamic finance continues to grow, but as it matures and enters the mainstream, the days of double digit annual growth are now behind us. Beyond headline numbers, the industry must now seize opportunities in new growth areas; reinforce the core strengths of Islamic finance; unlock its potential; and realise its intended promises. Aspiration for Islamic finance (IF) The question is – what lies in the road ahead for Islamic finance? I would like to highlight three trends that are sweeping the world, which in turn offer opportunities for the Islamic finance industry to capitalise on. First – is the rise of entrepreneurship. Second – is the growing interest in halal economy; and Third – the global large infrastructure financing needs. Rise of entrepreneurship Starting with the first trend on the rise of entrepreneurship – All around the world, we are seeing more small businesses and start-ups being set up accounting for about 90% of businesses and over 50% of employment worldwide3. These SMEs have become key engines of job creation and economic growth in developing countries, particularly following the global financial crisis. With the rise of the digital economy the SME ecosystem is also expanding with increasing number of new technology start-ups.
In 2016, Shariah-compliant trade finance accounted for 24.1% of total trade finance provided by the Malaysian banking sector. However, our Islamic finance industry only financed about 5% of total exports in Malaysia, again, signifying an untapped growth area with large potential. Increasing bank financing for SMEs would also encourage more market based solutions to meet the funding needs of the halal sector participants, which are now largely reliant on government initiatives. There are however a number of challenges that may impede trade finance facilitation by Islamic finance players. I would like to highlight two. First is – “process inefficiencies” – that can contribute to higher operational risks such as fraud. This can be mitigated through use of technology that reduces reliance on traditionally document-intensive and multi-tiered manual processes. In Malaysia, I am happy to note that six Islamic banks have embarked on digitalisation of trade finance processes – through an integrated web-based platform that offers trade finance and working capital management solutions. The second challenge is, – the need to improve connectivity between the Islamic finance industry and the international trade community – to facilitate effective intermediation of trade finance needs. Again, the use of technology can ease the application and submission of trade-related information and documents which can expedite the whole process. If these challenges are not addressed, industry players are at risk of becoming irrelevant in the trade finance space.